ivil Appeal Nos 657 of 1979  2117 21 of 1977
From the Judgment and Order dated 2011978  651976 of Allahabad High Court in Income Tax Rule No 50274 and Income Tax Reference No 827 of 1973
SBL Srivastava Manoj Swarup and Lalita Kohli for the Appellants
J Ram Murthy KP Bhatnagar and Ms A Subhashini for the Respondent
The Judgment of the Court was delivered by K JAGANNATHA SHETTY J
The common question which arises for decision in these appeals by special leave is whether the interest paid on a debit balance of Rs 175310 taken over by the assessee firm from the erstwhile Hindu Undivided Family HUF would be an allowable deduction under Section 361 iii of the Income Tax Act 1922
922 The partners of the firm were members of the HUF which carried on business at Varanasi in the name of Ms Badal Ram Laxmi Narain
The family had no capital of its own and had been running business with the help of borrowed money
On 20 October 1951 there was partial partition in the family
As a result whereof the business of the family was partitioned between the members of the family
The members formed themselves into partnership and continued the same business
On the date of partition there was a debit balance of Rs 175310 in the capital account of the family
This debit balance was transferred in equal proportion to the personal accounts of the three partners of the firm
The newly formed firm took over the business assets as well as liabilities of the HUF
The question arose as to whether the interest paid by the firm on the said debit balance was an allowable deduction in the computation of its income One of the contentions urged for the firm was that the debit balance was taken over by the firm in consideration of the goodwill of the business
The Appellate Assistant Commissioner had held that the HUF business had no goodwill
The Tribunal did not agree with the Appellate Assistant Commissioner
It has observed that the business of the HUF was of a very long standing and the previous years returns and assessment of income prior to the date of partition indicated that the HUF had flourishing business
Since the running business was taken over by the assessee with the debit balance the Tribunal expressed the view that the firm could be deemed to have taken the liability of Rs 175310 in consideration of the sale of goodwill and the interest paid thereon was an allowable deduction
The following question of law was referred to the High Court
Whether on the facts and in the circumstances of the case the assessee was entitled to the deduction of interest on a debit balance of Rs175310 taken over from the erstwhile Hindu Undivided Family The High Court examined the facts of the case to find out whether there was any sale of the goodwill
It observed that the goodwill of the HUF business was never sold or purchased
Had there been any such transaction appropriate entries in the books of account of the HUF would have been made
The HUF should have credited the amount in its account in respect of the price paid for the goodwill and since there was no such entries there could not be any inference that the firm has taken over the liability of Rs 175310 for the sale of goodwill
The High Court also has observed that the partners of the 923 firm were bound to take over the liability of HUF because the liability was that of the family of which they were members and on partition every member became liable to discharge the debt according to his share
Clause iii of Section 361 applies only where capital has been borrowed for the purposes of the business or profession
The amount of interest paid on the borrowed capital is an allowable deduction
It is not in dispute and indeed cannot be disputed that if the goodwill is purchased out of the borrowed capital the interest paid on the borrowed capital is an allowable deduction
The Tribunal has correlated the debit balance to the purchase of goodwill since the firm has taken over the running business
The High Court has held that there was no sale of goodwill by the HUF to the firm in view of the absence of related entries in the books of account of HUF
The conclusion of the High Court seems to be as much an inference as that of the Tribunal on the same set of facts and circumstances
It is important to point out that there was only a partial partition in the family particularly with regard to HUF business
It was not necessary for the firm to have taken over the debit balance of the HUF since the HUF had other properties
The conclusion of the Tribunal that the firm has taken over the debit balance of Rs175310 in consideration of the sale of the goodwill in the premises stands to reason
Indeed it seems to be neither unreasonable or unwarranted nor arbitrary or unjust
The High Court ought not to interfere with such conclusion even if another view is possible
The second reason given by the High Court is also not acceptable
we are concerned with the rights of the assessee and not the liability of the individual members of the HUF
The claim of the assessee for allowable deduction of the interest paid cannot be defeated by the existence of personal liability of the members of the HUF
That is wholly beside the point
We are therefore unable to sustain the order of the High Court
In the result the appeal are allowed and the decision of the High Court is set aside
The question referred to the High Court in each case is answered in favour of the assessee and against the revenue
The assessee shall be entitled to one set of costs in this Court
NPV Appeals allowed


Summary:
Gift to certain movable assets was made to the respondent assessee by a Muslim businessman when he was seriously ill and died of the illness after six weeks of the execution of the document
In gift tax assessment proceedings the assessee claimed exemption for this gift under Section 51xi of the Gift Tax Act 1958 on the ground that the gift was made in contemplation of death
The Gift Tax Officer rejected the claim
But on appeal the Appellate Assistant Commissioner allowed the exemption relying on the circumstances under which the gift was made and the events followed thereafter and the evidence of the Sub Registrar who was brought to residence for effecting registration and the doctor who was treating the donor
On appeal by the Gift Tax Officer the Tribunal affirmed the finding of the Appellate Assistant Commissioner regarding the donor s illness but did not allow the exemption on the ground that though there was delivery of possession of the gifted movables the gift was unconditional and absolute since it had not been specifically expressed or impliedly present in the deed that the gift must revert back in the event of the donor recovering from illness and that the gifted property had to be kept as a gift in case the donor died of his illness
However on a reference made at the instance of the assessee for opinion the High Court held that such a condition need not be mentioned in the deed and 847 it could be inferred from the attending circumstances of the gift and since the donor was actually sick at the time of execution of the deed and died of the same illness without recovery after a short period the gift in question was made in contemplation of death and therefore entitled to exemption from tax under Section 51xi of the Act
In the appeal before this Court on behalf of the Department it was contended that the gift in contemplation of death should be conditional and in the absence of indications in the document to the effect that if the donor did not die he should be entitled to remain in complete domination of the gifted property the gift would become inter vivos and absolute and that the exemption under Section 51xi of the Gift Tax Act was not available to the assessee since Section 191 of the Indian Succession Act was not applicable to marz ul maut gift
Dismissing the appeal by the Department this Court HELD 11 Explanation d to sub section 2 of Section 5 of the Gift Tax Act 1958 states that a gift made in contemplation of death has the same meaning as in Section 191 of the 
The requirements of a gift in contemplation of death as laid down by Section 191 are i the gift must be of movable property ii it must be made in contemplation of death iii the donor must be ill and he expects to die shortly of the illness iv possession of the property should be delivered to the done and v the gift does not effect if the donor recovers from the illness or the donee predeceases the donor
These requirements are similar to the constituent elements of a valid donatio martis causa
853C E Cain vs Moon  286 referred to 12
In the instant case all the conditions prescribed except perhaps the last one are found present by the fact finding authorities
853G 13
The recitals in the deed of gift are not conclusive to determine the nature and validity of the gift
The party may produce evidence aliunde to prove that the donor gifted the property when he was seriously ill and contemplating his death with no hope of recovery
These factors in conjunction with the factum of death of the donor may be sufficient to infer that the gift was made in contemplation of death
It is implicit in such circumstances that the donee becomes the owner of the gifted property only if the donor dies of the illness and if the donor recovers from the illness the recovery itself operates as a revocation of the gift
854B C 848 14 It is not necessary to state in the gift deed that donee becomes owner of the property only upon the death of the donor
Nor it is necessary to specify that the gift is liable to be revoked upon the donor s recovery from the illness
The law acknowledges these conditions from the circumstances under which the gift is made
854C D Halsbury s Laws of England 4th Edn
20 p 41 para 67 Jerman on Wills 8th Edn
Vol 1 p 46 47 Williams on Executors and Administrators 14th Edn
p 315 and Corpus Juris Secundum vol
38 p 782 and p 917 para 110 referred to
15 In the light of this and in view of the findings recorded by the Tribunal about the serious sickness of the donor and his state of mind at the time of making the gift in question it can be reasonably concluded that the gift was not absolute and irrevocable
On the contrary it would be legitimate to infer that the gift was in contemplation of death
any other view would be inappropriate
856A B 21 Marz ul maut is also entitled to exemption from gift tax under Section 51xi of the Gift Tax Act 1958
856B 22 The exemption to gift in contemplation of death is provided under Section 51xi of the Gift Tax Act and not under Section 191 of the  Section 191 furnishes only the meaning or requirements of gift in contemplation of death
It a gift in contemplation of death is recognised by the personal law of parties satisfying the conditions contemplated under Section 191 of the  cannot be denied exemption under Section 51xi of the Act Even assuming that Section 191 as such will not be applicable to the parties
856C D 23 Under Mohammedan Law gift made during marz ul maut death bed illness is subject to very strict scrutiny and subject to all other conditions necessary for the validity of a hiba or gift including delivery of possession of the donor to the donee
856D Mulla s Mohammedan Law pp 111 Sections 135  136 referred to
24 Marz ul maut is a malady which induces an apprehension of death inthe person suffering from it and which eventually results in his death
There are three tests laid down to determine whether illness is to be regarded as marz ul maut
They are i Proximate danger of death 849 so that there is preponderance of khauf or apprehension that at the given time death must be more probable than life
2 There must be some degree of subjective apprehension of death in the mind of the sick person
3 There must be external indicia chief among which would be the inability to attend to ordinary avocations
856E F Rashid Karmalli and anr
vs Sherbanoo 1907 31 ILR Bombay 2641 referred to
25 Therefore under the Principles of Mohammedan Law the gift made in marz ul maut could be regarded as gift made in contemplation of death since it has all the requisites prescribed under Section 191 of the 
The only limitation is that the disposition is restricted to a third on account of the right of the heirs
857C D Syed Ameer Ali Mohammedan Law Vol 1 4th Edn
1985 p 59 60 referred to