MANU/SC/0356/1987

Equivalent Citation: AIR1 987 SC7 85 , (1 987 )60CTR(SC)1 1 5 , 1 987 INSC 30, [1 987 ]1 65 ITR36(SC), JT1 987 (1 )SC340, 1 987 (1 )SCALE225 ,
(1 987 )2SCC84, [1 987 ]2SCR1 21 , [1 987 ]30TAXMAN5 46(SC), 1 987 (1 )UJ45 9

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 1713 (NT) of 1973

Assessment Year: 1957-1958

Decided On: 03.02.1987

Appellants: Commissioner of Income Tax, Kanpur Vs. Respondent:

R.S. Gupta

Hon'ble Judges/Coram:
S. Natarajan and Sabyasachi Mukherjee, JJ.

Counsels:
For Appellant/Petitioner/Plaintiff: S.C. Manchanda and A.
Subhashini, Advs

For Respondents/Defendant:Party in Person

JUDGMENT

Sabyasachi Mukherjee, J.

1 . The appeal under Section 29(1) of the Wealth-tax Act, 1957

(hereinafter called the Act) is directed against the judgment and order
of the High Court of Allahabad dated 6th of January 1971. The
questions involved before the Allahabad High Court in the reference
under Section 27(1) of the Act were as follows:
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 (1) Whether, on the facts and in the circumstances of the case,
the Tribunal rightly held that the assessee did not make valid
gifts aggregating Rs. 1,50,000 on 1.1.1957?

(2) Whether, on the facts and in the circumstances of the case,

the Tribunal rightly held that the assessee did not validly assign
Rs. 1,50,000 in favour of his sons and grand sons by his letter
dated 1.1.1957?

(3) Whether, on the facts and in the circumstances of the case,

the Tribunal rightly held that the sum of Rs. 1,50,000 was
properly included in the assessee's net wealth?

(4) Whether, on the facts and in the circumstances of the case,

the Tribunal rightly held that the assessee did not make valid
gifts aggregating Rs. 67,560/12/-?

(5) Whether, on the facts and in the circumstances of the case,

the Tribunal rightly held that the sum of Rs. 67,560/12/- was
rightly included in the net wealth of the assessee?

2 . The case relates to the assessment year 1957-58 and the relevant
date of valuation was 31st March, 1957. The assessee, Dr. R.S. Gupta
had maintained an account in the books of Messrs. Tika Ram and Sons
Pvt. Ltd. On 1st January, 1957, the account showed a credit of Rs.
1,50,740. On that day, the assessee had addressed a letter to the
Company stating that he had decided to gift away for love and
affection various sums to the following persons:

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By that letter the assessee had directed the Company to debit his
account to the extent of Rs. 1,50,000 and credit the respective amounts
in the names of the aforesaid persons. It appears further that copies of
this letter were sent to one Om Prakash Gupta and Ved Prakash Gupta.
There was no dispute that instructions of the assessee were carried out
by the Company and relevant debit and credit entries were made in the
respective accounts. On the same day, i.e. on 1st January, 1957, Om
Parkash Gupta wrote to the assessee, his father, thanking him for the
gift of Rs. 25,000 made in his favour and the gift of Rs. 50,000 in
favour of his son Pravin. A similar letter was written by Ved Prakash
thanking the assessee, his father, for the gift of Rs. 25,000 made to
him and Rs. 50,000 gifted to his son. It must be mentioned, however,
that the company i.e. Messrs Tika Ram and Sons. Pvt. Ltd. was stated
to be running an oil mill and carrying on business as grain tillers,
contractors and brick-kiln owners. It was also stated to be carrying on
business of advancing money and taking money on loan when
necessary. But it appears that it was admitted position that Tika Ram
& Sons had a cash balance of Rs. 4000 only on 1.1.1957 and it did not
have any overdraft facilities with any bank. The respective donees were
stated to have later on withdrawn amounts from the amounts so
transferred to their accounts. The assessee contended that a total sum
of Rs. 1,50,000 was validly gifted by him to his sons and grand sons
and hence the amounts had been wrongly included in his net wealth by
the Income-Tax Officer and the Appellate Assistant Commissioner. It
was his contention that Tika Ram & Sons carried on the business of
banking and hence the gifts were valid. But there was no evidence that
Tika Ram and Sons were carrying on any banking business.

3. The Tribunal held that they were not carrying on banking business.
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The main question therefore that falls for consideration is whether
gifts in question made by transfer entries in the books of debtor
company were valid gifts even though the debtor company was not
carrying on business of banking and had no cash in hand for the
amount in question on that date. Gift is defined in Section 122 of the
Transfer of Property Act, 1882 as transfer of certain existing movable
or immovable property made voluntarily and without consideration by
one person, called the donor, to another, called the donee, and
accepted by or on behalf of the donee. Section 123 of the said Act deals
with how transfers are effected and stipulates, inter alia, that for the
purpose of making a gift of movable property as in this case, the
transfer must be effected either by a registered instrument signed by
the donor and attested or by delivery. Such delivery may be made in
the same way as goods sold may be delivered.

4 . The next contention was regarding the inclusion of net wealth a

sum of Rs. 67,560/12/- standing to the credit of the assessee in the
books of M/s. Pearls & Beads. The assessee claimed to have gifted the
said amounts by transfer entries in the books of M/s. Pearls & Beads
on 30th March, 1957. No letter as in the previous case was addressed
by the assessee but only oral instructions were said to have been given.
The Tribunal held that there was no valid gifts. There was no evidence,
it appears, that the said sum was available with the said firm of M/s.
Pearls & Beads.

5. The High Court in view of the decision of the Division Bench of the
Allahabad High Court in the case of Gopal Raj Swamp v.
Commissioner of Wealth-tax, Lucknow, MANU/UP/0159/1970 :
[1970]77ITR912(All) answered the first question in the negative and so
far as the second question is concerned, it declined to answer as it did
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not arise in view of the answer given to the first question and the
questions Nos. 3,4 and 5 were answered in the negative. Aggrieved by
the said decision, the revenue has come up in appeal.

6. In order to constitute a valid gift there must be an existing property.

In case of entries in the books of account by credit and debit, the sums
should be available on the date of gift in the account of the firm whose
accounts are said to be credited or debited. In the case of banking
companies or other firms and companies who have overdraft facilities,
even if the sums are not in credit of the donor and are not with such
companies or firms, gifts might be possible by adjustment of the book
entries. But in the cases of non-banking companies or firms, if these
companies or firms do not have overdraft facilities, it is not possible to
make valid gift if sums or funds are not available. This question has
been examined by the various High Courts.

7. It is possible in certain circumstances for a donor to make a valid

gift by instructing a firm or a company or a H.U.F. in which the donor
has an account to give effect to the gift by debiting his account and
crediting the account in the name of the donee. But in such cases
merely books entries would not suffice. The circumstances must be
such as to make it clear that there were sufficient funds at the disposal
of the donor by reason of which he could make the gift by such book
entries. The firm in which the donor may have account may or may not
have sufficient cash balance but it must have sufficient provision for
overdraft with the bank on the basis it could honour instructions given
by the assessee. This position of law has been referred to and
reiterated by the Bench decision of the Delhi High Court in the case of
India Glass Agency v. Commissioner of Income-Tax, New Delhi,

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 MANU/DE/0310/1981 : [1982]137ITR245(Delhi) . Justice
Ranganathan of the Delhi High Court after referring to several
authorities has observed that book entries may be sufficient only when
circumstances make it clear that the gift was genuine and the firms
where accounts transfer are effected must have sufficient cash in hand
or sufficient provision for overdraft facility upon the basis of which it
would honour the instructions given by the assessee. The assessee
must also have sufficient credit balance to enable him to make the gift.
Reference may also be made for this proposition to the decision of the
Delhi High Court in New India Colour Co. v. Commissioner of Income-
Tax, New Delhi, MANU/DE/0019/1971 : [1971]80ITR206(Delhi)

8. The effect of the two aforesaid decisions of the learned judges of the
Delhi High Court indicates that in case there was not sufficient cash
balance from out of which the amount gifted could be physically given
to the donee, more entries in the books of account in the form would
not constitute delivery of possession over the gifted property to the
donee and gift in such case will not be valid. The position, however,
might be different if such firms or companies or H.U.F. in whose
accounts gifts are effected have overdraft facilities.

9. The Calcutta High Court had occasion to discuss this aspect in the
case of Commissioner of Income-Tax, West Bengal III v. Ashok Glass
Works, MANU/WB/0147/1974 : [1976]103ITR379(Cal) . There it was
held on facts that the entries had been made contemporaneously
showed that the transaction was genuine and there was no suggestion
that the interests which were credited in the accounts of the minor
donees by the firm which carried on money-lending business also were
fictitious. The Tribunal therefore, it was found, rightly held that the
gifts were valid and the interest paid in respect of the accounts
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standing in the name of the donees was allowable as a deduction in
the hands of the assessee firm.

1 0 . The Calcutta High Court had to consider this in the case of

Commissioner of Gift-Tax, West Bengal III v. Tarachand Maghraj,
MANU/WB/0149/1976 : [1977]109ITR775(Cal) . There the High
Court after discussing various decisions including certain decisions of
the Allahabad High Court which we shall presently note and the
provisions of Section 122 of the Transfer of Property Act, 1882, and the
Sale of Goods Act, held that under Section 123 of the Transfer of
Property Act, in case of gift of movable property, the transfer may be
effected by delivery. Such delivery may be in the same way as goods
sold may be delivered. Section 33 of the Sale of goods Act permitted
the parties to deliver by any manner or method which the parties
agreed would be treated as delivery or which had the effect of putting
the goods in the possession of the buyer. In that case, it was found that
the effect of the transaction in that case was to put the amounts in the
possession of the assessee who was authorised to hold the amounts on
behalf of the donees which resulted in a delivery of the amounts within
the meaning of the Sale of Goods Act. The Court, however, pointed out
that it was held that there was no valid gift on the date of the entries,
then it could not be held that, subsequently, when the money was
transferred by further entries in the same books, it resulted in a valid
gift.

11. In the instant case before us and we have noted and we reiterate
only a sum which could be taken by the donees was Rs. 4000 in
Messrs Tika Ram & Sons Pvt. Ltd. and there was no overdraft facility
of Tika Ram & Sons with any bank. In that view of the matter, there

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was no existing goods to be parted.

12. Before the Bombay High Court, in the case of Chimanbhai Lalbhai
v. Commissioner of Income-Tax (Control), Bombay,
MANU/MH/0154/1958 : [1958]34ITR259(Bom) there were entries in
the books of a Banking Company and gifts were held to be valid. In the
case of Commissioner of Income-Tax, Ahmedabad v. Digvijay singhji
Tin Factory, MANU/MH/0189/1958 : [1959]36ITR72(Bom) , on the
contrary it was held that the gifts were valid though not sufficient cash
with firm available but proper book entries were made. See also the
cases of Commissioner of Income-Tax, Bombay City-II v. Popatlal
Mulji, MANU/MH/0039/1974 : [1977]108ITR4(Bom) and also in the
case of Addl. Commissioner of Income-Tax, Poona v. Dharsey
Keshavji, MANU/MH/0055/1982 : [1983]143ITR509(Bom) and
Commissioner of Income-Tax, Poona v. Devichand Uttamchand,
MANU/MH/0130/1984 : [1984]148ITR530(Bom) . In the
background of facts of those cases the Bombay High Court held that
the gifts were valid. In the case of Baliram Mathuradas (By his legal
Heir, Madanlal Paliram) v. Commissioner of Income-Tax, Bombay
City-II, MANU/MH/0119/1961 : [1966]59ITR278(Bom) the Bombay
High Court had occasion to consider this question and held that there
was no evidence of acceptance. It was held by the Bombay High Court
that there was no valid gift. Similarly, in the case of Virji Devshi v.
Commissioner of Income-Tax, Bombay, MANU/MH/0016/1967 : 65
I.T.R. 291 the Bombay High Court held "Just as the entries in his own
account book by a person would not constitute a valid transfer even
the entries in the accounts of the firm would not be sufficient."

13. The Madras High Court had also taken divergent views. It may be
noted that in E.M.V. Muthappa Chettiar v. Commissioner of Income-
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Tax, Madras, MANU/TN/0406/1945 : [1945]13ITR311(Mad) the
Madras High Court held that mere entries were not enough to
constitute valid gifts particularly when gift of fund continued to be
used in the donors' business.

14. The Madras High Court in the case of Mrs. Ida L. Chambers and
Three Ors. v. Kelland Huxford Chambers [1941] I.L.R. 32 was dealing
with a case where C, proprietor of a business who had invested a large
amount of capital in it, caused entries to be made in his account books
crediting his wife and certain other members of his family with sums
which were debited to his capital account. Separate accounts in their
names were opened in the books and in their accounts the credits were
entered. The entries were followed up by letters to the effect, inter alia,
that the sums were entirely in the nature of personal gifts from C and
would bear interest payable half-yearly. C was not in a position to
make gifts in cash of the amounts credited in favour of his wife and
relatives. He had large assets but these were represented by land,
buildings, plant, machinery and stock-in-trade. Interest on the
amounts was also credited in the accounts regularly for some time,
until a bank from which C had obtained an overdraft objected to such
crediting of interest. C's wife withdrew various sums of money from
time to time from the interest account and whenever C desired to
retransfer amounts to his capital account he obtained letters of
consent from her. The principal amounts credited were shown as
'deposits" in the balance sheets of the business for some years and
were thereafter referred to as "unsecured loans". On a question arising
whether there was a valid gift or trust in respect of the said amounts, it
was held by the Division Bench of the Madras High Court that there
was no completed gift of the principal amounts as there was no
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registered deed and as there was no delivery of the property. Though C
had the intention of making gifts, the entries in the books did not
complete the gift. It was further held that there was no trust either and
that there was nothing in the acts or conduct of C to show that he
intended to create a trust or to constitute himself a trustee. Where
moneys were actually paid by way of interest on the alleged gifts, those
became completed gifts. This decision went up to the Privy Council but
on the aspect of gift, no opinion was expressed by the Judicial
Committee. The decision of the Privy Council is reported in ILR 1944
617.

15. The Punjab and Haryana High Court in Balimal Nawal Kishore v.
Commissioner of Income-Tax, Punjab, MANU/PH/0214/1966held
that the credit cash balance of the donor was Rs. 81,000 and cash
balance with firm was only Rs. 4,299 but the unutilised overdraft of
the firm was Rs. 1,27,088. The gift was held to be valid.

16. In Sukhlal Sheo Narain v. Commissioner of Wealth-Tax, Haryana,

MANU/PH/0217/1972the Punjab & Haryana High Court had dealt
with a case where the father had gifted Rs. 84,000 i.e. Rs. 28,000 to
each of his sons. Father had complete control and dominion over that
amount. There was no evidence that gifts were accepted on behalf of
minors. It was held by the High Court that gifts were invalid.

17. Rangoon High Court in Abba Dada and Company v. Commissioner

of Income-Tax, Burma, MANU/RA/0170/1938 : 6 I.T.R. 470 held
that the mere book entries were not sufficient in that case to constitute
valid gift.

18. The Rajasthan High Court in K.P. Brothers v. Commissioner of

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Income-Tax, New Delhi, MANU/RH/0102/1960 held that there was
a valid gift but in that case it was a banking company.

19. The Allahabad High Court in the case of Commissioner of Income-

Tax, U.P. v. Smt. Shyamo Bibi, MANU/UP/0029/1967 :
[1966]59ITR1(All) . had to deal with a case where the credit balance of
2-1/2 lakhs was with the firm. Balance of the firm was only Rs. 15.
Memo of gift recorded on stamp paper. It was held that the gift was
not valid.

2 0 . In Commissioner of Wealth-Tax v. Gulab Rai Govind Prasad,

MANU/UP/0218/1971 : [1972]85ITR308(All) there was an alleged
gift of Rs. 2 lakhs to minor son by book entries. Cash Balance was only
Rs. 7626. No interest was credited to donee's account. No acceptance
was produced. Property purchased out of gift and income was used by
the family. It was held that there was no valid gift. But the Allahabad
High Court in the case of Gopal Raj Swarup v. Commissioner of
Wealth-Tax, Lucknow (supra) had to deal with the wealth-tax. There
the assessee was the karta of a Hindu undivided family. On 20th
November, 1956, the assessee purported to transfer Rs. 50,000 from
his account to the account of his son. The transfer was effected by
debiting the assessee's personal account in the books of the Hindu
undivided family with Rs. 50,000 and crediting the same in the
personal account of his son. On 20th November, 1956, the assessee
had a substantial credit balance exceeding the sum of Rs. 50,000
which he purported to give to his son. The adjustment of entries made
in the books of account was in pursuance of a letter written by the
assessee to the said Hindu undivided family on the same date. The
Wealth-Tax Officer and the Income-Tax Officer rejected the contention
that he made a gift of Rs. 50,000 to his son and this amount should be
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excluded from his taxable net wealth. The Tribunal never doubted that
the transaction in question was bona fide but dismissed the appeal of
the assessee on the sole ground that the transfer evidenced by the
entries in the books of account and by the declaration, did not operate
to bring into existence a valid gift. It was held on the facts of that case
that the assessee had made a valid gift of the value of Rs. 50,000. In
the impugned judgment, the Allahabad High Court had followed the
said decision. The said decision was also followed in Bhau Ram
Jawaharmal v. Commissioner of Income Tax, U.P.,
MANU/UP/0368/1971 : [1971]82ITR772(All) in Gopal Jalan v.
Commissioner of Income-Tax, U.P., MANU/UP/0200/1971 :
[1972]86ITR317(All) and in Phool Chand Gajanand v. Commissioner
of Income-Tax, U.P., MANU/UP/0266/1971 : [1973]89ITR148(All)

21. We are of the opinion that each case must be decided on the facts
of that case. Where the assessee has a credit amount with firm or with
family or with a banking company and that sum is available to that
firm or the company or H.U.F. on the date of the gift, then a valid gift
by book entries might be possible but where a sum was not available
with the firm or the family or a company which was not a banking
company or which had no overdraft facility, by mere book entries even
though there was acceptance of that gift by the donee would not
effectuate a valid gift.

22. The Court in Controller of Estate Duty, Punjab, Haryana, J. & K.,
H.P., and Chandigarh v. Kamlavati, MANU/SC/0318/1979 :
[1979]120ITR456(SC) had to deal with gift by way of transfer in the
account books. There this Court held that when the property was gifted
by a donor the possession and enjoyment of which was allowed to a

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partnership firm in which the donor was a partner, then the mere fact
of the donor sharing the enjoyment or the benefit in the property was
not sufficient for the application of Section 10 of the Estate Duty Act,
1953, until and unless such enjoyment or benefit was clearly referable
to the gift, i.e. to the parting with such enjoyment or benefit by the
donee or permitting the donor to share them out of the bundle or
rights gifted in the property. If the possession, enjoyment or benefit of
the donor in the property was consistent with the facts and
circumstances of the case other than those of the factum of gift, it
could not be said that the donee had not retained the possession and
enjoyment of the property to the entire exclusion of the donor, or, to
the entire exclusion of the donor in any benefit to him by contract or
otherwise. There, M, the deceased, was a partner in a firm having a
half-share in the partnership. On 27th March, 1957, M made a gift of
Rs. 1 lakh to his son, L, and of Rs. 50,000 to his wife, K, by making
debit entries in his account in the firm and corresponding credits to
the accounts of L and K. With effect from 28th March, 1957, L was
taken as a partner in the firm by giving L one-forth share out of the
half-share of M. M died on 9th January, 1962. The Tribunal held that
Section 10 of the Estate Duty Act was not attracted and the sum of Rs.
1,50,000 could not be included in the property passing on the death of
M; and the High Court, on a reference, affirmed the views of the
Tribunal. This Court held affirming the decision of the High Court that
Section 10 did not apply to the gifts of Rs. 1 lakh and Rs. 50,000 made
by the deceased to his son and to his wife respectively. But in that case,
the question in the present form in which it arises before us in the
instant case did not arise.

2 3 . This Court in the case of Badri Prasad Jagan Prasad v.

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Commissioner of Income-Tax, U.P., MANU/SC/0155/1985 :
[1985]156ITR430(SC) (judgment by one of us) had occasion to refer to
the effect of book entries but this question which is present before us
in the present appeal was not before this Court in that case. No useful
purpose, therefore, will be served by reference to that case.

24. In that view of the matter, except to the extent indicated above, the
entries in the books of account could not effectuate gifts. As we have
discussed the facts on the principles, we are of the opinion that the
High Court was in error in answering the question in the manner it
did. The order and judgment of the High Court are therefore set aside.
All the questions are answered in favour of the revenue. As the
respondent is not appearing, there will be no order as to costs.

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