PATHAK, J. - (1.) THE Income-tax Appellate Tribunal has referred the following questions under section 66(1), Income-tax Act, 1922 : 1. Whether, on the facts and circumstances of the case, the gifts of Rs. 10,000 made by Ganpati Devi to Sita Devi on May 12, 1960, of Rs. 10,000 made by Murari Lal to Saroj Kumari on March 23, 1960, and Rs. 10,000 made by Brijmohan to Smt. Pushpa Devi on September 21, 1960, were valid in law ? 2. If the answer to the aforesaid question is in the affirmative, whether the Tribunal was legally right in confirming the disallowance of interest on the same ?
(2.) FOR the purposes of appreciating the facts in this case, it appears convenient to set out the following family tree : JUDGEMENT_772_ITR82_1971Html1.htm Brijmohan and his sons, Murari Lal and Prabhat Kumar, constitute a partnership firm, Messrs. Bhau Ram Jawahar Mal, the assessee before us, On March 23, 1960, Murari Lal purported to make a gift of Rs. 10,000 to his sister, Saroj Kumari. On May 12, 1960, Ganpati Devi purported to make a gift of Rs. 10,000 to her daughter-in-law, Sita Devi. On September 21, 1960, Brijmohan purported to make a gift of Rs. 10,000 to his daughter-in-law, Pushpa Devi. The gifts were effected, it was said, by transfer entries in the books of the assessee-firm. The assessee credited interest in the accounts of Saroj Kumari, Sita Devi and Pushpa Devi by reason of the amounts gifted to them and entered it in their respective accounts. In assessment proceedings for the year 1961-62 the assessee claimed a deduction on account of the interest so debited. The claim was rejected by the Income-tax Officer in the view that the gifts were invalid as they had been made merely by transfer entries in the books of the assessee. The Income-tax Officer pointed out that the cash balance in the assessees books on the respective dates of the gifts was insufficient for the purposes of enabling actual cash to pass. He observed that there were no registered gift deeds nor had actual delivery been effected. The assessee appealed to the Appellate Assistant Commissioner of Income-tax, who held that the transactions amounted to an indirect transfer which attracted the provisions of section 16(3) of the Act and, therefore, the interest paid by the assessee was rightly disallowed by the Income-tax Officer.
(3.) THE assessee now appealed to the Income-tax Appellate Tribunal. THE Tribunal did not affirm the basis on which the Appellate Assistant Commissioner had proceeded but held that the gifts were invalid. THE appeal was dismissed. And, now, at the instance of the assessee, this reference has been made. Upon a persual of the appellate order of the Tribunal, it is clear that the basis for rejecting the validity of the gifts was the circumstance that the cash balance available in the books of the assessee on the date of the gifts was insufficient and that, therefore, no delivery of possession could have been possible. The case of the assessee that the absence of a sufficient cash balance in the books was not material when the transfers had been made by making appropriate books entries was rejected by the Tribunal with the observation that the gifts could have been validly made through such modus operandi only if the assessee had carried on the business of banking. There was no subsequent conduct, the Tribunal also observed, to support any gift.;