COMMISSIONER OF INCOME TAX Vs. SHYAMO BIBI SMT
LAWS(ALL)-1965-3-1
HIGH COURT OF ALLAHABAD
Decided on March 25,1965

COMMISSIONER OF INCOME TAX Appellant
VERSUS
SHYAMO BIBI Respondents


Referred Judgements :-

MILROY V. LORD [REFERRED TO]
COCHRANE V. MOORE [REFERRED TO]
HARIRAM V. MADAN GOPAL [REFERRED TO]
HANAMANTRAM RAMNATH V. COMMISSIONER OF INCOME-TAX,BOMBAY [REFERRED TO]
S.P. JAIN V. COMMISSIONER OF INCOME-TAX [REFERRED TO]
JUGGILAL KAMLAPAT A FIRM VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
SOUTH INDIAN LUCIFER MATCH WORKS VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
RATNASWAMY NADAR P A C AND SONS VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
E S HAJEE ABDUL KAREEM AND SON VS. COMMISSIONER OF INCOME-TAX [REFERRED TO]
CHIMANBHAI LALBHAI VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
K P BROTHERS VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
E M VS. MUTHAPPA CHETTIAR VCOMMISSIONER OF INCOME-TAX, MADRAS [REFERRED TO]
MRS IDA L CHAMBERS VS. KELLAND HUXFORD CHAMBER S [REFERRED TO]
CHAMBERS VS. CHAMBERS [REFERRED TO]
COMMISSIONER OF INCOME-TAX VS. NEW DIGVIJAYSINGHJI TIN FACTORY [REFERRED TO]



Cited Judgements :-

COMMISSIONER OF INCOME TAX KANPUR VS. R S GUPTA [LAWS(SC)-1987-2-162] [CONSIDERED]
INDIAN GLASS AGENCY VS. COMMISSIONER OF INCOME TAX [LAWS(DLH)-1981-9-35] [REFERRED]
GOPAL RAJ SWARUP VS. COMMISSIONER OF WEALTH TAX [LAWS(ALL)-1970-1-22] [REFERRED TO]
GOPAL JALAN VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-1971-3-16] [REFERRED TO]
PHOOL CHAND GAJANAND VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-1971-11-13] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. ASHOK GLASS WORKS [LAWS(CAL)-1974-12-5] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. MAYAWATI [LAWS(DLH)-2011-8-128] [REFERRED TO]
COMMISSIONER OF GIFT TAX VS. TARACHAND MEGHRAJ [LAWS(CAL)-1976-6-26] [REFERRED TO]
COMMISSIONER OF WEALTH TAX VS. BABULAL JATIA DECEASED THRO L H RAMESHWARLAL [LAWS(CAL)-1982-3-34] [REFERRED TO]
SUKHLAL SHEO NARAIN VS. COMMISSIONER OF WEALTH-TAX [LAWS(P&H)-1972-5-28] [REFERRED TO]
CONTROLLER OF ESTATE DUTY VS. JAISINGH [LAWS(RAJ)-1984-12-3] [REFERRED TO]


JUDGEMENT

Desai, C.J. - (1.)THE following question has been referred to this Court for its opinion by the Income-tax Appellate Tribunal, Allahabad Bench, at the instance of the Commissioner of Income Tax, U.P.
"Whether the entry made by the assesses in her books on 22-12-1953 transferring Rs. 1 lac from her account to the account of her grandson Om Nath amounted to a valid gift when the book balance on that date amounted to Rupees 15-10-0 only."

THE facts as given in the statement of the case are as follows :--

THE assessee derives income from property and from her share in a partnership firm Kishore Gopal Om Nath which is not a banking firm. THE firm maintains its own accounts and the assessee also maintains her personal accounts. Her account books contain a capital account showing her investments and other assets in the firm and elsewhere. On 22-12-1953 her account books showed a balance of Rupees 2,50,000 and odd in her favour; only Rupees 15-10-0 were in cash with her, the rest being investments in the firm and other assets. On that date she made transfer entries in her account books crediting the sum of Rs. 1 lac in the account of Om Nath, her only grandson, and debiting her account by the same amount. She made these entries professing to make a gift of Rs. 1 lac to Om Nath. Om Nath was a major then. She did not execute any registered document of gift but prepared a memorandum on a stamped paper stating that she orally and on account of 'natural love and affection had given Rs. 1 lac to Om Nath and delivered the amount to him by the transfer entries made in her personal accounts and placed him in possession and control of the amount and that he had accepted the gift and entered into possession and control of the money. THE memorandum was signed by Om Nath and the assessee both. On 31-12-1953 her account books showed a credit balance of Rs. 2,18,000 in her favour, while Rs. 1 lac were deducted. THEre were additions on account of income from other sources. This was the state of affairs in the calendar year ending on 31-12-53, which was the previous year relating to the assessment year 1954-55 with which we are concerned in this reference. Upto 4-7-1954 the firm Kishore Gopal Om Nath consisted of two partners the assessee and Putli Bibi. On 5-7-1954 her account books showed a credit balance of Rs. 1,03,188 in favour of Om Nath; this consisted of Rs. 1 lac said to have been donated to him and Rs. 3,188 said to have been earned by him by way of interest on that amount, Rs. 150 were said to represent the interest for the period 22-12-1953 to 31-12-1953 and Rupees 3,038 were said to be interest for 1954. THEre was no contract for payment of interest between the assessee and Om Nath and the assessee out of her own free will credited his account with the amount of interest. On the same date she transferred her liability to Om Nath to the firm and at her instructions the firm in its own account books credited Om Nath's account with the sum of Rs. 1,03,188 and debited her account with the same sum. On the same date the firm was reconstituted, Om Nath becoming a new partner along with three other persons and the amount of Rs. 1 lac and odd credited by the firm in his account become his investment in the firm. In the assessment year 1954-55 the assessee claimed a deduction of Rs. 150 said to have been paid by her to Om Nath in interest from her income. Her claim was rejected by the Income-tax Officer and the Appellate Assistant Commissioner but was allowed by the Tribunal. THE Tribunal relying upon Chimanbhai Lalbhai v. Commissioner of Income-tax, 1958-34 ITR 259 held that there was a completed gift by the assessee to Om Nath on 22-12-1953 and that consequently she was entitled to deduct the interest paid to Om Nath from her income. THEn at the instance of the Commissioner it submitted a statement of the case formulating the question reproduced above.

(2.)AN application has been made by the assessee praying that the reference be returned unanswered to the Tribunal because the question formulated by the Tribunal does not arise out of the order passed by it. The Income-tax Officer had called upon the assessee to prove the gift of Rs. 1,00,000 said to have been made by her to Om Nath in respect of her claim for deducting Rs. 150 paid as interest in the previous year. The assessee had relied upon the memorandum, and the transfer entries made in her account books dated 22-12-1953. The Income Tax Officer had rejected the alleged gift because there were only book entries, the cash in her hands on 22-12-1953 was only Rupees 15-10-0 and she had retained full control over the money and also utilized it in her business. No question had been raised before him about the allowability of the amount of Rs. 150 even if there had been a gift of Rs. 1,00,000; he had not held either that she had not actually paid Rs. 150 as interest or that even if she had paid it the amount was not deductible from her income either under Section 10(2)(iii) or under Section 10(2)(xv) of the Income Tax Act. The question whether she had paid the money as interest on capital borrowed for her business or to defray business expenditure had not been gone into by him at all. His order was maintained by the Appellate Assistant Commissioner; he held that there had been no delivery of Rupees 1,00,000 by the assessee to Om Nath and that consequently there had been no gift within the meaning of Section 123 of the Transfer of Property Act. From these findings he had concluded that the deduction of Rs. 150/- had been rightly disallowed. Before him also the question whether the deduction was allowable under Section 10(2) or not had not been raised.
The Tribunal disagreed with the view taken by the Income Tax Officer and the Appellate Assistant Commissioner, and held that a gift of money can be made by transfer entries in account books and that in the instant case the gift was completed on 22-12-1953 when the assessee made the transfer entries in her personal accounts. It held that in view of its finding that there was a valid gift the amount of Rs. 150/- was rightly deducted from the income. It cannot be doubted that the question of law that arises from the Tribunal's order is whether there was a valid gift on 22-12-1953. The question framed by it mentions not only the facts which are said to constitute a valid gift but also the fact which was relied upon by the Income Tax Officer and probably also by the Appellate Assistant Commissioner, along with other facts, for holding that there was no valid gift. I see nothing wrong in its mentioning in the question the fact that cash in the assessee's hands on 22-12-1953 was only Rs. 15/10/-. I see no substance in the objection made by the assessee that the question does not arise out of the order passed by the Tribunal. Sri Jagdish Swarup also contended that the answers to the question depends upon whether the assessee had in some bank a balance of at least Rs. 1,00,000 on 22-12-1953 or not. His argument is that even though she had cash balance of Rs. 15/10/- only if she had a balance at her credit of Rs. 1,00,000/- in a bank she could make a gift of it. He contended that this question whether she had money at her credit in any bank or not had not been gone into and that consequently the question cannot be answered as it stands. We see no force in this contention also.

In the first place if the assessee had a bank balance of at least Rs. 1,00,000 in some bank it was for her to place this fact before the income-tax authorities (at least before the Appellate Assistant Commissioner after knowing that one of the reasons given by the Income Tax Officer for rejecting her claim was that with a cash of Rs. 15-10-0 only she could not validly make a gift of Rs. 1,00,000). If it was her own case that the answer to the question depended upon whether she had a bank balance of Rupees 1,00,000 at least or not and if she had a bank balance of Rs. 1,00,000 at least she would have brought the fact to the notice of the Income-tax authorities. Further the question then would have arisen why she selected this particular mode of gift instead of issuing of cheque for the amount in favour of Om Nath. If she had a bank balance of Rs. 1,00,000 at least the simplest and also normal method of giving the money would have been to issue a cheque It would have been a serious question why instead of delivering possession over the money by means of a cheque she thought of delivering possession over it simply by making transfer entries in her own account books I have no doubt that in this case the question whether she had a bank balance of Rs 1,00,000 at least or not simply does not an; and that we have to answer the question without regard to any bank balance.

In this reference we are concerned with only one question, it being whether there was a valid gift by the assessee of Rs. 1,00,000 to Om Nath on 22-12-1953 or not. We are not concerned with the question whether a valid gift came into existence later, i.e. after 22-12-1953 or even after 31-12-1953. What happened on 5-7-1954 is irrelevant for considering whether in the previous year ending on 31-12-1953 there was a valid gift or not. The amount of Rs. 150 was credited as interest because of the gift; so the gift must have been in existence before the interest was credited. It is not the case of the assessee that something happened after the transfer entries made by her in her personal accounts and before 31-12-1953 on account of which a valid gift came into existence in this period; her case solely is that a valid gift came into existence by the very fact of the transfer entries made by her in her personal accounts on 22-12-1953. So if there was no valid gift on 22-12-1953 it is not her own case that a valid gift came into existence later. In order to answer the question, therefore, we have to consider only what happened on 22-12-1953.

It has to be remembered that the subject-matter of the gift is Rs. 1,00,000/-, i. e. movable property and not the assessee's interest in any assets in the firm or in the capital invested by her in the firm or money due to her from the firm. In answering the question we have absolutely nothing to do with the firm or the assessee's interest in the capital or assets of the firm or any money lying at her credit in the accounts of the firm. Under Section 123 of the Transfer of Property Act a gift of movable property may be effected either by a registered instrument signed by or on behalf of the donor or by delivery which may be made in the same way as goods sold may be delivered. Under Section 33 of the Sale of Goods Act delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer (or of any person authorised to hold them on his behalf). In the instant case there was no agreement between the assessee and Om Nath as to the manner of delivery; the memorandum recited the fact of delivery and did not contain any agreement as to the method of delivery. Consequently there was gift only if it could be said that the assessee had done something having the effect of putting the money in the possession of Om Nath. The only acts that she had actually done are executing the memorandum and making transfer entries in her own accounts. After hearing arguments of Sri Jagdish Swarup and Sri Gulati I am left in no doubt that these two acts did not have the effect of putting the money in the possession of Om Nath or of any person authorised by him to hold them. No money changed hands; whatever money the assessed had either in cash or in the form of assets or bank balance remained where it was. She was not authorised by Om Nath to receive the money on his behalf; consequently by her detaining possession of the money even if she had in her possession Rs. 1,00,000/- it could not be said that the money was put in possession of her as authorised to hold it on Om Nath's behalf.

(3.)SECTION 123 of the Transfer of Property Act lays down the law governing all gifts made for whatever purpose and it is to be applied whenever the question arises whether there was a gift or not. Regardless of whether the question arises in a suit by a donee to recover possession or in a suit to define his title or in an income-tax assessment proceeding it has to be answered with reference to the provisions of SECTION 123 T. P. Act. There is no warrant for saying that the law contained in SECTION 123 T. P. Act does not apply when an income-tax authority has to decide whether there was a gift or not. Consequently there has to be a delivery, if a gift is not made by a registered document. A question may arise whether a certain act done by the alleged donor amounts to delivery of property to the alleged donee but it cannot be said that delivery is not required at all. With great respect I am unable to agree with the following statements of Chagla C. J. in the case of Chimabhai Lalbhai, 1958-34 ITR 259 (Bom.) (supra).
"Let us forget these technicalities and look at this matter simply as an ordinary transaction which would take place in the city of Bombay between a constituent and his banker .......

Transfer of property is very well in its proper place, but it seems to us to be completely out of place in this transaction." (p. 263).

These statements have not been approved of in any other case and nowhere has it been held that an Income-tax officer, in deciding whether there is a gift or not, is not concerned with the law contained in the Transfer of Property Act regarding gifts. On the other hand Rajgopalan and Srinivasan JJ. who approved of Chimabhai Lalbhai in South Indian Lucifer Match works v. Commissioner of Income-tax, Madras, 1961-4.3 ITR 319 (Mad) laid down that a gift of moveables, unless effected by a registered deed, must be accompanied by delivery, vide P. 328. In other cases where gifts were upheld it was not on the ground that SECTION 123 of the Transfer of Property Act did not apply but on the ground that certain acts were held to amount to delivery within its meaning.

The question before the Income-tax Officer was whether Om Nath was the owner of the money (Rs. 1,00,000/-), which was left with the assessee; if the assessee was the owner there arose no question whatsoever of her paying interest for her use of it. She would have been liable to pay interest only if it belonged to Om Nath. When the question arose whether Om Nath was the owner or not, it could be answered only after considering the law contained in the Transfer of Property Act. It made not the slightest difference that it arose before an Income-tax Officer. The question was one of title and had to be decided in accordance with law. The law did not vary with the authority deciding the question. There was only one law regarding the ownership of the money and the question, wherever it arose, had to be decided in accordance with it. Consequently, Om Nath could not be held to be the owner of the money unless it was found that possession over it had been delivered to him.

Though a moveable can be delivered by manual delivery, i.e. by taking it in a hand and giving it to the other person, that is not the sole manner of delivery. A case in which the parties agree that a certain act shall be treated as delivery being left aside (because in this case there was no such agreement between the assessee and Om Nath), any act which has the effect of putting the moveable in the possession of the donee is delivery. So the question in the instant case resolves into this was Om Nath put in possession of the money on 22-12-1953 by the two acts done by the assessee? I have no hesitation answering it in the negative.

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