HARRIES, C.J. - (1.) THIS is a reference made under s. 66 of the Indian IT Act by the Tribunal at the instance of the assessees. The question formulated for the opinion of the Court is as follows : "Whether the Tribunal was right in holding that the interest credited to Mst. Jabbar's account since her death was not an allowable deduction under the provisions of the Indian IT Act."
(2.) THE assessee were a firm, Hazarimal Hiralal. It is a registered partnership consisting of three partners carrying on an extensive business as importers of piece-goods. One of the partners, Bhudarmal, died and as usual in Marwari partnership, he was succeeded by his son, Hulaschand, who, being a minor, was admitted to the benefits of partnership in place of his father. Later Hulaschand was married and in 1932 he had one daughter of the name of Kamala Bai, his wife's name being Mst. Jabbar. It was found that in the year 1935 Hulaschand's capital account with the firm stood at about rupees twenty lacs. In the month of September, 1935, Hulaschand's wife, Mst. Jabbar who was expecting a child became seriously ill and on her recovery she apparently requested her husband to give her some money as a gift so that she could spend the money on charity and make provision for her child. On 18th Sept., 1935, Hulaschand withdrew a sum of Rs. 4,80,000 from the firm and made a gift of Rs. 4,80,000 in cash and Rs. 20,000 worth debentures to his wife. This gift was made in the presence of two employees named Chaganlal Kochar and Ratanlal Kochar. THE entries in the books of the firm show that the withdrawal was made from the funds of the firm for the purposes of this gift. On 24th Sept., 1935, a sum of Rs. 4,50,000 was deposited with the firm of Hazarimal Hiralal in the name of the donee Mst. Jabbar and the remaining Rs. 30,000 out of the gift of Rs. 4,80,000 was deposited with the firm known as Mulchand Jeskaran. Apparently there is nothing on the record to show what happened to the debentures. On the day on which the money was deposited with the firm in the name of Mst. Jabbar, namely, 24th Sept., 1935, the latter made a will which is typewritten in English and purports to be signed by Mst. Jabbar in the presence of two attesting witnesses. By the terms of the will Hulaschand, her husband, was appointed executor and she directed that her debts and funeral and testamentary expenses should be paid and that the balance should be dealt with as follows : (i) A sum of Rs. 1,25,000 was given to her daughter, Kamala Bai, upon such terms as the executor should think fit. (ii) A sum of Rs. 60,000 was to be utilised for such charitable objects in the testatrix's name or such charitable institutions as the executor should think fit. (iii) The rest and residue of her estate was given to her son, if any, and in default of her son or sons, to her daughter. On 12th Dec., 1935, a son was born to Mst. Jabbar, but she died on 20th Dec., 1935, as a result of child-birth. Probate of the will has not been taken out, but in May, 1936, an entry was made in the ledger account of Mst. Jabbar showing that a sum of Rs. 1,25,000 was debited to that account and the said amount credited to an account styled as Kamala Trust Account. On 6th October, 1936, there was a declaration of trust by Hulaschand as executor of the will of his wife in respect of Rs. 1,25,000 in favour of Kamala Bai for her life and after her death for her heirs and legatees and in their absence certain charitable objects. The sum of Rs. 30,000 which was deposited in the name of Mst. Jabbar with the firm of Mulchand Jeskaran was withdrawn by Hulaschand on 3rd Aug., 1936, and this amount together with the proceeds of the debentures worth Rs. 20,000 was credited in the books of the firm Hazarimal Hiralal in a separate account. The total amount came to Rs. 60,000 which was to be held in trust for charities. The deed for this charitable trust was registered in Bikaner State on 13th March, 1943. The remainder of the deposit with the applicant made by Mst. Jabbar continued to remain in her name, though the account was styled Mst. Jabbar Trust Account. The firm claimed that interest payable on the money due from the firm to the Trust of Mst. Jabbar had to be allowed in arriving at the profits of this business for the purposes of income-tax. The authorities however contended that no gift was made to Mst. Jabbar and that it was either a fictitious or a colourable transaction. In any event it was contended that it was only a gift for her life at most and that after her death her husband became entitled to the property.
(3.) THE Tribunal came to the conclusion that a gift was actually made. THE Tribunal was satisfied that Mst. Jabbar who was ill and afraid of what might happen in her confinement, was anxious to make some provision for her child. It appears that Mst. Jabbar's mother had died in her second confinement. THE Tribunal appears to have been of opinion that Mst. Jabbar was naturally anxious to make some provision for her children as she feared that her husband might remarry after her death. THE Tribunal thought that this was a very natural fear on the part of Mst. Jabbar and that as her husband was a good and kindly man and wanted to please his wife he gave her the money she wanted as he, in the words of the Tribunal, "was pretty sure that she would not waste it or alienate it against his wishes." THE Tribunal then added : "We quite understand that she would be anxious to get the money in cash and would not be satisfied by just book entries and since Hulaschand was willing to accede to her wishes, it did not matter to him whether there were book entries or the money was paid in cash. THErefore we believe that the money was brought and given to Mst. Jabbar." There is, therefore, a distinct finding that a gift was made to Mst. Jabbar and it was made because Mst. Jabbar was afraid that she might not survive child-birth and wanted to make provision for her children in the event of her husband remarrying. The Tribunal accepted that version and found that to please his wife Hulaschand made the gift.;