Holding

A gift is valid only if the donor possesses an existing property and the funds are available in his account or the firm has an overdraft facility; mere debit‑credit entries without such availability do not constitute a valid gift.

Summary

Dr. R.S. Gupta claimed that two sums (Rs.1,50,000 and Rs.67,560½) were valid gifts to his sons and grandsons, effected by instructing a non‑banking firm (Messrs Tika Ram & Sons) to debit his account and credit the donees' accounts. The firm had only Rs.4,000 cash and no overdraft facility. The Revenue argued that without actual funds or overdraft, the entries did not constitute delivery of existing property and therefore the amounts must be included in Gupta's net wealth under the Wealth‑Tax Act. The Supreme Court held that a valid gift requires an existing property and the funds must be available in the donor’s account or the firm must have an overdraft facility; mere book entries without such availability do not effect a gift. Consequently the amounts were includable in Gupta’s net wealth and the High Court’s decision was set aside. The appeal by the Revenue was allowed.

Issues considered

Whether entries in the books of a non‑banking firm, without cash or overdraft facility, can constitute a valid gift under the Wealth‑Tax Act.
Whether the sums of Rs.1,50,000 and Rs.67,560½ should be included in the assessee's net wealth.
Whether the donor had an existing property at the date of the alleged gift.

Legislation cited

Sale of Goods Acts. 33
Transfer of Property Act, 1882s. 122, s. 123
Wealth Tax Act, 1957s. 27(1), s. 29(1)

Subjects

wealth taxgiftvalid giftbook entriesoverdraft facilitynet wealthTransfer of Property ActSale of Goods Actdonordonee

Judgment

COMMISSIONER OF A
INCOME TAX, KANPUR
v.
DR. R.S. GUPTA

FEBRUARY 3, 1987
B
[SABYASACHI MUKHARJI AND S. NATARAJAN, 11.]

Sections 4, 27(1) and 29-Wealth tax-Gift-Assessee directing
firm by a letter to debit his account of certain amounts and credit respec-
tive accounts of his sons and grandsons-Gifts made out of love and
affection-Entries in account books-Whether constitute valid gift-
Whether inc/udible in net wealth of assessee-Absence of cash balance
c
with the firm or overdraft facilities with the bank-Effect of.

..j The Income Tax Officer included in the net wealth of the res-
pondent-assessee for the assessement year 1957-58, two sums, viz.,
Rs. 1,50,000 and Rs.67,560/12/- which the assessee claimed to have D
gifted. It is stated that on January I, 1957 the respondent-assessee, by a
letter directed a company in which he maintained an account, to debit
his account to the extent of Rs. l,50,000 and credit in the names of his
two sons and grandsons various sums, as he had decided to give away
these amounts to them out of love and affection. The company carried
..\ out the instructions and relevant debit and credit entries were made in E
the respective accounts. On the same day, by two separate letters, the

- gifts were accepted by the sons and later on these amounts were with-
drawn by the respective donees. In the case of second gift, oral instruc-
tions were given for transferring the amounts standing to his credit.
. j
The respondent-assessee having failed before the Income Tax F
l Officer and the Appellate Assistant Commissioner, appealed to the
Income Tax Appellate Tribunal and contended that the first company
was carrying on the business of banking and hence the gifts in question
were vaild, and that the Income Tax Officer and the Appellate Assistant
Commissioner had wrongly included these amounts in his net wealth
and in the case of second gift, the assessee claimed that the amounts G
were gifted by him by transfer entries.

~ The Tribunal found that there was no evidence that the first com-
pany was carrying on any banking business, and in the case of second
gift, the sum was available with the company. It, therefore, held that
the first company was not carrying on banking business, and in the H

121
..
'.

122 SUPREME COURT REPORTS [1987] 2 S.C.R.

A second case, there was no v:alid gift. It, however, referred the matter to ;,
the High Court.

The High Court held that the Tribunal was not right in holding
that the assessee did not make valid gifts and in holding that the
amounts were rightly incluliled in the net wealth of the assessee.
B
Allowing the appeal by the Revenue, this Court,
HELD: l. In order 'lo 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
t 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, giifts might be possible by adjustment of book
entries. But in the cases olr non-banking companies or firms, if these
companies or firms do not have overdraft facilities, it is not possible to
make vaild gift if sums or funds are not available. lt26E-G]
D
2. It is possible in e<,rtain circumstances for a donor to make a
valid gift by instructing a 15rm or a company or H.U.F., in which the
donor has an account to giv1e effect to the gift by debiting his account and
crediting the account in the name of the donee. But in such cases merely
book entries would not suffice. The circumstances must be such as to
E 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 over-
draft with the bank on the basis of which it could honour instructions
given by the assessee. lt26H; 127A-B]
F J. Each case must be decided on the facts of that case. Where the
assessee has a credit account with a firm or with a family or with a
banking company and that sum is available to that firm or the company
or H.U.F. on the date ofth1e gift, then a valid gift by book entries might
be possible. But where a sum was not available with the firm or the
H.U.F. or a company which was not a banking company or which had
G no overdraft facility, by mere book eptries, even though there was
acceptance of that gift by the donee a valid gift would not be
effectuated. [1310-E]

4. In the instant case, the entries in the books of account could
not effectuate valid gifts. The only sum which could be taken by the
H donee was Rs.4,000 in the case of the first company, which had no
COMMR. OF INCOME TAX v. R.S. GUPTA 123

overdraft facility with the bank. Thus, there was no existing goods to be A
parted. The High Court was, therefore, in error in answering the ques-
tions against the Revenue. l132E-F]

[Appeal allowed. Order and Judgment of the High Court set
. aside.]
B
Gopal Raj Swarup v. Commissioner of Wealth-tax, Lucknow, 77
I. T.R. 912; Indian Glass Agency v. Commissioner of Income-Tax, New
Delhi, 137 I.T.R. 245; New India Colour Co. v. Commissioner of
Income Tax, New Delhi, 80 I.T.R. 206; Commissioner of Income Tax,
West Bengal Ill v. Ashok Glass Works, 103 I. T.R. 379; Commissioner
of Gift Tax, West Bengal Ill v. Tarachand Meghraj, 109 I.T.R. 775; C
Chimanbhai Lalbhai v. Commissioner of Income Tax (Central),
Bombay, 34 I.T.R. 259; Commissioner of Income Tax, Ahmedabad v.
Digvijaysinghji Tin Factory, 36 I. T .R. 72; Commissioner of Income-
Tax, Bombay City-II v. Popat/al Mulji, 108 I.T.R. 4; Addi. Commis-
sioner of Income-Tax, Poona v. Dharsev Keshavji, 143 I.T.R. 509;
Commissioner of Income-Tax, Poona v. Devinchand Uttamchand, 148 D
I. T.R 530; Baliram Mathuradas (By his Legal Heir, Madan/al Paliram)
v. Commissioner of Income-Tax, Bombay City-II, 59 I. T.R. 278; Virji
Devshi v. Commissioner of Income-Tax, Bombay, 65 I.T.R. 291;
E.M.V. Muthappa Chettiar v. Commisioner of Income-Tax, Madras,
• 13 I.T.R 311; Mrs. Ida L. Chambers and Three Others v. Ke/land
Huxford Chambers, 1941 I.L.R. 232; Balimal Nawal Kishore v. Com- E
missioner of Income-Tax, Punjab, 62 I.T.R. 669; Sukh/al Shea Narain
v. Commissioner of Wealth-Tax, Haryana, 89 I.T.R. 157; Abba Dada
and Company v. Commissioner of Income-Tax, Burw.~, 6 I.T.R. 470;
·~· K.P. Brothers v. Commissioner of Income-tax, New Delhi, 42 I.T.R
; 650; Commissioner of Income Tax, U. P. · v. Smt. 'Shyamo Bibi, 59
I
I.T.R. 1; Commissioner of Wealth-Tax v. Guiab Rai Govind Prasad, F
85 l.T.R. 308; Bhau Ram Jawaharmal v. Commissioner of Income Tax,
U.P., 82 I.T.R. 772; Gopa/ Jalan v. Commissioner of Income-Tax,
U.P., 86 I.T.R. 317; Phool Chand Gajanand v. Commissioner of
Income-Tax, U.P., 89 I.T.R. 148; Controller of Estate Duty, Punjab,
Haryana, J. & K., H.P. and Chandigarh v. Kamlavati, 120 I.T.R. 456,
referred to. G

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1713(NT)
of 1973.

From the Judgment and Order dated 6.1.1971 of the Allahabad
High Court in Wealth Tax Reference No. 285 of 1965 H
124 SUPREME COURT REPORTS [1987] 2 S.C.R.

A S.C. Manchanda and Ms. A. Subhashini for the Appellant.

Respondent-in-person. (Not present)

The Judgment of the Court was delivered by

B SABYASACHI MUKHARJI, J. 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:
c (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
D 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
E Rs.1,50,000 was properly included in the asscssee'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 ,56[11:J./-?
F
(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?

G 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 s.tating that he had decided to gift away foflove and affec-
H tion various sums to the following persons:
COMMR. OF INCOME TAX v. R.S. GUPTA [MUKHARJI, J.l 125

Ved Prakash Gupta Rs.25,000
A
Om Prakash Gupta Rs.25,000
Hari Prakash Gupta Rs.50,000
Pravin Kumar Gupta Rs.50,000

By that letter the assessee had directed the Company to debit his B
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, c
1957, Om Parkash Gupta wrote to the assessee, his father, thanking
-1 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 Prakesh 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,
D
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 car-
rying 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 E
- were stated to have later on withdrawan 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 bank- F
ing and hence the gifts were valid. But there was no evidence that
Tika Ram and Sons were carrying on any banking business.

The Tribunal held that they were not carrying on banking busi-
ness. The main question therefore that falls for consideration is G
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 H
126 SUPREME COURT REPORTS [1987] 2 S.C.R.

one person, called the donor, to another, called the donee, and
A
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
B the same way as goods sold may be delivered.

The next contention was regarding the inclusion of net wealth a
sum of Rs.67,5601121- standing to the credit of the assessee in the
books of Mis Pearls & Beads. The assessee claimed to have gifted the
said amounts by transfer entries in the books of Mis Pearls & Beads on
C 30th March, 1957. No letter as in the previous case was addressed by
the asscssee 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 ~um was available with the said firm of Mis
Pearls & Beads.

D The High Court in view of the decision of the Division Bench of
the Allahabad High Court in the case of Gopal Raj Swarup v. Commis-
sioner of Wealth-tax, Lucknow, 77 I.T.R. 912 answered the first ques-
tion in the negative and so far as the second question is concerned, it
declined to answer as it did not arise in view of the answer given to the
first question and the questions Nos. 3,4 and 5 were answered in the
E negative. Aggrieved by th<: said decision, the revenue has come up in
appeal.

In order to constitute a valid gift there must be an existing pr-0-
-
perty. In case of entries in the books of account by credit and debit, r-
the sums should be available on the date of gift in the account of the
F 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
G possible to make valid gift if sums or funds are not available. This
question has been examined by the various High Courts. -f--,

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
H crediting the account in the name of the donee. But in such cases
COMMR. OF INCOME TAX v. R.S. GUPTA [MUKHARJI, J.] 127

merely books entries would not suffice. The circumstances must be A
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 B
by the Bench decision of the Delhi High Court in the case of India
Glass Agency v. Commissioner of Income-Tax, New Delhi, 137 I.T.R.
245. 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 C
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 deci"
sion of the Delhi High Court in New India Colour Co. v. Commis-
sioner of Income, Tax, New Delhi, 80 I.T.R. 206 D

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 E
the donee and gift in such case will not be valid. The position, how-
ever, might be different if such firms or companies or H. U .F. in whose
accounts gifts are effected have overdraft facilities.

The Calcutta High Court had occasion to discuss this aspect in
the case of Commissioner of Income-Tax, West Bengal Ill v. Ashok F
Glass Works, 103 I.T.R 379. 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 there-
fore, it was found, rightly held that the gifts were valid and the interest G
paid in respect of the accounts standing in the name of the donees was
allowable as a deduction in the hands of the assessee firm.

The Calcutta High Court had to consider this in the case of
Commissioner of Gift-Tax, West Bengal III v. Tarachand Maghraj, 109
I.T.R. 775. There the High Court after discussing various decisions H
128 SUPREME COURT REPORTS (1987] 2 S.C.R.

including certain decisions of the Allahabad High Court which we shall
A
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 pro-
perty, 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
B 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,
c 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.

D 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 was no
existing goods to be parted.

E Before the Bombay High Court, in the case of Chimanbhai
Lalbhai v. Commiossoner of Income-Tax (Contra/), Bombay, 34
I.T.R. 259 there were entrie,; in the books of a Banking Company and
gifts were held to be valid. In the case of Commissioner of Income-
Tax, Ahmedabad v. Digvijaysinghji Tin Factory, 36 I.T.R. 72, on the '-~-
1
contrary it was held that the gifts were valid though not sufficient cash
F with firm available but proper book entries were made. See also the
cases of Commissioner of Income-Tax, Bombay City-JI v. Popat/a/
Mulji, 108 I.T.R. 4 and also in the case of Addi. Commissioner of
Income-Tax, Poona v. Dharsey Keshavji, 143 I.T.R. 509 and Commis-
sioner of Income-Tax, Poona v. Devichand Uttamchand, 148 l.T.R.
530. In the background of facts of those cases the Bombay High Court
G held that the gifts were valid. In the case of Baliram Mathuradas (By
his legal Heir, Madan/al Paliram) v. Commissioner of Income-Tax, -~
Bombay City-JI, 59 I. T.R. 278 lhe 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
H Income-Tax, Bombay, 65 I.'f.R. 291 the Bombay High Court held
COMMR. OF INCOME TAX v. R.S. GUPTA [MUKHARJI, J.J 129

"Just as the entries in his own account book by a person would not A
constitute a valid transfer even the entries in the accounts of the firm
would not be sufficient."

The Madras High Court had also taken divergent views. It may
be noted that in E.M.V. Muthappa Chettiar v. Commissioner of
Income-Tax, Madras, 13 l.T.R. 311 the Madras High Court held that B
mere entries were not enough to constitute valid gifts particularly
when gift of fund continued to be used in the donors' business.

The Madras High Court in the case of Mrs. Ida L. Chambers and
Three Others v. Ke/land Huxford Chambers, [1941] I.LR. 232 was
dealing with a case where C, proprietor of a business who had invested C
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 D
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 Chad obtained an overdraft objected to such E
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
r the balance sheets of the business for some years and were thereafter
\ referred to as "unsecured loans". On a question arising whether there F
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 comp-
leted gift of the principal amounts as there was no 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 G
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 deci-
sion of the Privy Council is reported in ILR 1944 at page 617. H
130 SUPREME COURT REPORTS [1987] 2 S.C.R.

The Punjab and Haryana High Court i.n Balimal Nawal Kishore
A
v. Commissioner of Income-Tax, Punjab, 62 I.T.R. 669 held that the
credit cash balance of the donor was Rs.8I;OOO and cash balance with
firm was only Rs.4,299 but the unutilised overdraft of the firm was
Rs. l,27,088. The gift was held to be valid. ,_

B In Sukhlal Sheo Narain v. Commissioner of Wealth-Tax,
Haryana, 89 I. T.R. 157 the 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.
c Rangoon High Court in Abba Dada and Company v. Commis-
sioner of Income-Tax, Burma, 6 I.T.R. 470 held that the mere book
entries were not sufficient in that case to constitute valid gift.

The Rajasthan High Court in K.P. Brothers v. Commissioner of
D Income-Tax, New Delhi, 42 I.T.R. 650 held that there was a valid gift
but in that case it was a banking company.

The Allahabad High Court in the case of Commissioner of
Income· Tax, U.P. v. Smt. Shyamo Bibi, 59 I.T.R l. had to deal with a
case where the credit balance of.2-V2 lakhs was with the firm. Balance
E of the firm was only Rs.15. Memo of gift recorded on stamp paper. It
was held that the gift was not valid.
-
-
In Commissioner of Wealth-Tax v. Guiab Rai Govind Prasad, 85
I. T.R. 308 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 '
F 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. Commissio,~er of Wealth-Tax, Lucknow (supra) had to
deal with the wealth-true There the assessee was the karta of a Hindu
undivided family. On 20th November, 1956, the assessee purported to
G 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
H entries made in the books of account was in pursuance of a letter
COMMR. OF INCOME TAX v. R.S. GUPTA [MUKHARJI, J.] 131

written by the assessee to the said Hindu undivided family on the same A
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 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 declara- B
tion, 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., 82 I.T.R.
772 in Gopal la/an v. Commissioner of Income-Tax, U.P., 86 I.T.R.
317 and in Phool Chand Gajanand v. Commissioner of Income-Tax,
c
U.P., 89 I.T.R. 148

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 D
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. E

The Court in Controller of Estate Duty, Punjab, Haryana, J. &
K., H.P., and Chandigarh v. Kamlavati, 120 I.T.R. 456 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 enjoy-
i ment of which was allowed to a partnership firm in which the donor F
•
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 enjoy-
ment or benefit was clearly referable to the gift, i.e. to the parting with
such enjoyment or benefit by the donee or permitting the doner to
share them out of the bundle or rights gifted in the property. If the G
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 H
132 SUPREME COURT REPORTS [1987] 2 S.C.R.

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 cn:dits 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 !ht: half-share of M. M died on 9th January,
B 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 refer··
ence, affirmed the viewes 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
C 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.

This Court in the case of Badri Prasad Jagan Prasad v. Commis-
sioner of Income-Tax, U.P., 156 l.T.R. 430 (judgment by one of us)
D 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.

In that view of the matter, except to the extent indicated above,
E 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 res-
pondent is not appearing, there will be no order as to costs.
-~

F '
N.P.V. Appeal allowed.