Commissioner of Income Tax, Kanpur v. Dr. R.S. Gupta

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: (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 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./-? (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: -1 - COMMR. OF INCOME TAX v. R.S. GUPTA [MUKHARJI, J.l 125 Ved Prakash Gupta Rs.25,000 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 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 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, 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 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 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 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. 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 Go pal 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 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 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. 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 ....... r \ 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 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 The Punjab and Haryana High Court i.n Balimal Nawal Kishore 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. 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. 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 -' ,_ - ~. i 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 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, 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 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. 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 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 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 B one-forth share out of !ht: 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 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. -~ '