TMI Blog1965 (3) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... he books maintained by the assessee whereby this sum of ₹ 1 lakh was debited to her personal account and a corresponding credit was given to a newly opened account in the name of Om Nath Kapoor. On December 22, 1953, the following memorandum was recorded: On this December 22, 1953, the undersigned Shyamo Bibi for consideration of her natural love and affection for her only grandson, Om Nath Kapoor, son of Amar Nath Kapoor, gave by way of mouth and expressed herself to give the said Om Nath the sum of ₹ 1,00,000 for the latter's own use and benefit absolutely and at the same time delivered the said sum to the saw Om Nath by transfer to his credit and placed him in possession and control of the same and that the said Om Nath at the same time accepts the gift of the said 1 lakh and entered into possession and control of the same. This has been signed by both the assessee and Om Nath Kapoor and is on ₹ 1-8-0 stamp paper. The opening credit balance in the personal account of the assessee was ₹ 2,50,152.70. After debiting the above sum of ₹ 1 lakh and other adjustments for profits in the firms in which she was a partner, the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected this claim. The order of the Income-tax Officer is annexure A and forms part of the case. 5. The assessee's appeal to the Appellate Assistant Commissioner was not successful. He referred to the cash position of the assessee on December 22, 1953, the date of gift, and observed: According to section 123 of the Transfer of Property Act, for the purposes of making a gift of movable property, the transfer may be effected either by registration of an instrument or by delivery. He also referred to certain decisions in which it had been held that mere entries in the account books would not be sufficient to complete a gift. He also countered the argument of the assessee based on the transfers effected in the books of the firm of Krishna Gopal Om Nath and the change in the constitution of that firm from July 5, 1954, whereby Om Nath had become a partner herein. He held that there was no delivery of money as contemplated under section 123 of the Transfer of Property Act. In the end he confirmed the action of the Income-tax Officer. His order is annexure B and forms part of the case. 6. On a further appeal, the Tribunal held that the view taken by the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws: The assessee derives income from property and from her share in a partnership firm, M/s. 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 December 22, 1953, her account books showed a balance of ₹ 2,50,000 and odd in her favour; only ₹ 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 ₹ 1 lakh 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 ₹ 1 lakh 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 ₹ 1 lakh 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 ₹ 1,00,000, said to have been made by her to Om Nath in respect of her claim for deducting ₹ 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 December 22, 1953. The Income-tax Officer had rejected the alleged gift, because there were only book entries, the cash in her hands on December 22, 1953, was only ₹ 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 ₹ 150 even if there had been a gift of ₹ 1,00,000; he had not held either that she had not actually paid ₹ 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 15-10-0 only she could not validly make a gift of ₹ 1,00,000). If it was her own case that the answer to the question depended upon whether she had a bank balance of ₹ 1,00,000 at least or not and if she had a bank balance of ₹ 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 a cheque for the amount in favour of Om Nath. If she had a bank balance of ₹ 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 ₹ 1,00,000 at least or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner of delivery; the memorandum recited the fact of delivery and did not contain any agreement as to the method of delivery. Consequently, there was a 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 Sarup 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 assessee 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 ₹ 1,00,000 it could not be said that the money was put in possession of her as authorized to hold it on Om Nath's behalf. 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 whenev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 movable 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 movable 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 December 22, 1953, by the two acts done by the assessee? I have no hesitat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect and effective methods were available to vest the donee with possession, dominion, and control of the property. This law does not support the assessee's contention that there was a gift. In the first place she did not have ₹ 1,00,000 at all which could be delivered by her to Om Nath. Her cash balance consisted of only a few rupees. She might have had assets in the partnership but she did not transfer them or any interest in them. The partnership might have been owing money to her but she did not transfer any money out of that to Om Nath; she did not instruct the partnership to transfer ₹ 1,00,000 out of the money due to her to the account of Om Nath. If she wanted to make a gift of the money due to her from the partnership the most reasonable way was to instruct the partnership to debit her account, and credit that of Om Nath, with the amount of the money. Simply making transfer entries in own accounts cannot be said to be the most direct and effective method of vesting him with possession, dominion and control. As the account books were in her own possession, dominion and control, so were the entries and simply by making entries in them she did not vest Om N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be said of the assessee; she did not have any money belonging to anybody which she could hand over to Om Nath. This was a case of gift of money and, if the money does not exist, transfer entries in the accounts do not amount to delivery merely because the donor has a claim for money against a third person. Cochrane v. Moore(1) is an authority for the proposition that in ordinary English language, and in legal effect, there cannot be a 'gift' without a giving and taking (per Lord Esher M.R. at page 76). In Milroy v. Lord(2), Turner L.J. pointed out that in order to render a voluntary settlement valid and effectual, the settlor must have done everything which, according to the nature of the property, was necessary to be done in order to transfer the property. This statement was approved of by Leach C.J. and Horwill J. in Ida L. Chambers v. K.H. Chambers(3). There was an intention to make a gift; still the learned judges held that the entries in the books did not complete the gift. They pointed out that if the donor had paid the money by way of interest on the alleged gift there would have been a completed gift. In the instant case also no money had been paid by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as the donee was concerned he got all possession, control and dominion over the money through the credit entry made in his favour by the banker. All that was necessary was that the banker should have had the money, not that the donor should have had the money at his credit. In the instant case the transfer entries were made by the assessee in her own accounts, she was not a banker, she did not instruct the partnership to make entries of the gift in its accounts and the partnership also was not a banking firm. The law applied by Chagla C.J. and Desai J. in that case is not applicable to the facts of the instant case. S.T. Desai and K.T. Desai JJ. applied it in Commissioner of Income-tax v. New Digvijaysinhji Tin Factory [1959] 36 I.T.R. 72. The learned judges agreed that mere book entries could not result in a valid gift but held that there was a gift because the entries were made with the knowledge and consent of the donees. The firm paid interest to them and allowed them to withdraw the money from time to time. The firm, which was the assessee and in the account books of which the entries were made, had no sufficient cash in hand and it was argued that there could be no delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed his personal account in the business with ₹ 27,000 and credited each one of his six sons with ₹ 4,500 on March 31, 1955, and on April 1, 1955, a partnership deed was executed between him and his sons, the donated sums being the capital invested by his sons in the partnership. The learned judges were influenced by the contemporaneous formation of a partnership between the donor and the donees in holding that there was a valid gift. They relied upon the case of South Indian Lucifer Match Works(6). The distinguishing feature of the case was that the donor was in a position to make the gift of ₹ 27,000 to his sons and the donated amounts were intended to be the capital to be invested by them in the partnership business. The question in what year the gift was completed did not arise before the learned judges because they had to deal only with the question of registration of the partnership. They conceded that transfer entries in own accounts may not conclusively establish a gift and treated them as evidence in support of the gift when considered along with other evidence. The only other evidence that could be relied upon in the instant case is the memorandum but I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the firm and Jagdish Sahai J., with the concurrence of my learned brother, held that there was a valid trust even though the balance at the credit of the partner in the account books of the firm was less than 5 lakhs of rupees. The only question raised before the learned judges was whether the partner could create a trust of 5 lakhs of rupees when he did not have so much money at his credit; no question of delivery arose before them. They relied upon the banking system and Chimanbhai Lalbhai's case** and answered it in the affirmative. I respectfully agree with the answer; it was open to the bank to allow an overdraft to the partner. After the overdraft was allowed by the bank the question of there not having been sufficient balance at the credit vanished. It was open to the bank to allow an overdraft and after it was allowed the position became what it would have been if the amount of the overdraft had already been included in the balance of the creator of the trust. The decision does not deal with the question of delivery by book entries and as regards the question whether a gift of money can be made by book entries when the credit balance is of a smaller amount, it is to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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