The Commissioner of Wealth-tax, Poona vs S.S. Malu, Sangli

Deasi, J.—This is a reference made at the instance of the Commissioner of Wealth-tax, Poona, under S. 27(1) of the Wealth-tax Act,1957. It arises out of the order of the Income Tax Appellate Tribunal, dated 7th December, 1964 in two Wealth-Commissioner setting aside the Wealth-tax Officer''s order adding Rs. 50,000/- to the net wealth of the assessee as on valuation dated 20th October 1960 and 8th November 1961 respectively corresponding to the assessment years 1961-62 and 1962-63. A few facts may be stated :

The assessee was carrying on business in commission agency and speculation as an individual upto 1957-58. As and from 24 October 1957 the business came to be carried on by a firm consisting of the assessee and his son as the two partners with shares of 0-9-0 annas and 0-7-0 annas respectively under a deed of partnership dated 5th November 1957. By the end of S.Y. 2015 in the books of account of the firm there was a credit balance in favour of assessee for an amount exceeding Rs. 2,50,000/-. On the other hand, there was a debit balance for the son largely because of earlier losses. On 31st October 1959 the assessee wanted to give a sum of Rs. 50,000/- to the son from out of the moneys standing to his credit in the firm''s books. It was stated that he did not so and the following entry was passed in the firm''s books :

"Rs. 50,000/- debited to the account of Savlaram Shriram Malu, Sangli (Kartik Vad Amas) out of natural love and affection for son Nandkishore, and as I have desired to give a sum of Rs. 50,000/- voluntarily; my account is debited and your account is credited . From today I shall have no claim of any kind whatever in that account. Shri Nandkishore is the full and the absolute owner thereof and he can use it accordingly".

As a result of this gift the son''s account showed a credit balance as against the previous debit balance. The relevant portion of the account of the son has been extracted and set out by the Tribunal in paragraph 4 of the statement of case.

The Wealth-tax Officer assessing the assessee for the year 1960-61 accepted the factum as well as the validity of the gift of Rs. 50,000/- to the sons by the assessee as indicated above. When the matter came up for consideration for the years 1961-62 and 1962-63 he, however, changed his mind and held that as there was no actual transfer of cash or acceptance, the transfer could not be taken as a gift. Accordingly he added the amount of Rs. 50,000/- to the net wealth of the assessee for the assessee for the two years in question. Being aggrieved by this action the assessee preferred appeals before the Appellate Assistant Commissioner which succeeded. The Wealth-tax Officer''s further appeals to the Tribunal were negatived. It is thereafter that this reference has been made.

The question which has been referred for our consideration is as follows;

"Whether on the facts and in the circumstances of the case, the deletion of the sums of Rs. 50,000/- each from the computation of the net wealth of the assessee as on the valuation dates, namely, 20-10-1960 and 8-11-1961, was justified in law ?"

According to us, the question as framed does not the question of law which arise from the order of the Tribunal and accordingly we proceeded to reframe the question as follows :-

"Whether the entries mentioned in paragraph 4 of the statement of case and the conduct of the parties constituted a valid gift in law and the deletions of the amount of Rs. 50,000/- each from the computation of the net wealth of the assessee as on the valuation dates viz. 20th October 1960 and 8th November 1961, was justified in law ?"

It may be mentioned that the genuineness of the entries and the fact that there was a credit balance in the account of the assessee were not in dispute before the Wealth-tax Officer or the Appellate Assistant Commissioner or the Tribunal. According to the Tribunal, further, from the entries in the books and the conduct of the parties is was clear that the fact of the gift as well as the acceptance thereof by the parties had been proved. These are findings of fact and we accept those findings as we are bound to do.

It was, however, contended that there could not be a valid gift in law by such books entries without any transfer of cash. A similar question was considered by us in Income Tax Reference No. 85 of 1965 The Commissioner of Income Tax vs. Popatlal Mulji) decided on 29th November, 1974. In the judgment given in the said reference which was delivered by my brother Vimadalal, earlier decisions of this Court in Chimanbhai Lalbhai Vs. Commissioner of Income Tax (Central), Bombay, , as also in Virji Devshi vs. Commissioner of Income Tax 65 ITR 29 ), have been considered. It was observed that the case of Chimanbhai Lalbhai Vs. Commissioner of Income Tax (Central), Bombay, laid down once for all at any rate as far as this Court is concerned that there can be a valid gift effectuated by making entries in the books of account if there was evidence to show that the gift was made by the donor and accepted by the donee and acted upon by both of them. In the instant case the findings of the Tribunal which are binding on us are to the effect that there was a credit balance of the father, that there were genuine entries in the books of account, that the donee had accepted the gift and that subsequently the donor as well as the donee have acted upon the gift. The question as to whether this would constitute a valid gift in law appears to me to be concluded as far as this Court is concerned, and the answer to the question referred to us by the Tribunal (as reframed) must be in accordance with our previous decisions viz. those given in Chimanbhai Lalbhai and Popatlal Mulji''s cases, and in favour of the assessee.

Per Vimadalal J. : I agree and have nothing to add.

Per Court : The question, as referred, is answered in the affirmative and in favour of the assessee in both its parts.

The Commissioner to pay the assessee''s costs of the reference.