Pathak, J.:— The Income-tax Appellate Tribunal has referred the following questions under section 66(1), Income-tax Act, 1922:

“1. Whether, on the facts and circumstances of the case, the gifts of Rs. 10,000 made by Ganpati Devi to Sita Devi on May 12, 1960, of Rs. 10,000 made by Murari Lal to Saroj Kumari on March 23, 1960, and Rs. 10,000 made by Brijmohan to Smt. Pushpa Devi on September 21, 1960, were valid in law?

2. If the answer to the aforesaid question is in the affirmative, whether the Tribunal was legally right in confirming the disallowance of interest on the same?”

2. For the purposes of appreciating the facts in this case, it appears convenient to set out the following family tree:

3. Brijmohan and his sons, Murari Lal and Prabhat Kumar, constitute a partnership firm, Messrs. Bhau Ram Jawahar Mal, the assessee before us. On March 23, 1960, Murari Lal purported to make a gift of Rs. 10,000 to his sister, Saroj Kumari. On May 12, 1960, Ganpati Devi purported to make a gift of Rs. 10,000 to her daughter-in-law, Sita Devi. On September 21, 1960, Brijmohan purported to make a gift of Rs. 10,000 to his daughter-in-law, Pushpa Devi. The gifts were effected, it was said, by transfer entries in the books of the assessee-firm. The assessee credited interest in the accounts of Saroj Kumari, Sita Devi and Pushpa Devi by reason of the amounts gifted to them and entered it in their respective accounts. In assessment proceedings for the year 1961–62 the assessee claimed a deduction on account of the interest so debited. The claim was rejected by the Income-tax Officer in the view that the gifts were invalid as they had been made merely by transfer entries in the books of the assessee. The Income-tax Officer pointed out that the cash balance in the assessee's books on the respective dates of the gifts was insufficient for the purposes of enabling actual cash to pass. He observed that there were no registered gift deeds nor had actual delivery been effected.

4. The assessee appealed to the Appellate Assistant Commissioner of Income-tax, who held that the transactions amounted to an indirect transfer which attracted the provisions of section 16(3) of the Act and, therefore, the interest paid by the assessee was rightly disallowed by the Income-tax Officer.

5. The assessee now appealed to the Income-tax Appellate Tribunal. The Tribunal did not affirm the basis on which the Appellate Assistant Commissioner had proceeded but held that the gifts were invalid. The appeal was dismissed.

6. And, now, at the instance of the assessee, this reference has been made.

7. Upon a perusal of the appellate order of the Tribunal, it is clear that the basis for rejecting the validity of the gifts was the circumstance that the cash balance available in the books of the assessee on the date of the gifts was insufficient and that, therefore, no delivery of possession could have been possible. The case of the assessee that the absence of a sufficient cash balance in the books was not material when the transfers had been made by making appropriate book entries was rejected by the Tribunal with the observation that the gifts could have been validly made through such modus operandi only if the assessee had carried on the business of banking. There was no subsequent conduct, the Tribunal also observed, to support any gift.

8. It seems to us that the Tribunal has erred in taking the view that unless the assessee carried on banking business, a gift cannot be effected by a partner or other person possessing an account in the firm to another by transfer entries alone. As we shall presently show, the courts in India “have affirmed that a valid gift can be effected by such entries, even where” the cash balance in the books of the firm is not large enough to enable actual delivery to the donee of the amount gifted. We must bear in mind, in this connection, that there is no finding by the Tribunal that the transactions in question were a sham or that there was no intention on the part of the donors to make the gift.

9. In Commissioner Of Income-Tax, Ahmedabad v. New Digvijaysinhji Tin Factory [1959] 36 I.T.R 72 Bom.., the absence of an adequate cash balance in the books of the firm was not regarded by the Bombay High Court as a sufficient consideration for not validating a gift made by a partner to his relations through transfer entries in the books of the firm. There were other considerations, of course, such as withdrawal by the donees of the amount standing to their credit showing that the donees had accepted the gift, but there is nothing in the Tribunal's appellate order to indicate that the donees in the case before us had not accepted the gifts made to them. We are concerned with a case where the Tribunal rejected the claim substantially on the ground that transfer entries in the books of account would not result in a valid gift if the cash balance available with the firm was inadequate.

10. In South Indian Lucifer Match Works v. Commissioner of Income-tax [1961] 43 I.T.R 319 Mad.., a sum of Rs. 15,000 each was transferred from the capital account of a Hindu undivided family business to the two daughters of the karta, and, subsequently, the daughters entered into partnership with the karta and his son. The Madras High Court laid down that it was not necessary for the validity of the gifts that the amount should be actually handed over to the debtors. Subsequently, the same High Court in E.S Hajee Abdul Kareem and Son v. Commissioner of Income-tax clearly laid down that a partner in the assessee-firm could make a valid gift in favour of his wife and children through entries made in the books of the partnership firm debiting his account with the required amounts and crediting the accounts of his wife and children with corresponding sums of money, and that the circumstance that the cash balance of the partnership firm was insufficient was immaterial. The learned judges observed that the entries in the accounts of the donees operated as an acknowledgment of the liability of the firm as the debtor of those donees and the creation of a corresponding right of the donees to recover those amounts from the firm.

11. The absence of a sufficient cash balance in the books of the firm was also rejected by the Punjab High Court in Balimal Nawal Kishore v. Commissioner of Income-tax as a consideration for denying the validity of a gift made by a debit entry in the donor's account and a corresponding credit entry in the donee's account.

12. The same High Court in Naunihal Thakar Dass v. Commissioner Of Income-Tax, Punjab.* [1970] 77 I.T.R 332 Punj. did not consider that a sufficient cash balance in the books of the firm on the date of the gift was essential to validate the gift which was effected by such transfer entries. The learned judges observed:

“In our opinion, the matter really stands concluded by the decision of this court in Balimal Nawal Kishore v. Commissioner of Income-tax, where, on somewhat similar circumstances, this court took the view that from the mere fact that there were no cash balances, it could not be held that the gift would be invalid. The most significant fact is that there is no attack by the department that the gift was a sham transaction. The only ground on which the Tribunal proceeded to hold that the gift was not valid was that there were no cash balances and that there was neither any proof of acceptance of those gifts by the donees.”

13. Then, there is the decision of our own court in Gopal Raj Swarup v. Commissioner of Wealth-tax [1970] 77 I.T.R 912 All.., where a sum was transferred by the assessee, who was the karta of a Hindu undivided family, from his account in the books of the family to the account of his son by debiting his personal account and crediting the account of the son. Pointing out that the bona fides of the transaction had never been doubted by the Tribunal this court took the view that it was possible to effect a gift by making appropriate entries in the relevant accounts of the family's books.

14. It seems to us that it is not necessary in every case for the validity of a gift that there should be physical delivery of the amount by the donor to the donee, and in every case the decision of the question turns upon whether the modus operandi results in a transfer of the amount gifted from the donor to the donee. We think it sufficiently settled that such transfer can be effected in the books of a firm by making a debit entry in the account of the donor and making a corresponding credit entry in the account of the donee. So long as the entries made in the respective accounts put the gifted amount beyond the control of the donor and result in his ownership in it being replaced by the ownership of the donee, there is no reason why a valid gift cannot be effected through such book entries. We also think it to be established law that an adequate cash balance in the books of the firm sufficient to cover the amount of the gift on the date it is made is not a necessary condition to the validity of the gift. The adequacy of a cash balance in the books of the firm on the relevant date is of no moment when the financial resources of the firm are sufficient and the amount in the donor's account is large enough to cover the amount gifted by him. In the present case, the Tribunal has not doubted that the respective donors intended to gift the amounts to the donees. There is no suggestion that the transactions were not bona fide and were a sham. There is also nothing to suggest that the amounts were not accepted by the donees and that the donees did not act upon the gift. It was never the case of the revenue before the Tribunal that the gifts were invalid on that account. The sole consideration which prevailed with the Tribunal in holding the gifts invalid was the inadequacy of the cash balance in the firm's books on the date the gifts were made by reason of which the modus of effecting a transfer by appropriate debit and credit entries was rejected by the Tribunal.

15. On behalf of the revenue reliance has been placed on E.M.V Muthappa Chettiar v. Commissioner of Income-tax. There it was observed that credit entries in the books of account without allocation of specific funds corresponding to such entries could not operate as valid gifts of the sums credited. It seems to us that the observations in that case were prompted by the consideration that the gift was not in fact acted upon.

16. We were also referred to S.P Jain v. Commissioner of Income-tax. That was a case where the debit and credit entries were made by the assessee in this own books and there was nothing to show that the transaction had been accepted by the donee. Where the entries are made in the books of the donor himself, which are not the books of the banking business carried on by him, the material is insufficient to show that he has divested himself of the ownership in the fund and that the money is beyond his control. It is always possible for him to reverse the entries so long as his claim in the fund remains unaffected by the previous entries. The position would be different if there was evidence of acceptance by the donee.

17. A distinction must be drawn between cases where the entries are made in the accounts of the donor and the donee in the books of a third party holding moneys to the credit of the donor and a case where the donor purports to effect the transfer by making entries in his own books. To the latter class of cases belongs Commissioner of Income-tax v. Smt. Shyamo Bibi, which was also placed before us. The assessee there made transfer entries in her account books crediting a sum of Rs. 1,00,000 to the account of her grandson, Om Nath, and debiting her account for the same amount, and this court held that there was no valid gift as there was no delivery of possession of the amount. It was pointed out (page 8):

“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 Rs. 1,00,000, it could not be said that the money was put in possession of her as authorised to hold it on Om Nath's behalf.”

18. And further (page 10):

“In the first place she did not have Rs. 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 Rs. 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 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 Nath with possession, dominion and control over the money. It was open to her to delete or reverse the entries, at any time she liked subsequently. Merely because she made the entries Om Nath did not obtain possession, dominion and control of the money. If she had been carrying on a banking business and had made the entries in her books of account of the business it might have been said that thereby Om Nath obtained possession, dominion and control of the money.”

19. Accordingly, we hold that the consideration which prevailed with the Tribunal that the cash balance available with the assessee-firm was indaquate for covering the amounts gifted by the donors through the transfer entries made in the assessee's books is insufficient to invalidate the gifts.

20. The further finding of the Tribunal that there was no allocation of the gifted amounts and, therefore, no delivery to the donees flows from this consideration. The entries in the books of the firm, upon the facts of the present case, are sufficient, we think, to make out a case of such allocation and delivery. It is not disputed that the moneys were credited to the respective accounts of the donees, and that the donees were always entitled to operate on those accounts. Once the moneys were credited by the firm in the donees' accounts maintained in its books it was not open to the donors to unilaterally revoke the transactions and reverse the process already completed. The moneys held by the firm in the accounts of the donees was held to their credit, and it was only they who could instruct the firm how to deal with their accounts. In our judgment, on the facts and circumstances of the case, the gifts in question were valid gifts. Accordingly, we answer the first question in the affirmative, and, therefore, the second question in the negative.

21. The assessee is entitled to his costs which we assess at Rs. 200. Counsel's fee is assessed in the same figure.