The Judgment of the Court was delivered by

Srinivasan, J.:— The assessee is a firm which consisted of two partners, Abdul Kareem and his son Abdul Gaffer Sahib. On the 31st March, 1953, Abdul Kareem made a declaration before the Masieed Committee of Mahammadpara, where under he made certain gifts to his wife and children. In the books of the assessee, transfer entries were made on the same date, debiting the account of Abdul Kareem with these amounts and crediting the accounts of the above parties, the donees under the gifts. The cash balance on that date was not sufficient to enable Abdul Kareem to withdraw any amounts and make the gifts by way of cash. Following this, the constitution of the assessee firm underwent several changes. Besides Abdul Kareem and his eldest son, six other employees of the firm were taken on as partners.

2. In the assessment year following these gifts, the accounts of the various parties to whom the gifts had been made figured as depositors in the accounts of the firm and interest was credited to their accounts. In the assessment year 1954–1955, such interest was claimed as a deduction but was disallowed by the Income-tax Officer. This view was accepted by the Tribunal in due course. In the subsequent years 1955–1956 and 1956–1957, again interest payments on these accounts were disallowed. For the assessment year 1956–1957, however, the Appellate Assistant Commissioner allowed interest credited to the accounts of the minor children, but directed that these amounts should be assessed in the hands of the father. Though the statement of the case does not say whether the Interest credited to the accounts of the major children of Abdul Kareem was disallowed or not, that appears to have been the case. The assessment year now in question before us is. 1957–1958, and in respect of this assessment year, the assessee firm claimed that certain amounts have been paid by way of interest on the above said accounts, except to Abdul Gaffer, who was a partner. It was accordingly claimed that these deposits amounted to capital borrowed for the purpose of the business and that the interest payments were therefore allowable. But the Income-tax Officer disallowed the claim following his earlier orders. The view that he took was that the gifts had been made only by means of book entries and that there had been no delivery of the gifts, and that, even otherwise, in so far as the interest payments to the minors were concerned, such interest payments were includible in the assessment of Abdul Kareem under Sec. 16. The matter went in due course before the Tribunal and the Tribunal held that these gifts remained as book entries only and that they were not valid gifts.

3. Certain affidavits proceeding from the parties were also filed before the Tribunal, but the Tribunal took the view that these affidavits had been brought into existence by the interested persons and could not be accepted as they stood. In the opinion of the Tribunal, in order that there should be a valid gift, there should have been actual delivery of cash, which admittedly was not done. The Tribunal thought that the declaration and the entries made in the account books did not amount to valid gifts.

4. On the application of the assessee, the following questions have been referred to us:

“1. Whether there had been valid gifts on the 31st March, 1953? 2. If the answer to the above question is in the affirmative, whether the interest of Rs. 7950 is interest paid on capital borrowed for purposes of business allowable under S. 10(2)(iii)?”

5. Nowhere in the order of the departmental officers or in the order of the Tribunal do we find any suggestion that these gifts were not genuine. That Abdul Kareem made a solemn statement before certain other persons, the Masjeed Committee of Mahmammadpara, voluntarily making these gifts is beyond question. It is not also denied that following this declaration, Abdul Kareem caused necessary debit entries to be made in his accounts as well as credit entries in favour of the parties to whom the gifts had been made. Though, undoubtedly, in the previous years and in this year of assessment, the interest credited to the accounts of these persons was denied allowance under the provisions of the Act, that such interest payment was so credited to them and that they became entitled to receive those amounts is beyond controversy.

6. On appeal, the Tribunal observed in its appellate order relating to 1954–1955 that there had been no proper delivery of the intended gifts, which continued to belong to the partner, i.e, Abdul Kareem. While it is no doubt true that there is no evidence of any actual delivery of cash to the donees of the gifts, the further observation that the amounts continued to belong to the partner Abdul Kareem, the donor, seems to be wholly without any basis. A somewhat consistent feature that is noticeable is that while the interest paid to the donees other than Abdul Gaffer has been disallowed, the factum of the gift to Abdul Gaffer, who was one of the partners, had not been attacked. If the gift in favour of the other donees is invalid for the reason that there was no actual delivery, the same defect should attach to the gift that was made to Abdul Gaffer, the eldest son, who happened to be a partner in the firm.

7. In the appellate order of the Tribunal, the Tribunal referred to the case of Chimanbhai Lalbhai v. Commr. of Income-tax, (1958) 34 I.T.R 259 (Bom). The Tribunal thought that in that case, in addition to the entries in the assessee's own books of account, the assessee had further instructed his bankers to debit him and credit the donees with respective amounts of the gifts. This, in the opinion of the Tribunal, made a difference, because there was the interposition of a third party as to the carrying out of the object of the assessee and that, on the other hand. In the present case, there were only book entries in the books of the firm in which the assessee is a partner and this the Tribunal thought did not have the effect of handing over possession of the funds to the donees. This was the principal reason which led the Tribunal to hold that the gifts were not valid gifts, as there was no actual delivery essential to complete the gifts.

8. The short question then is whether in the circumstances of the present case the gifts can be regarded as valid. It seems to us that there can be no hard and fast rule and that the nature of the subject-matter of the gift must govern the decision. Whether actual possession can or cannot be given to the donee must in any instant case depend upon the nature of the subject-matter of the gift. It is true that the principle of the Mohammadan law requires that in order to make a good gift, there should be delivery of possession. But the question is possession of What? In Mulla's Mohammadan law, at page 137, the learned author observes:

“if a donor does not transfer to the donee so far as he can, all the possession which he can transfer, the gift is not a good one. The donor must so far as it is possible for him transfer to the donee that which he gives, viz., such rights as he himself has. But this does not imply that where a right to property forms subject of the gift, the gift will be invalid, unless the donor transfers what he himself does not possess, viz., the corpus of the property. He must evidence reality of the gift by divesting himself so far as he can of the whole of what he gives.”

9. The portion extracted above appears to be from Anwari Begam v. Nazimuddin Shah, ILR 21 All 165.

10. There is thus clear authority that the question as to how far the possession of the thing gifted can be given physically to the donee must depend upon the nature I of the subject-matter of the gift. In the instant case, we have noticed that what the donor purported to give were certain amounts representing the assets of the firm which were taken to the credit of the donees in the accounts of the firm. If the donee should be required to Pay cash and effect physical delivery of the cash to another donees, the only thing that he could have done ms to dispose of a flourishing business, convert it into cash and divide the cash among the donees. We do not think, that the law can possibly require any such impractical approach to the question. The donor was entitled to a considerable part of the firms assets. If he ??? to make any gifts of cash, consistently with the surrounding circumstances, we believe that a valid gift could have been made if he transferred to the donee in so far as the subject-matter of the gift was capable or, possession of that subject-matter in this case, the idea was undoubtedly that immediately after the making or the gifts, those amounts were to be taken to the credit of the donees in the firm's business and the firm treated itself as the debtor of the donees. This was effectuated by making entries in the accounts following the formal declaration which the assessee made in the presence of respectable-persons. In addition, year after year, the donees were credited with the interest upon the amounts, and these entries did operate as an acknowledgment of the liability of the firm as a debtor of these donees and the creation of a corresponding right in the donees, to recover these amounts from the firm.

11. To all intents and purposes, what the assessee did, was to create a right in the donees to a share in the assets of the firm. In the nature of things, therefore, it was impossible for the assessee to deliver physically any part of the subject-matter of the gift. As we have pointed out, if he had set out to do so, the only solution would have been to have liquidated the firm, convert its assets into cash and thereafter to distribute the assets. We are exceedingly loath to believe that the validity of the gifts having regard to the nature of the subject-matter of the gift, should be made to depend upon such an impractical course.

12. In Ratnaswamy Nadar and Sons v. Commr. of Income-tax, Madras, T.C No. 34 of 1959, a case decided by us, a similar question arose. There a father made gut of Rs. 4500 to each of his six sons, and debited himself with those amounts, and credited the sons with similar amounts. This was followed by the formation of a partnership between the father and the sons. But that apart, what we had to consider in that case was whether that would not suffice to validate the gifts. We observed.

“Where the gift consists of cash or money, the donor can be merely handing over the subject matter of the gift to the donee, effectively bring about a gift. It is open to the donee to hand back the gift to the donor asking him to keep it with him on his behalf or treating him as his debtor. It is implicit in a credit entry in favour of the donee in the account books of the donor that the amount standing to such credit has been gifted to the donee and has been invested with the donor. Though the entry as such may not conclusively establish a real and effective gift, it is evidence in support of the gift, and that evidence, taken along with the other evidence that may be available, can establish a gift if the requirements of law are fully satisfied.”

13. Do the surrounding circumstances in the present case afford such evidence, is the next question. We have already pointed out that apart from the first son, who was himself a partner in the partnership, the other donees were not partners. But, at the same time, immediately following upon these gifts, several other employees of the firm were taken into the business as partners so that there were as many as six persons, outsiders, unconnected with the family, who were partners of the firm. In the presence of these partners, the interest payments to these donees have been entered in the accounts, year after year, and it is not too much to say that there has been no word of protest from the other partners of the firm. Obviously, if the entries relating to the gifts were untrue, the other partners of the firm would have found occasion to object to the payment of this interest. On the other hand, this has been accepted by all parties, so that the genuineness of the gifts is beyond question. As we have already indicated, whether physical delivery should exist in any given case is a matter which would depend upon the nature of the subject-matter of the gilt. In the present case, we are satisfied that the gifts were genuine and valid.

14. It accordingly follows, that question No. 1 has to be answered in favour of the assessee. Following question No. 1, the second question has also to be answered in favour of the assessee. The assessee will be entitled to its costs. Counsel's fee Rs. 250.

GG/B.G.M/R.G.D

15. Reference answered.