The main legal point established is that the validity of a gift can be determined by the rules of Muhammadan law, and compliance with the Transfer of Property Act, 1882, may not be necessary in such cases.

M. S. MENON, C.J. :- This is a reference by the Central Board of Direct Taxes, New Delhi, under sub-section (1) of Section 64 of the Estate Duty Act, 1953, as it stood prior to its amendment by the Estate Duty (Amendment) Act, 1958. The question referred reads as follows :

"Whether on the facts and in the circumstances of the case, the amount of Rs. 2,25,000/-was correctly included in the estate of the deceased as property passing or deemed to pass on his death?"

2. One Amir Mohideen Rowther died on the 24th March 1957. It is with his estate that we are concerned in this reference.

3. Amir Mohideen Rowther was a member of a partnership consisting of himself and his three sons till his retirement from that partnership on the 25th November 1956. On the 31st December 1954 a sum of Rupees 2,25,000/- was debited in his account with the partnership and a sum of Rs. 75,000/- each was credited in the accounts with the partnership of his three sons; Mohamed Kasim, Sultan Mohammed and Abdul Razack.

4. The question for determination is whether there was a valid gift of the sum of Rs. 2,25,000/- by Amir Mohideen Rowther in equal shares to his three sons on the 31st December 1954. If there was such a gift, the gift was more than two years prior to the death of Amir Mohidden Rowther on the 24th March 1957, and section 9 of the Estate Duty Act, 1953, which provides that dispositions not made two years or more before the death of the deceased shall be deemed to pass on his death, will have no application to the case before us.

5. The Board has held that the entries made in the accounts of Amir Mohidden Rowther and his three sons with the partnership on the 31st December 1964 represent the transfer of an actionable claim. We are unable to agree.

6. It is true that it is usual among mercantile men and accountants to treat all the accounts of a partnership as accounts of the firm, and to deal with the accounts of individual partners as if they were simply debtori or creditors of the firm. Lindley on Partnership summarises the mode of keeping partnership accounts as follows:

"The property brought into the concern is credited to the stock account of the firm, and is then distributed through the ledger account; and in these ledger accounts the several articles and persons are made debtors to stock for the several items passed into these accounts. Bach partner has his own separate account opened with the firm (usually in a private ledger), and is credited with everything he brings into it and is debited with everything he draws out of it. Upon a rest, the net profits are determined, and are divided between the partners in the proper proportions, and the share of each partner is carried to the credit of his own separate account. The partners are creditors of the firm for all its stock, and they are debtors to it for all its deficiencies, when they first bring in their capital, the firm is in the private ledger made debtor to each of them for his proportion of capital. Whenever stock is taken, and a surplus appears, that surplus is divided according to the shares, and is carried to the accounts of the respective partners. If, instead of a surplus, a deficiency appears, the lost in apportioned in the same way.

Each partner being thus treated like an ordinary creditor and debtor, in respect of what he brings in and what he draws out, the balance standing to his credit or to his debit, as the case may be, in the private ledger, shows how his account with the firm stands. Upon payment of that balance by the firm to him, if the balance is in his favour, or by him to the firm, if the balance is against him, his account with the firm is closed and settled" (12th Edition, page 246).

7. A partner, however, is not a debtor to or creditor of his firm in any legal sense of the term. Lindley on Partnership deals with the matter as follows:

"Accountants are quite right in debiting each partner in his account with the firm with the whole of whatever he draws out,