A gift of money by a firm partner can be validly made by transferring the amount from the donor's capital account to the donee's accounts in the firm's books, even if the firm does not have sufficient cash balance at the time of the gift.

FALSHAW, J.

1. The following question has been referred to this court by the Income-tax Appellate Tribunal under section 66(1) of the Income-tax Act :

"Whether there was a valid gift of Rs. 60,000.00 on December 5, 1956, by merely transferring Rs. 60,000.00 from the capital account of L. Nawal Kishore to the account of donees as mentioned in paragraph 3(c) above, so that the interest of the various accounts comprises a proper deduction under section 10(2) (iii) of the Income-tax Act ?"

2. The case refers to the assessment of the partnership firm, M/s. Bali Mal Nawal Kishore, for the year 1957-58 for which the accounting year ended on the 31st of March, 1957. There were five partners in the firm, Nawal Kishore, his three sons, Jagan Nath, Deoki Nandan and Lal Chand, and also Atma Ram, who was apparently the natural son of Nawal Kishore, but was the adopted son of one Raje Lal. Nawal Kishore died on the 14th of December, 1956, but 9 days before he died, on the 5th of December, 1956, he made an entry in his own hand in the account books of the firm to the effect that he was making a gift of Rs. 60,000.00 out of an amount of some Rs. 81,000.00 standing to his credit in his capital account with the firm, in favour of 13 donees, the gift of Rs. 3,750.00 in the case of each of the four sons of partners, Jagan Nath, Atma Ram and Lal Chand and Rs. 15,000.00 in the case of Krishan Kumar, the only son of the partner, Deoki Nandan. These sums were credited on the same day, the 5th of December, 1956, in the accounts of the donees in the firms books and at the close of the financial year each was credited with the interest on the gifted sum due up to that as well as in the following year during which, according to the copies of the accounts of the donees filed and made part of the case, some of the donees actually withdrew sums of money from the amounts standing to their credit.

3. It may also be mentioned that on the 5th of December, 1956, the cash balance shown in the books of the firms was Rs. 3,665.00 and the bank balance was Rs. 4,299.00, but at the same time the unutilised drawing power of the firm on its bank was Rs. 1,27,088.00.

4. In its assessment the firm claimed to deduct the sums paid as interest to the donees for the relevant period, but this was disallowed by the Income-tax Officer, the Appellate Assistant Commissioner and finally by the Appellate Tribunal which held that the gift was not valid because it did not comply with the provisions of section 123 of the Transfer of Property Act on the grounds that there was neither physical nor symbolic delivery and the cash available to the firm on the date of the gift was insufficient to satisfy the gift of Rs. 60,000.00.

5. It is to be noted that there is no suggestion at any stage of the proceedings of any taint of mala fides being attached to the disputed transaction, and the gift was rejected as invalid purely on the technical ground that it did not meet with the requirements of section 123 of the Transfer of Property Act which, in the case; of a gift of movable; property, are that the transfer is either to be effected by a registered document or by delivery to be made in the same way as goods sold may be delivered. The only case cited before the Appellate Tribunal on behalf of the assessee, Commissioner of Income-tax v. New Digvijaysinhji Tin Factory was not discussed in the order. In that case the assessee was a registered firm with two partners, Vithaldas Dhanjibhai and his son, Harjivandas Vithaldas, and in certain documents executed in 1946-48 the father, for the express purpose of assuring his son against any apprehension of his marrying a second wife, made gifts of one quarter out of his half share of the firms profits to his daughter-in-law and grandson and entries were made in the account books of the firm regarding the sums thus gifted, and the donees from time to time withdrew sums from the amounts standing to their credit. Interest on the sums standing to the