JUDGMENT
1. The Income-tax Appellate Tribunal has referred the following questions for the opinion of this court:
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the second gift of Rs. 15,000 made on April 2, 1971, to Sri Sumit Kedia was a genuine gift in view of the fact that after making the first gift of Rs. 15,000, the donor did not have sufficient cash in her books ?
2. Whether, on the facts and in the circumstances of the case, the cash not existing in reality can be made a subject-matter of gift ?
3. Whether modes of gift can artificially be created so as to be treated as a valid gift under the Gift-tax Act ? ”
2. The assessee is an individual. During the previous year relevant to the assessment year 1972-73, the assessee made entries in her books showing gifts made to her minor grandchildren as follows :
Name of the grandchild
Date of gift
Amount gifted
Rs.
1.Sri Amitabh Kedia
April 2, 1971
15,000
2. Sri Sumit Kedia
April 2, 1971
15,000
3. Sri Amitabh Kedia
July 22, 1971
2,500
4. Sri Sumit Kedia
August 13, 1971
2,500
3. The assessee filed a gift tax return declaring the aforesaid four gifts aggregating to Rs. 35,000 and taxable gifts at Rs. 30,000. The Gift-tax Officer, however, after scrutiny of rokar about cash balance, held that the gifts were not genuine and not intended to transfer title to the donees. It was only an entry in the books which was described by the Income-tax Officer as ” to give the colour of actual gifts”. He, however, accepted them as a protective measure.
4. In the appeal preferred by the assessee, the Appellate Assistant Commissioner accepted the contention of the assessee. He held that no cash balance was necessary for making a gift and that a valid gift could be made by book entries. He also observed that the book entries indicated that the assessee had the cash with her for the purpose of making the gifts in question.
5. Aggrieved by the aforesaid, the Department preferred an appeal to the Tribunal which also concurred with the view taken by the Appellate Assistant Commissioner. The Tribunal observed that the Department did not challenge the genuineness of the book entries. Therefore, the entries will have to be given their normal and legal effect. There is hardly anything to suggest that the entry did not bring about a transfer of title in respect of the amount gifted in favour of the donees. So stating, the Tribunal dismissed the appeal.
6. The answers to all the questions referred depend upon the fate of the second gift made in favour of Sumit Kedia. It is, therefore, necessary to refer to the then actual state of affairs. On April 2, 1971, the assessee had with her cash of Rs. 16,201. Out of that she donated Rs. 15,000 to Amitabh Kedia and handad over the sum to the guardian, Smt. Sharda Devi Kedia. It is said that the guardian returned the said sum of Rs. 15,000 to the assessee for being kept as a deposit with her. But the assessee did not so keep it. She again made entries in her books to indicate that she gifted the said sum to Sumit Kedia. This, money also did not remain with the guardian of Sumit Kedia. It was just a repeat performance. The result of these transactions was that the assessee was in possession of her amount undiminished. What happened thereafter may not be necessary for us and, therefore, we do not refer to the subsequent alleged transactions.
7. It is no doubt true that gifts can be made by making necessary book entries and 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. It is generally now accepted that a valid gift can be effected by making necessary entries in the accounts. In Gopal Jalan v. CIT, [1972] 86 ITR 317, this court observed (at page 320):
” In the case of gifts, the courts in India have repeatedly affirmed that a valid gift can be effected by a partner by the firm making, upon his instructions, appropriate debit entries in his account in the books of the firm and corresponding credit entries in the account of the donee, in those books. And that is so, it has been pointed out, even where the cash balance in the books of the firm on the date of the gift was not large enough to enable actual delivery in cash to the donee of the amount gifted.”
8. But this general principle cannot be extended blindfold to entries made by the donor in his own books. A distinction must be drawn as observed by this court in Bhau Ram Jawaharmal v. CIT, [1971] 82 ITR 772 (at page 777):
” 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.”
9. In this case, we are concerned with the transfer entries made by the assessee in her own accounts. The entries were made by the assessee herself, indicating the gifts in favour of her grandchildren. The entries might have been correct in the sense they have been made by the assessee. The Department did not challenge, and indeed could not, have challenged the correctness of those entries. But then, mere entries should not be accepted as conclusive of the transaction as rightly urged by learned counsel for the Revenue. The authorities are not bound to give effect to a transaction merely because it has been given a legal shape.
10. The statutory authorities could find out whether the entries are make-believe arrangements. They may examine whether the entries were intended to create fictitious capital in the hands of the donee. They may take into consideration whether the donor had a legitimate source of money for the purpose of the gift. They may find out whether the donor really intended to confer title on the donee in respect of the amounts in question. These and other matters could be examined without challenging the entries in the books of account
11. We may, however, point out that there may be cases of borrowing for making gift in certain circumstances. It is part of our Indian culture. But circumstances should justify and there should be compelling reason. It should be a bona fide transaction.
12. The assessee, after making the first gift in favour of Amitabh Kedia, had with her a cash balance of only Rs. 1,201. Smt. Sharda Devi Kedia, guardian of Amitabh Kedia, might have deposited the said sum with the
assessee as the entries in the books purport to indicate but the assessee was not the owner of the said sum. The Tribunal, therefore, ought to have examined whether the second gift on the same day was a bona fide transaction or a colourable one.
13. For want of proper finding by the Tribunal in respect of the above matters, we cannot answer the questions. We, therefore, decline to answer the questions. The Tribunal will now dispose of the matter in the light of the observations made.
14. In the circumstances of the case, we make no order as to costs.