COMMISSIONER OF INCOME TAX, KANPUR versus DR. R.S. GUPTA

Citation: [1987] 2 S.C.R. 121 · Decided: 03-02-1987 · Supreme Court of India · Bench: SABYASACHI MUKHERJI · Disposal: Appeal(s) allowed

Judgment (excerpt)

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COMMISSIONER OF 
INCOME TAX, KANPUR 
v. 
DR. R.S. GUPTA 
FEBRUARY 3, 1987 
[SABYASACHI MUKHARJI AND S. NATARAJAN, 11.] 
Sections 4, 27(1) and 29-Wealth tax-Gift-Assessee directing 
firm by a letter to debit his account of certain amounts and credit respec-
tive accounts of his sons and grandsons-Gifts made out of love and 
affection-Entries in account books-Whether constitute valid gift-
Whether inc/udible in net wealth of assessee-Absence of cash balance 
with the firm or overdraft facilities with the bank-Effect of. 
The Income Tax Officer included in the net wealth of the res-
pondent-assessee for the assessement year 1957-58, two sums, viz., 
Rs. 1,50,000 and Rs.67,560/12/- which the assessee claimed to have 
gifted. It is stated that on January I, 1957 the respondent-assessee, by a 
letter directed a company in which he maintained an account, to debit 
his account to the extent of Rs. l,50,000 and credit in the names of his 
two sons and grandsons various sums, as he had decided to give away 
these amounts to them out of love and affection. The company carried 
out the instructions and relevant debit and credit entries were made in 
the respective accounts. On the same day, by two separate letters, the 
gifts were accepted by the sons and later on these amounts were with-
drawn by the respective donees. In the case of second gift, oral instruc-
tions were given for transferring the amounts standing to his credit. 
The respondent-assessee having failed before the Income Tax 
Officer and the Appellate Assistant Commissioner, appealed to the 
Income Tax Appellate Tribunal and contended that the first company 
was carrying on the business of banking and hence the gifts in question 
were vaild, and that the Income Tax Officer and the Appellate Assistant 
Commissioner had wrongly included these amounts in his net wealth 
and in the case of second gift, the assessee claimed that the amounts 
were gifted by him by transfer entries. 
The Tribunal found that there was no evidence that the first com-
pany was carrying on any banking business, and in the case of second 
gift, the sum was available with the company. It, therefore, held that 
the first company was not carrying on banking business, and in the 
121 
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122 
SUPREME COURT REPORTS 
[1987] 2 S.C.R. 
A 
second case, there was no v:alid gift. It, however, referred the matter to 
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the High Court. 
B 
The High Court held that the Tribunal was not right in holding 
that the assessee did not make valid gifts and in holding that the 
amounts were rightly incluliled in the net wealth of the assessee. 
Allowing the appeal by the Revenue, this Court, 
HELD: l. In order 'lo constitute a valid gift there must be an 
existing property. In case of entries in the books of account by credit 
and debit, the sums should be available on the date of gift in the account 
of the firm whose accounts are said to be credited or debited. In the case 
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of banking companies or other firms and companies who have overdraft 
facilities, even if the sums are not in credit of the donor and are not with 
such companies or firms, giifts might be possible by adjustment of book 
entries. But in the cases olr non-banking companies or firms, if these 
companies or firms do not have overdraft facilities, it is not possible to 
make vaild gift if sums or funds are not available. lt26E-G] 
D 
2. It is possible in e<,rtain circumstances for a donor to make a 
valid gift by instructing a 15rm or a company or H.U.F., in which the 
donor has an account to giv1e effect to the gift by debiting his account and 
crediting the account in the name of the donee. But in such cases merely 
book entries would not suffice. The circumstances must be such as to 
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make it clear that"" there were sufficient funds at the disposal of the 
donor by reason of which he could make the gift by such book entries. 
The firm in which the donor may have account may or may not have 
sufficient cash balance but it must have sufficient provision for over-
draft with the bank on the basis of which it could honour instructions 
given by the assessee. lt26H; 127A-B] 
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J. Each case must be decided on the facts of that case. Where the 
assessee has a credit account with a firm or with a family or with a 
banking company and that sum is available to that firm or the company 
or H.U.F. on the date ofth1e gift, then a valid gift by book entries might 
be possible. But where a sum was n

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