Law:

Section:

Section 62 of the Income -tax Act, 1961 [Corresponding to section 16(1)(c) of the Indian Income-tax Act, 1922] - Transfer of assets - Irrevocable - Assessee made gift to his son and daughter by debiting his account maintained in a firm of bankers - Revenue authorities, however, assessed assessee in respect of interest on amount credited to accounts of son and daughter on ground that gift was not a valid one as no possession was transferred at time of gift, moreover assessee had not sufficient credit balance in his account on date of gift -Whether it was not necessary that bank should have actual funds in order to acknowledge its liability to pay a certain amount to a third party on behalf of its constituent - Held, yes - Whether, therefore, entries made in books of firm constituted valid gift and, thus, assessee was not liable to be assessed on interest amounts credited to accounts of son and daughter - Held, yes FACTS The assessee made a gift of Rs. 5 lakhs to his son 'S' and a gift of Rs. 2 lakhs to his daughter 'P' But he had an account with the firm which carried on the business of bankers. His son and daughters also had accounts with this firm and he instructed this firm as his bankers to debit him and credit 'S' and 'P' for the amount of gift. The ITO however, assessed the assessee in respect of the interest credited to the accounts of the said 'S' and 'P' respectively in their books of account. The AAC upheld the order of the ITO. On appeal to the Tribunal, it held that the gift was not effectuate and dismissed the appeal. On reference : HELD It can not possibly be suggested that a constituent of a bank cannot make a gift by drawing a cheque upon his account and giving that cheque to a third party and if the third party presents this cheque and the bank accepts it and gives him credit for the amount represented by the cheque then a valid gift is not made. The reasons which led the Tribunal to this extraordinary conclusion was that as required by the Transfer of property Act no possession was given of this movable property and till possession is given the gift is not complete. The Transfer of property Act is very well in its proper place, but it seemed to…

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