Law:

Section:

Section 37(1) of the income-tax act, 1961-Business expenditure-Partners in assessee-firm gifted certain amounts by book entries to their wives and minor children-whether gift by book entries were valid and interest paid to donees by assessee-firm on gifted amounts could not be disallowed-held, yes Gift-Validity of-Whether a valid gift can be effected by making entries in books of account if gift is acted upon by both donor and donee-held, yes Facts The ITO found that in the relevant previous year, several partners of the assessee-firm had made gifts to their respective wives, minor children and grand children by passing entries in the firm's accounts, i.e., debiting the accounts of the partners concerned and crediting the accounts of the donees. The entries crediting interest were also made in the accounts of the donees. The ITO held the gifts to be invalid and disallowed the interest paid on the gifted amounts by the assessee. Both the AAC and the Tribunal, however, held the gifts to be valid and, accordingly, upheld the assessee's claim for deduction of interest paid on said gifted sums. On reference: Held It was held by this Court in CIT v. Popatlal Mulji [1977] 108 ITR 4 (Bom.) and in Chimanbhai Lalbhai v. CIT [1958] 34 ITR 259 (Bom.) that there can be a valid gift effected by making entries in the books of account if there is evidence to show that the gift was made by the donor and accepted by the donee and acted upon by both of them. Accordingly, the gifts, in the instant case, were valid and the disallowance of the interest on these gifts was unjustified. Case review CIT v. Popatlal Mulji [1977] 108 ITR 4 (Bom.) and Chimanbhai Lalbhai v. CIT [1958] 34 ITR 259 (Bom.) followed. Cases referred to Chimanbhai Lalbhai v. CIT [1958] 34 ITR 259 (Bom.) and CIT v. Popatlal Mulji [1977] 108 ITR 4 (Bom.). IT REFERENCE NO. 30 OF 1975 R.J. Joshi and J.P. Deodhar for the Applicant. JUDGMENT KANIA, J. - The respondent (assessee) has not been served in this reference. It appears that the notice of the reference was prepared and lodged with the Sheriff for service, but there is nothing further to show whether the service has been effected on the respondent. Normally, we…

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