Prominent Motors (India) vs Commissioner Of Income-Tax, New ...
1981 Latest Caselaw 338 Del

JUDGMENT

Ranganathan, J.

1. There are three references under the I.T. Act, 1961, at the instance of Shri goal Dass, proprietor of M/s. Prominent Motors (India), Delhi (hereinafter referred to as "the assessed"). They relate, to the assessment years 1967-68, 1968-69 and 1969-70, the relevant previews years being the preceding financial years. The questions referred to us are common for all three years and read as under:

"1. Whether, on the facts and in e circumstance of the case, the Tribunal was justified in holding that the gift of Rs. 1 lakhs said to have been made by the assessed to his wife on March 20, 1963, was invalid and the entire claim of interest allegedly paid by the assessed in his wife's account were admissible deduction for the assessment years 1967-68, 1968-69 and 1969-70 ?

2. Whether, on the facts and in the circumstances of the case, the Income-tax Officer was debarred form challenging the validity of the gift for the assessment years in question ?"

2. The facts necessary for the decision of the question lie in a narrow compass. The assessed was carrying on a business in motor parts. He claimed to have made a gift of Rs. 1 lakh to his wife, Smt. Shanta Rani, on March 20, 1963. Immediately thereafter it was stated that the assessed borrowed the amount from his wife. In the balance-sheet of the assessed's business as on March 31, 1963, the wife, Smt. Shanta Rani, is shown as a creditor of the assessed to the extent of Rs. 1 lakh.

3. For the assessment years 1964-65, assessed claimed to have paid interest amounting to Rs. 12,000 to his wife. But since this interest income was earned by her from assets gifted to here by the assessed, the interest income was also to be treated as assessed's income. In other words, the interest payable by the assessed to his wife and the addition under s. 64 balanced each other. For the assessment years 1965-66 and 1966-67, the interest claimed to have been paid by the assessed to his wife came to Rs. 13,440 and Rs. 15,908, respectively. Out of this, the sum of Rs. 12,000 attributable to the original gift of Rs. 1 lakh was not allocable to the assessed as a deduction for the reasons mentioned above. So far as the balance of Rs. 1,440 for the assessment year 1965-66 and Rs. 3,908 the assessment year 1966-67 were concerned, these represented the income of the wife attributable to the interest which was due to her form the assessed and not to the asset transferred by the assessed to her. These amounts were, therefore, permitted as deduction in the two assessment years above mentioned.

4. However, when the assessment for 1967-68 was taken up, the ITO took the view that there had been no valid gift made by the assessed to his wife. He pointed out that the there was no written deed of gift and he was of the opinion merely placing a portion of the assessed balance of the capital account under a separate account in the name of his wife did not tantamount to a valid gift. He pointed out that the assessed did not have any cash balance on the relevant dated nor even business assets to the extent of Rs. 1 lakhs on that date which he could have a gifted in favor of his wife. In the view which he took, the ITO was of the opinion that there having been no gift, the questions of any interest payment on an amount borrowed from the assessed's wife did not arise and he, therefore, added back the entire interest credited by the assessed to his wife account. In this manner additions of Rs. 17,929, Rs. 20,238 and Rs. 22,405 respectively were made by the ITO in the three assessment years 1968-69 and 1969-70.

5. The ACC, to whom the assessed appealed, allowed the assessed's claim by his consolidated order for the three assessment years in question. But in doing this, he did not discuss the issue of the validity of the gift raised by the ITO. He merely pointed out that in the earlier year the assessed himself surrendered the interest of Rs. 12,000 and observing that the interest in excess of that amount should have been allowed, gave relief to the assessed in respect of Rs. 5,927, Rs. 8,238 and Rs. 10,405 respectively for the three years in question.

6. The Department preferred an appeal in respect of each of the threes years to the Income-tax Appellate Tribunal and contend that in the present case there had been no valid gift made by the assessed in favor of his wife. Reliance was placed on the cases in S. P. Jain v. CIT [1964] 51 ITR 6 (Pat), CIT v. Shyamo Bibi [1966] 59 ITR 1 (All), New India Colour Co. v. CIT and CIT v. Beni Prasad Tandon . The Tribunal accepted the Revenuesn appeal. It pointed out that in the present case, the assessed was the sole proprietor of M/s. Prominent Motors (India) and that the account books were entirely in his possession, decided dominion and control. The Tribunal was of the opinion that by the merely making entire in the account books in a separate account of his wife, no valid gift could be said to have been made. It was also pointed out that on March 20, 1963, there was not sufficient cash balance in the hands of the assessed and there was also no delivery of the cash balance to the alleged donee. Relying on the judgment in the cases of Shyamo Bibi [1966] 59 ITR 1 (All) and New Indian Colour Co. and the other two decision relied upon on by the Department, the Tribunal allowed the REvenue appeal. The Tribunal also rejected the contention put forward on behalf of the assessed that since the ITO had accepted the validity of the gift in the assessment years 1964-65 to 1966-67, it was not open to the Department to challenging the validity therefore in the assessment years under consideration. In rejecting this contention, the decision of the Supreme Court in the case of New Jehangir Vakil Mills. Co. Ltd. v. CIT , was relied upon.

7. At the instance of the assessed, the question of law set out earlier have been referred to us for our decision.

8. The second question is capable of a simple and easy answer. There can be no doubt that the ITO is not debarred from arriving at a conclusion regarding the validity of the gift different from the view taken in the earlier years. In facts, there is nothing to show that in the earlier yeas, the ITO examined the matter and came to any positive conclusion in this regard. All that is available on the record is that the interest payment claimed were allowed in the earlier years accepting the claim of gift. Whatever that may be, it is well settled that for purposes of income-tax, each assessment is separate and self-contained and that the decision given in one years does not constitute res judicata in subsequent years. The Tribunal, therefore, was right in coming to the conclusion that Department was not shut out from rising the questions of validity of the gift for the assessment years presently in question.

9. So far as the first question is concerned, again, we agree with the view taken by the Appellate Tribunal. A copy of the balance-sheet as on March 31, 1963, has been made available to us. As pointed out by the Tribunal, this does not show either cash in hand or other tangible assets of the value of Rs. 1 lakhs or above. There was, of course, some stock-in-hand and there were some outstanding dues to the assessed but it is not the case that either the stock was handed over to the wife or that the debts due to the assessed were assigned to her by way of gift. The assesse's case is that a sum of Rs. 1 lakhs was gifted by him to his wife. The version of the gift was only sought to be supported by means of book entires which show that the sum of Rs. 1 lakhs has been debited to the assessed's capital account credited to the account of this wife. It may be that the assessed considered himself indebted to the wife to the extent of Rs. 1 lakh. But the question of his having made a gift to the wife does not arise.

10. This question regarding the validity of the gift made by book entire has been discussed by use at some length in our recent judgment dated September 22, 1980, in ITO Nos. 304, 319 and 320 of 1979 and 315 of 1980 (Indian Glass Agency v. CIT [1982] 137 ITR 245). In this judgment, we have discussed the case law pertaining to this aspect of gifts attempted to be have made by book entires. We have pointed out that a gift cannot be said to have been made merely because an owner of the business makes entire in his books of account without allocation of funds corresponding to such entires. We have also pointed out that there is a substantial different between a case where such entires are made in e books of account belonging to the assessed himself and a case where the gift is evidence by entires in the books of account of a third party, such as an HUF, a firm or a company. For the reasons discussed in greater detail in that judgment, we are of opinion that the Tribunal was correct in coming to the conclusion that, in the present case, no valid gift of a sum of Rs. 1 lakhs had been made by the assessed to his wife on 20 March, 1963.

11. Mr. B. B. Ahuja, learned counsel for the assessed, sought to distinguish the case of Shyamo Bibi [1966] 59 ITR 1 (All), on the footing that in that case the account were made up by a private individual for her private sources of income whereas in the present case the entry had been made in the books of account pertaining to a business. We are unable to agree that this distinction makes any difference. The distinction is between entires in the books of account maintained by an individual which are under this control and possession and in which it is open to him to make any entires at any time and a case of entires in books of account maintained by a third party at the instance of the donor. We are unable to see any distinction between a case where the books of account are maintained by an individual for his private purpose and one where they are maintained for business purposes.

12. Mr. Ahuja also contended that in this case the gift of Rs. 1 lakh should be treated not as a gift of cash but as a gift of the assets of the business to the extent of that amount. This argument cannot be accepted. The case of the assessed throughout was that he had gifted a cash of Rs. 1 lakh. No case was made out at any time that it was not cash but some other assets that had been transferred to the assessed. There were no other assets which would have been transferred and no such assets were pointed out to us either. From the mere fact that the total assets of the business exceeded the sum of Rs. 1 lakh (talking into account all debts due to the business and bills receivable and so on), it does not follow that the gift made by the assessed was of the assets of the business to the tune of a sum of Rs. 1 lakh.

13. We, therefore, agree with the view taken by the Tribunal and answer the question refereed to us as follows:

Question No. 1 in the affirmative and in favor of the Revenue. Having regard to the fact that there is a mistake in the question framed, we clarify that the interest claimed was not admissible as a deduction.

Question No. 2 in the negative and in favor of the Revenue.

14. The reference is disposed of accordingly. The Revenue will be entitled to its costs (one set). Counsel's fee Rs. 350.