Deemed gift under the Gift-tax Act was not established where partnership book entries did not prove transfer for inadequate consideration.

Reconstitution of a proprietary business into a partnership with family members did not, on these facts, amount to a taxable gift under the Gift-tax Act. Liability depended on proof of a transfer of property for inadequate consideration attracting the deeming provision, but the partnership-book credit entry was only notional and not conclusive of real consideration. As the record did not show that goodwill or other assets were transferred below market value in a manner satisfying the statutory ingredients of a deemed gift, no taxable gift arose.

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Issues: Whether the conversion of a proprietary business into a partnership with family members, on the facts of the case, resulted in a taxable gift under the Gift-tax Act.

Analysis: Liability under the Gift-tax Act depended on whether there was a transfer of property for inadequate consideration so as to attract the deeming provision. The credit entry made in the partnership books was treated as only a notional figure and not conclusive of the real consideration. On the material on record, except for the accounting entry, there was nothing to show that the assessee had transferred goodwill or other assets for less than market value in a manner satisfying the statutory ingredients of a deemed gift. The nature of the partnership deed and the rights created on reconstitution supported the view that the consideration could not be mechanically equated with the book entry.

Conclusion: No taxable gift arose on the reconstitution of the business partnership, and the question was answered in the negative, in favour of the assessee.

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