Deemed gift valuation under gift-tax law turns on market value at transfer, not later asset values of the transferee.

Section 4(1)(a) of the Gift-tax Act, 1958 deems a gift where property is transferred for less than adequate consideration, and the relevant test is the market value of the property on the date of transfer against the value of the consideration then received. The transferee's later asset position cannot be used retrospectively to inflate the value of shares issued as consideration, so the Tribunal's reliance on the break-up value of the subsidiary companies after the transaction was legally incorrect. The Income-tax Act provisions on transfer did not alter the gift-tax analysis. On that basis, the difference in value was liable to gift-tax.

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Issues: Whether the difference between the market value of jewellery transferred by the assessee to its wholly owned subsidiary companies and the face value of the shares received in exchange was liable to gift-tax as a deemed gift under the Gift-tax Act, 1958.

Analysis: Section 4(1)(a) of the Gift-tax Act, 1958 deems a gift where property is transferred for less than adequate consideration, and the relevant comparison is between the market value of the transferred property at the date of transfer and the value of the consideration then received. The value of the consideration cannot be determined by referring to the post-transaction asset position of the transferee companies, because the property acquired in the transaction cannot be used retrospectively to inflate the value of the shares given as consideration. The Tribunal's approach of equating the shares with the later break-up value of the companies, based on the jewellery acquired in the very transaction, was therefore legally erroneous. The provisions relating to transfer under the Income-tax Act, 1961 did not assist the assessee in the context of deemed gift under the Gift-tax Act, 1958.

Conclusion: The difference of Rs. 8,21,950 was liable to gift-tax, and the question was answered in the negative, in favour of the Revenue and against the assessee.

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