Recognised share valuation method defeats deemed gift claim where consideration is fair and no evasion is shown.

Section 4(1)(a) of the Gift-tax Act, 1958 applies only where inadequate consideration is shown in a way that indicates evasion or lack of bona fides. Where unquoted shares are valued using a recognised method for investment companies, such as the average of break-up value and capitalised value based on maintainable profits, and there is no material showing collusion or a price so low as to be unfair, the Revenue cannot substitute its own market-based revaluation. On those facts, the deemed gift provision does not operate and no deemed gift arises.

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Issues: Whether the difference between the fair market value of unquoted shares and the consideration received could be treated as a deemed gift under section 4(1)(a) of the Gift-tax Act, 1958.

Analysis: The shares were valued by the assessee by applying the Board's recognised method for investment companies, namely the average of break-up value and capitalised value based on maintainable profits. That method had been in force during the relevant period and was followed without any finding that the transaction was collusive, colourable, or that the returned price was so low as to indicate evasion. In the absence of material showing that the stated consideration did not represent a fair and reasonable value, the Revenue could not substitute a different valuation merely by reworking the assets at market value. On those facts, the transaction did not attract section 4(1)(a).

Conclusion: The question was answered in the affirmative and in favour of the assessee, and the deeming provision was held inapplicable.

Final Conclusion: The reference was disposed of by holding that the sale and gift transactions, valued on the recognised method adopted by the assessee, did not give rise to a deemed gift under the Act.

Ratio Decidendi: Section 4(1)(a) of the Gift-tax Act, 1958 is attracted only where the consideration is demonstrably inadequate in a manner suggesting evasion or absence of bona fides; where the assessee adopts a recognised valuation method and the price is fair and reasonable, no deemed gift arises.

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