Partner's contribution of personal property to a firm is not a deemed gift when book credit is not true consideration.

A partner's contribution of personal property to a firm as capital is treated as a transfer in the limited sense that exclusive ownership is converted into a shared partnership interest, but that alone does not attract gift-tax under section 4(1)(a) of the Gift-tax Act. The provision applies only where the transfer is for inadequate consideration, and the book credit in the firm's accounts is not the true consideration because the partner receives reciprocal partnership rights whose value cannot be precisely ascertained at the time of transfer. In the absence of a specific deeming rule, the credited amount cannot be used to prove inadequacy of consideration or to quantify a deemed gift.

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Issues: (i) Whether contribution of a partner's personal asset to the capital of a partnership firm constitutes a transfer liable to gift-tax under section 4(1)(a) of the Gift-tax Act when the asset is credited in the firm's books at a value lower than its market value; (ii) whether, on such facts, a deemed gift can be inferred on the footing that the consideration for the transfer was inadequate and ascertainable by reference to the book entry.

Issue (i): Whether contribution of a partner's personal asset to the capital of a partnership firm constitutes a transfer liable to gift-tax under section 4(1)(a) of the Gift-tax Act when the asset is credited in the firm's books at a value lower than its market value.

Analysis: A partner's introduction of personal property as capital in a firm does amount to a transfer in the limited legal sense, because exclusive ownership is reduced into shared interest. However, for the purposes of section 4(1)(a), transfer alone is not enough; the provision operates only if the transfer is for inadequate consideration and the market value exceeds the actual consideration.

Conclusion: The contribution amounted to a transfer, but that by itself did not justify gift-tax liability.

Issue (ii): Whether, on such facts, a deemed gift can be inferred on the footing that the consideration for the transfer was inadequate and ascertainable by reference to the book entry.

Analysis: The consideration for a partner's contribution of personal assets to a firm is not the capital account credit alone, but the partner's reciprocal rights in the partnership, the real value of which is incapable of ascertainment at the time of the transfer. In the absence of any deeming provision treating the credited amount as the actual consideration, the book entry cannot be used to prove inadequacy of consideration or to quantify a deemed gift.

Conclusion: No deemed gift arose under section 4(1)(a) of the Gift-tax Act.

Final Conclusion: The questions were answered in a manner that negatived gift-tax liability on the partner's contribution of its asset to the firm, and the Revenue failed to establish the statutory ingredients necessary to invoke the deeming provision.

Ratio Decidendi: Where a partner contributes personal property to a firm as capital, the credit entry in the firm's books is not the true consideration for the transfer, and in the absence of a specific deeming provision the inadequacy of consideration cannot be determined by reference to that entry for the purpose of deeming a gift.

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