Deemed gift rules need proof of inadequate consideration in the transfer itself, not just a higher resale price later.

A transfer is not treated as a deemed gift under section 4(1)(a) of the Gift-tax Act, 1958 merely because the transferee later resells the goods at a higher price. Adequacy of consideration must be tested on the transaction itself, and a bona fide commercial sale at arm's length will not attract the deeming provision unless the Revenue shows that the transfer price was materially below market value. A prior finding that the dealings were genuine was relevant to that inquiry, and the mere resale margin did not prove tax evasion or inadequate consideration. The result is that gift-tax liability could not be sustained on the facts stated.

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Issues: Whether the sales of skim crepe by the assessee to the related firm were transfers for inadequate consideration attracting section 4(1)(a) of the Gift-tax Act, 1958, and whether the earlier income-tax decision concerning the genuineness of the transactions was relevant to that determination.

Analysis: The relevant inquiry under section 4(1)(a) is whether the transfer was made for adequate consideration, not whether the transferee later resold the goods at a higher price. A difference between the transfer price and the resale price does not by itself establish inadequacy of consideration, particularly where the transaction is found to be genuine, commercial, and at arm's length, and where no material shows that the transfer price was below the market value in a manner that would justify treating the excess as a deemed gift. The earlier decision upholding the genuineness of the dealings between the company and the firm was relevant in assessing the nature of the transaction, and the Revenue failed to show that the price paid by the firm to the assessee was so low as to shock the conscience or indicate tax evasion.

Conclusion: The transfers did not fall within section 4(1)(a) of the Gift-tax Act, 1958, and no deemed gift arose; the questions were answered in favour of the assessee and against the Revenue.

Final Conclusion: The gift-tax assessments based on alleged inadequacy of consideration could not be sustained.

Ratio Decidendi: A transfer is not liable to be treated as a deemed gift merely because the transferee subsequently resells the property at a higher price; inadequacy of consideration must be established on the facts of the transaction itself, and a bona fide commercial sale at arm's length will not attract section 4(1)(a) unless the disparity is substantial and otherwise proved to be legally significant.

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