Adequate consideration for gift-tax depends on fair value, not the highest market estimate, so the transfer escaped deemed tax.

For deemed gift-tax under section 4(1)(a) of the Gift-tax Act, 1958, adequate consideration is not the same as the highest market value; a transfer will not be treated as for inadequate consideration if the price is fair or reasonable. A departmental valuation showing a higher market value does not by itself establish inadequacy, and only a price so low as to shock the conscience can justify that conclusion. On the facts, the Tribunal found no material inadequacy in the consideration, so the transfer was held not to attract deemed gift-tax.

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Issues: Whether the transfer of immovable property was without adequate consideration so as to attract deemed gift-tax under section 4(1)(a) of the Gift-tax Act, 1958.

Analysis: The question turned on whether the sale price could be treated as inadequate merely because a departmental valuation showed a higher market value. The governing principle applied was that adequate consideration is not synonymous with the highest possible market value; if the consideration is reasonable or fair, the transaction does not become one for inadequate consideration. The court noted that unless the price is so low as to shock the conscience of the court, the transfer cannot be characterised as otherwise than for adequate consideration. On the facts, the Tribunal had found no material difference warranting a conclusion of inadequacy in consideration.

Conclusion: The transfer was not without adequate consideration and section 4(1)(a) of the Gift-tax Act, 1958 did not apply. The reference was answered in favour of the assessee and against the Department.

Ratio Decidendi: For purposes of deemed gift-tax, a transfer is not without adequate consideration merely because the apparent sale price is below an estimated market value; the decisive test is whether the consideration is fair or reasonable, and only a grossly inadequate price can justify treating the transaction as otherwise than for adequate consideration.

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