Deemed gift under Gift-tax law applies to transfer of an entire business for inadequate consideration, with exemption denied.

Transfer of an entire income-earning business apparatus for inadequate consideration can fall within the deeming provision of the Gift-tax Act, 1958, even where the arrangement is styled as a fixed-term licence or permission; the transfer was treated as a deemed gift. A partnership firm is an assessable entity under the Act because the statutory definition of "person" is broad enough to include collective units. Exemption under section 5(1)(xiv) was unavailable because the transfer was not shown to be bona fide for facilitating the donor's business. The Tribunal's reduced valuation was upheld under the statutory method for non-revocable transfers.

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Issues: (i) Whether the transfer of the business under the agreement dated 21 November 1969 gave rise to a deemed gift taxable under the Gift-tax Act, 1958. (ii) Whether a partnership firm is an assessable entity under the Gift-tax Act, 1958. (iii) Whether the deemed gift, if any, was exempt under section 5(1)(xiv) of the Gift-tax Act, 1958. (iv) Whether the value of the gift was correctly reduced by the Tribunal.

Issue (i): Whether the transfer of the business under the agreement dated 21 November 1969 gave rise to a deemed gift taxable under the Gift-tax Act, 1958.

Analysis: The transfer covered the entire income-earning apparatus of the firm, including premises, plant, machinery and business operations, for a fixed period of five years. The consideration was linked to a percentage of sales with minimum and maximum limits, but the arrangement resulted in the transferee stepping into the shoes of the firm for practical purposes. Under the statutory definition, a transfer for less than adequate consideration attracts the deeming provision, and the arrangement was held to be an artificial device falling within the scope of deemed gift.

Conclusion: The transfer amounted to a deemed gift taxable under the Act, against the assessee.

Issue (ii): Whether a partnership firm is an assessable entity under the Gift-tax Act, 1958.

Analysis: The Act defines a person broadly so as to include a body of individuals or persons whether incorporated or not. A firm is treated as a collective assessable unit under the scheme of the Act, and the provisions dealing with discontinuance or dissolution also proceed on that footing. The statutory framework therefore supports assessment of gift-tax on a firm.

Conclusion: A partnership firm is an assessable entity under the Act, against the assessee.

Issue (iii): Whether the deemed gift, if any, was exempt under section 5(1)(xiv) of the Gift-tax Act, 1958.

Analysis: The exemption applies only where the gift is made bona fide for the purpose of the business and in the course of or for facilitating the carrying on of the business. On the facts found, the transfer was of the business itself and not a transaction undertaken for the profitable carrying on of the donor's business or for commercial expediency. The assessee did not establish the factual foundation necessary for the exemption.

Conclusion: The exemption under section 5(1)(xiv) was not available, against the assessee.

Issue (iv): Whether the value of the gift was correctly reduced by the Tribunal.

Analysis: The Tribunal applied the statutory valuation method for a transfer not revocable for a specified period and arrived at the capitalised value by reference to the period of non-revocability and the income from the property. The High Court found no basis to disturb the Tribunal's valuation and accepted the reduction made by it.

Conclusion: The Tribunal's valuation of the gift was upheld, in favour of the assessee.

Final Conclusion: The references were answered substantially against the assessee on taxability, assessability and exemption, but the Tribunal's reduced valuation of the deemed gift was affirmed.

Ratio Decidendi: A transaction transferring the entire income-earning business assets for inadequate consideration, even if couched as a licence or permission for a fixed term, can constitute a deemed gift under the Gift-tax Act, and the valuation of such a transfer is to be made by applying the statutory method for non-revocable transfers.

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