Deemed gift on takeover share allotment rejected where share value reflected transferred business assets and goodwill.

Allotment of shares to partners on takeover of a firm by a company did not constitute a separate deemed gift where the firm's entire assets and liabilities were transferred as a going concern. The share value was treated as reflecting the assets taken over, including embedded profits and goodwill, and the absence of finalised firm accounts on the takeover date did not create an independent gift element. On these facts, no separate deemed gift was established and gift-tax was not chargeable.

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Issues: Whether the allotment of shares to the partners on takeover of the firm by a company gave rise to a deemed gift chargeable to gift-tax.

Analysis: The firm's entire assets and liabilities were transferred to the company as a going concern. The shares allotted to the partners were treated as representing the assets taken over by the company, and the transfer could not be viewed as a separate gift merely because the firm's accounts were not made up on the date of takeover. The value of the shares was held to encompass the transferred assets, including the embedded profits and goodwill, and therefore no independent deemed gift was established.

Conclusion: The question was answered against the Revenue and in favour of the assessee; no gift-tax was chargeable on the facts of the case.

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