Deemed gift tax on share subscription rejected where face value was held to be adequate consideration in commercial terms.

Subscription to shares at face value was not treated as a transfer otherwise than for adequate consideration for purposes of deemed gift tax under Section 4(1)(a) of the Gift Tax Act, 1958. The Court held that the charging fiction must be strictly construed and that adequate consideration is assessed in a broad commercial sense, not by mechanically comparing the issue price with market value. It further placed the burden on the Revenue to prove that the statutory conditions for deemed gift were met. As no material showed inadequate consideration in the statutory sense, the share subscription fell outside Section 4(1)(a) and the addition was unsustainable.

---

---

Issues: Whether subscription to shares at face value or at the stated price constituted a transfer otherwise than for adequate consideration so as to attract deemed gift tax under Section 4(1)(a) of the Gift Tax Act, 1958.

Analysis: The charging provision under the Gift Tax Act operates only where there is a transfer of property otherwise than for adequate consideration. The provision creating a deemed gift is a legal fiction and must be strictly construed. On the facts found, the assessees subscribed for shares at face value, and the company could not issue shares below face value except in accordance with the statutory conditions governing discounted issue. The Court applied the principle that adequate consideration is to be tested in a broad commercial sense and is not to be equated mechanically with market value. It also held that the burden lay on the Revenue to establish that the statutory conditions for deemed gift were satisfied. In the absence of material showing inadequate consideration in the statutory sense, the transfer did not fall within Section 4(1)(a).

Conclusion: Subscription to the shares did not amount to a deemed gift, and the addition under the Gift Tax Act was not sustainable. The answer to the substantial question of law was in favour of the assessee and against the Revenue.

---