Gift tax on share allotment upheld where valuable property rights were transferred for inadequate consideration.

Allotment of bonus shares and transfer of shares to investment companies may amount to a gift under the Gift Tax Act where the transaction confers valuable property rights for inadequate consideration. Reading the definition of gift with the charging provision and the principles governing transfer of property, the Court treated the issue of shares as a taxable transfer rather than a mere book entry or non-transfer of property. On that basis, the gift tax levy was upheld and the assessment imposing gift tax was restored.

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Issues: Whether the allotment of bonus shares and the transfer of shares to the investment companies amounted to a gift liable to tax under the Gift Tax Act.

Analysis: The Court held that the transaction was not to be treated as a mere book entry or a non-transfer of property. Reading the provisions defining gift and the charging provision together with the principles governing transfer of property and share transfers, it concluded that the allotment of shares had the effect of conferring valuable property rights for inadequate consideration. The Court also relied on the view that bonus shares and the manner of their issue could, in the given facts, result in a taxable transfer within the meaning of the gift tax law.

Conclusion: The issue was answered in favour of the Revenue and the gift tax levy was upheld.

Final Conclusion: The appeal failed, the Tribunal's order was set aside, and the assessment order imposing gift tax was restored.

Ratio Decidendi: Where the issue of shares results in a transfer of valuable property rights for inadequate consideration, the transaction may constitute a gift chargeable to gift tax.

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