Gift-tax on bonus shares arising from gifted equity shares upheld where the donee retained them after revocation of the original gift.

Bonus shares arising from gifted equity shares remained taxable under the Gift-tax Act, 1958 where the original gift was revoked only in respect of the underlying shares and the bonus shares continued with the donee. The statutory charge was applied to the value represented by the bonus shares, because the scheme of the Act did not exclude them merely due to later revocation of the original gift. The HC held that bonus shares are generated from the original shares and their value could therefore be brought to gift tax when retained by the transferee. The assessment was restored and the assessee's challenge to taxability failed.

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Issues: Whether bonus shares arising from gifted equity shares, which remained with the donee after revocation of the gift, were liable to gift tax under the Gift-tax Act, 1958.

Analysis: The gift of equity shares was revoked only in respect of the original shares, while the bonus shares continued with the donee. The value of the taxable gift was required to be determined under the charging provisions of the Gift-tax Act, and the statutory scheme did not exclude the value represented by bonus shares merely because the original gift had been revoked after a stipulated period. The legal position that bonus shares are generated from the original shares supported the view that their value could not be ignored for gift-tax purposes when they remained with the transferee.

Conclusion: The bonus shares were taxable under the Gift-tax Act and their value was rightly included for gift-tax assessment.

Final Conclusion: The assessment made by the Assessing Officer was restored and the assessee's challenge to taxability of the bonus shares failed.

Ratio Decidendi: Where bonus shares arising from gifted equity shares remain with the donee after revocation of the original gift, their value can be brought to gift tax under the Gift-tax Act, 1958.

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