Unilateral relinquishment of life interest is not a gift, so deemed cost substitution under section 49(1)(ii) fails.

A unilateral relinquishment or surrender of life interest in trust property, without a transfer by one person to another, is not a gift or deemed gift for purposes of section 49(1)(ii) of the Income-tax Act, 1961. The court treated the prior release deed as a unilateral act that did not amount to a transfer of property to the assessee and held that the ordinary and statutory meaning of "gift" was not satisfied. Accordingly, the Revenue could not invoke the deemed cost rule under section 49(1)(ii) for capital gains computation, and the provision was held inapplicable.

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Issues: Whether the assessee's relinquishment and later sale of life interest in the trust property amounted to a gift or deemed gift so as to attract section 49(1)(ii) of the Income-tax Act, 1961 and permit adoption of the previous owner's cost of acquisition for capital gains computation.

Analysis: The assessee's life interest had not been acquired by way of a transfer from another person to the assessee in the sense required by the ordinary legal meaning of "gift" and the statutory meaning under the relevant gift-tax law. The earlier release deed executed by the prior life interest holder was treated as a unilateral act which did not amount to a transfer of property to the assessee. On the facts, the Court held that the relinquishment did not constitute a gift within the meaning of section 49(1)(ii) of the Income-tax Act, 1961, nor did it fall within the deeming provisions of the Gift-tax Act relied upon by the Revenue.

Conclusion: The question was answered in the negative and against the Revenue. Section 49(1)(ii) of the Income-tax Act, 1961 was held not to apply, and the assessee was not chargeable to capital gains on the basis suggested by the Revenue.

Ratio Decidendi: A unilateral relinquishment or surrender of life interest, without a transfer by one person to another, is not a gift or deemed gift for the purpose of applying section 49(1)(ii) of the Income-tax Act, 1961.

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