Deemed gift liability requires separate proof under the Gift Tax Act, even where a transaction is treated as a tax device.

A finding that a transaction is treated as a device for income-tax purposes does not, by itself, establish gift-tax liability. The substantive question under the Gift Tax Act remains whether the renunciation of rights shares for inadequate consideration satisfies the statutory ingredients of a deemed gift under Section 4(1)(a). Where that issue has not been conclusively determined, the matter must be examined afresh on its own merits. The document notes that the proceedings were set aside and remitted for reconsideration of the gift-tax question in accordance with law.

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Issues: (i) Whether the reassessment proceedings initiated under Section 16(1) of the Gift Tax Act were valid. (ii) Whether the renunciation of rights shares for inadequate consideration gave rise to a deemed gift under Section 4(1)(a) of the Gift Tax Act.

Issue (i): Whether the reassessment proceedings initiated under Section 16(1) of the Gift Tax Act were valid.

Analysis: The earlier income-tax decision treated the transaction as a device for the limited purpose of taxation, but it did not negate the underlying transaction altogether. In the gift-tax proceedings, the Tribunal had confined itself to the validity of the proceedings and had not returned any conclusive finding on whether the transaction actually attracted deemed gift treatment. The existence of a question under Section 4(1)(a) therefore remained open for proper adjudication.

Conclusion: The challenge to the proceedings was not finally accepted and the matter required fresh consideration.

Issue (ii): Whether the renunciation of rights shares for inadequate consideration gave rise to a deemed gift under Section 4(1)(a) of the Gift Tax Act.

Analysis: The finding that the transaction was treated as a device in income-tax proceedings did not by itself dispose of gift-tax liability. The Tribunal had not decided the substantive question whether the consideration was so inadequate as to constitute a deemed gift, and no conclusive finding on that issue had been recorded. The matter therefore had to be examined afresh on its own merits.

Conclusion: The issue was remitted to the Tribunal for fresh determination in accordance with law.

Final Conclusion: The impugned orders were set aside and the appeals succeeded to the extent that the matters were sent back for reconsideration on the substantive gift-tax question.

Ratio Decidendi: A finding that a transaction is a device for one tax purpose does not automatically conclude gift-tax liability unless the statutory ingredients of deemed gift are separately and conclusively determined.

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