Concessional loan interest does not by itself trigger deemed gift-tax without a transfer or non-bona fide surrender.

Charging loans at a concessional interest rate, by itself, does not amount to a transfer of property for inadequate consideration under the Gift-tax Act, 1958, because there is no transfer of the debt or any property as such. The difference in interest also cannot be treated as a release or surrender of an interest in property unless the statutory conditions are met, including a finding that the surrender was not bona fide. On the facts recorded, no such finding existed, so the deeming provision for gift-tax was not attracted and the assessee was not liable.

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Issues: (i) Whether charging interest at a concessional rate on loans amounted to a transfer of property for inadequate consideration so as to attract deemed gift-tax under the Gift-tax Act, 1958; (ii) Whether the difference in interest could be treated as a release or surrender of an interest in property falling within the deeming provision for gifts.

Issue (i): Whether charging interest at a concessional rate on loans amounted to a transfer of property for inadequate consideration so as to attract deemed gift-tax under the Gift-tax Act, 1958.

Analysis: The lending transaction involved no transfer of the debt or of any property as such; it was only an advance of loans at a lower rate of interest. A mere concession in the rate of interest, without more, did not amount to a transfer of property within the meaning of the Act.

Conclusion: The transaction did not attract the deeming provision for gift on the footing of transfer of property for inadequate consideration, and this issue was answered in favour of the assessee.

Issue (ii): Whether the difference in interest could be treated as a release or surrender of an interest in property falling within the deeming provision for gifts.

Analysis: To invoke the deeming provision, there had to be a release or surrender of an interest in property and a finding that such release or surrender was not bona fide to the extent required by the section. No such finding had been recorded by the Gift-tax Officer, and the assessment order did not show that the alleged surrender by charging lesser interest was found to be non-bona fide.

Conclusion: Section 4(1)(c) was not attracted, and this issue was answered in favour of the assessee.

Final Conclusion: The reference was answered against the Revenue and the assessee was held not liable to gift-tax on the concessional interest charged on the loans.

Ratio Decidendi: Charging loans at a concessional rate of interest, by itself, is neither a transfer of property for inadequate consideration nor a release or surrender of an interest in property unless the statute's specific conditions, including the requisite finding of non-bona fides, are satisfied.

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