Adequate consideration in asset transfer failed where sale for cash and separate share allotment were treated as independent transactions.

Transfer of buses to a company was treated as a sale for cash, with the books showing credit of the full sale price and a separate debit for the later share allotment. In the absence of any written contract or other material proving that the shares were issued as consideration for the buses, the court held that the two transactions were independent. The legal character of the recorded transactions could not be displaced by a broad substance-over-form argument on these facts. As the assessee failed to show that the receipt equalled the fair market value of the buses, the transfer was not shown to be for adequate consideration and gift-tax liability was attracted.

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Issues: Whether the transfer of 20 buses to the company was for adequate consideration so as to exclude liability under section 4(2) of the Gift-tax Act.

Analysis: The transferor was credited in the company's books with the full sale price of the buses, and the subsequent allotment of shares was separately debited against his account. No written contract or other material showed that the shares were allotted in consideration of the buses rather than for cash. In tax matters, the legal character of the transactions as recorded could not be displaced merely by invoking a broad doctrine of substance. On the facts, the transfer of the buses and the allotment of shares were independent transactions, and the assessee's receipt from the sale was therefore not shown to equal the fair market value of the buses.

Conclusion: The transfer was not shown to be for adequate consideration, and the question was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: Where the company's books and surrounding material show a sale for cash followed by a separate allotment of shares, and there is no contract proving that the shares were issued as non-cash consideration for the asset transferred, the allotment is treated as independent and the transfer may attract gift-tax for inadequacy of consideration.

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