Debt write-off is not a deemed gift unless the creditor clearly and unconditionally abandons the debt.

A debt write-off is not treated as a deemed gift under section 4(c) of the Gift-tax Act, 1958 unless the creditor's conduct shows a clear and unconditional intention to abandon the debt absolutely. On the facts noted, the assessee had demanded payment before the write-off, the debtor had denied liability, and the amount was later claimed as a bad debt for income-tax purposes. Those circumstances showed a purpose-based write-off rather than a true relinquishment of interest in the debt. As there was no real abandonment, the deemed-gift provision did not apply.

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Issues: Whether the writing off of a debt due from the assessee's brother constituted an abandonment of the debt so as to attract section 4(c) of the Gift-tax Act, 1958 and be deemed a gift liable to gift-tax.

Analysis: For abandonment to fall within the statutory deeming provision, there must be an intention to give up the debt absolutely, supported by conduct showing that the creditor neither claims nor retains any interest in it. Here, the assessee had demanded payment shortly before writing off the amount, the debtor had repudiated liability, and the write-off was later asserted as a bad debt for income-tax purposes. On these facts, the write-off did not reflect a resolved and unconditional intention to abandon the debt; it was treated as a step taken for a particular purpose rather than a true relinquishment. Since there was no real abandonment, the question of the write-off being non-bona fide under section 4(c) did not arise. The authority relied on for bilateral intention under another clause of the Act did not govern the scope of section 4(c).

Conclusion: The writing off of the debt did not amount to a deemed gift under section 4(c), and the question was answered in the affirmative in favour of the assessee.

Final Conclusion: The debt write-off was held not to be a taxable gift under the Gift-tax Act, 1958, because it was not a genuine abandonment of the debt.

Ratio Decidendi: A debt is not deemed a gift under section 4(c) of the Gift-tax Act, 1958 unless the creditor's conduct shows a clear and unconditional intention to abandon the debt absolutely.

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