Deemed gift analysis under gift-tax law turns on commercial reality of consideration, not mere market-value difference.

Transfer of jewellery to wholly owned subsidiaries in exchange for fully paid shares was analysed under section 4(1)(a) of the Gift-tax Act, 1958. The governing test is whether property was transferred otherwise than for adequate consideration in commercial reality, not whether the assessing authority values the assets differently. Because the companies' only asset was the jewellery itself and the shares represented the entire capital of those companies, the share consideration and transferred property were inseparable in substance. A mere gap between face value and market value did not, by itself, establish inadequate consideration or trigger the deeming provision.

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Issues: Whether the transfer of jewellery to wholly owned subsidiary companies in exchange for their fully paid shares, valued at face value, amounted to a deemed gift under section 4(1)(a) of the Gift-tax Act, 1958 because the market value of the jewellery exceeded the face value of the shares.

Analysis: The statutory scheme treats a transfer for inadequate consideration as a deemed gift. For applying section 4(1)(a), the material inquiry is whether property was transferred otherwise than for adequate consideration, and that question must be judged in the commercial context of the actual exchange. Where the assessee transferred jewellery to companies whose only asset was that very jewellery and received fully paid shares representing the entire capital of those companies, the value of the shares and the value of the transferred jewellery were inseparable in substance. The mere difference between the face value of the shares and the assessed market value of the jewellery did not, by itself, establish that the transfer was for inadequate consideration so as to attract the deeming provision.

Conclusion: The transaction did not constitute a deemed gift under section 4(1)(a), and liability to gift-tax was not attracted.

Final Conclusion: The appeal succeeded, the High Court's view was set aside, and the Tribunal's order in favour of the assessee stood restored.

Ratio Decidendi: A transfer is not a deemed gift merely because the assessing authority values the transferred property higher than the consideration received; the statutory deeming provision applies only where the transfer is shown, in commercial reality, to be for inadequate consideration.

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