Gift-tax valuation turns on revocability in law: six-month terminable arrangement produced no capitalised taxable value.

An arrangement granting business assets for inadequate consideration could be treated as a deemed gift under the Gift-tax Act to the extent of the excess over market value. For valuation under section 6(2) and rule 11(1), however, the decisive test is the period during which the gift is not revocable in law. Because the agreement was terminable on six months' notice, the gift was not irrevocable for a complete period exceeding one year. The fact that the arrangement continued for several years did not alter the statutory test, and no capitalised value could be computed; the taxable value was nil.

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Issues: Whether the arrangement granting licence of business assets for a fixed term but terminable on six months' notice amounted to a deemed gift under the Gift-tax Act, 1958, and, if so, whether its value had to be computed under section 6(2) and rule 11(1) as carrying nil taxable value because the gift was revocable within less than one year.

Analysis: The transfer of the business assets was held to be for inadequate consideration, and therefore the difference between market value and consideration attracted the deeming provision treating the excess as a gift. However, for valuation, the controlling factor was the period for which the gift was not revocable. The agreement was terminable on six months' notice, so the gift was not irrevocable for a specified period exceeding one year. Rule 11(1) proceeds on the number of complete years during which the gift is not revocable, and the fact that the arrangement continued for five years or was not actually terminated did not alter the statutory test. Since the revocable period was less than one year, no capitalised value could be worked out under the rule.

Conclusion: The first question was answered in the negative and in favour of the assessee. The levy of gift-tax on the capitalised value could not stand.

Ratio Decidendi: For valuation under section 6(2) and rule 11(1) of the Gift-tax Act, the decisive test is the period for which the gift is not revocable in law, and where that period is less than one year, the capitalised value cannot be computed and is nil.

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