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Issues: (i) Whether allotment of right shares to the investment companies constituted a gift or deemed gift exigible to gift-tax. (ii) Whether issue of bonus shares to the investment companies constituted a gift or deemed gift exigible to gift-tax.
Issue (i): Whether allotment of right shares to the investment companies constituted a gift or deemed gift exigible to gift-tax.
Analysis: A gift under Section 2(xii) of the Gift-tax Act, 1958 requires transfer of existing movable or immovable property voluntarily and without consideration, and Section 4(1)(a) applies only where existing property is transferred otherwise than for adequate consideration. The shares came into existence only on allotment, and the subscribers paid the face value before allotment. The transaction was therefore a contractual allotment of newly created shares and not a transfer of existing property. The condition precedent for treating the transaction as a gift or deemed gift was not satisfied.
Conclusion: The levy of gift-tax on the right shares was not sustainable and was deleted in favour of the assessee.
Issue (ii): Whether issue of bonus shares to the investment companies constituted a gift or deemed gift exigible to gift-tax.
Analysis: Bonus shares are issued by capitalisation of accumulated profits and do not involve a transfer of existing property from the company to the shareholder in the sense required by the Gift-tax Act. The intrinsic value of the shareholder's interest is not enhanced merely because bonus shares are issued. The finding that the issue was a colourable device to evade tax was not supported by tangible evidence, and the reliance on such an allegation could not sustain gift-tax liability.
Conclusion: The issue of bonus shares was not chargeable to gift-tax and the Revenue's challenge failed.
Final Conclusion: The assessee succeeded on both disputed issues, resulting in deletion of the gift-tax levy on the share allotments.
Ratio Decidendi: For gift-tax to apply, there must be a transfer of existing property without adequate consideration; allotment of newly issued shares for value, including bonus share capitalisation, does not by itself satisfy that requirement.
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