Deemed gift and notional interest on commercial trade balances do not attract gift-tax absent a contractual right to interest.

A deemed gift under section 4(1)(a) of the Gift-tax Act, 1958 arises only where an existing right or property is transferred, released, surrendered or otherwise parted with for inadequate consideration. On the facts, the deposits and outstanding amounts arose from a commercial trade arrangement, and there was no contractual obligation or enforceable right to charge interest. In the absence of a subsisting right to interest, notional interest could not be imputed as property transferred for inadequate consideration. The non-charging of interest on the sister concern's trade balance therefore did not constitute a deemed gift and was not chargeable to gift-tax.

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Issues: Whether non-charging of interest on deposits / outstanding trade balances with a sister concern amounted to a deemed gift under section 4(1)(a) of the Gift-tax Act, 1958.

Analysis: The deposits arose out of a commercial arrangement and the outstanding amount represented a trade debt. No material showed any contractual obligation to charge or receive interest, nor any pre-existing enforceable right to interest that could be said to have been released, surrendered, forfeited or abandoned. In the absence of a subsisting right to interest, a third party could not impute notional interest and treat the same as property transferred for inadequate consideration. The transaction was part of the business dealings between the parties, and the Revenue did not dislodge its bona fides.

Conclusion: The non-charging of interest did not constitute a deemed gift and was not chargeable to gift-tax. The assessee succeeded on this issue.

Ratio Decidendi: A deemed gift under section 4(1)(a) of the Gift-tax Act, 1958 arises only where an existing right or property is transferred, released, surrendered or otherwise parted with for inadequate consideration; mere non-charging of interest on a commercial trade balance, in the absence of a contractual obligation to charge interest, does not attract gift-tax.

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