Deemed gift analysis turns on adequate consideration where life interest and residence rights are reserved in a settlement deed.

A settlement deed conveying 33 cents of land was treated as the operative transfer, because the later rectification deed, executed after gift-tax proceedings had begun, was not accepted as reflecting the original transaction. The transfer to the assessee's wife was held not to be a deemed gift, since the deed reserved the assessee's life interest and residence rights for himself and the children, and the transferee's contribution to construction was recognised on record. On that basis, the transfer was not without adequate consideration, so the deeming fiction under the Gift-tax Act, 1958 did not apply and the gift-tax addition could not survive.

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Issues: (i) Whether the deed of settlement dated 7 October 1997 should be confined to the original transfer of 33 cents of land and the later rectification deed treated as an afterthought. (ii) Whether the transfer of the land to the assessee's wife, with retention of life interest and residence rights, amounted to a deemed gift under the Gift-tax Act, 1958.

Issue (i): Whether the deed of settlement dated 7 October 1997 should be confined to the original transfer of 33 cents of land and the later rectification deed treated as an afterthought.

Analysis: The settlement deed described the property with boundaries and conveyed the entire interest in the property, while the rectification deed was executed only after gift-tax proceedings had commenced. On the material on record, the later rectification was not accepted as reflecting the true nature of the original transfer.

Conclusion: The transfer had to be considered on the basis of the original settlement deed covering 33 cents of land.

Issue (ii): Whether the transfer of the land to the assessee's wife, with retention of life interest and residence rights, amounted to a deemed gift under the Gift-tax Act, 1958.

Analysis: A transfer falls within the deeming provision only where it is without adequate consideration. The settlement deed expressly reserved the assessee's right to enjoy the property for life and also preserved residence rights for him and the children in the building to be constructed by the transferee. The transferee's financial contribution towards construction was also accepted on the record. In that setting, the transfer could not be treated as lacking adequate consideration, and the deeming fiction was not attracted under the relevant provisions.

Conclusion: The transfer was not a deemed gift under section 4(1)(a) or section 4(1)(d) of the Gift-tax Act, 1958.

Final Conclusion: The addition under gift-tax could not survive, and the assessee succeeded on the substantive issue; the valuation dispute therefore did not require separate adjudication.

Ratio Decidendi: A transfer is not liable to be treated as a deemed gift where the transferee's acquisition is supported by adequate consideration, including reserved life enjoyment and allied rights, so that the statutory deeming fiction is not attracted.

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