Share Allotment and Deemed Gift Tax: fresh shares do not transfer company property, so no deemed gift arises.

Allotment of fresh shares by a company to its shareholders was analysed as not constituting a transfer of the company's property. A company remains a juristic person distinct from its shareholders, and a shareholder on allotment acquires only the rights attached to the shares, not any proprietary interest in the company's assets. Because deemed gift taxation under section 4(1)(a) of the Gift-tax Act applies only where property is transferred for inadequate consideration, the absence of any transfer meant the charge could not arise. On that reasoning, the addition was stated to be unsustainable and no deemed gift arose.

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Issues: Whether the allotment of fresh shares by a company to its shareholders constitutes a transfer of property so as to attract deemed gift taxation under section 4(1)(a) of the Gift-tax Act, 1958.

Analysis: A company is a juristic person distinct from its shareholders, and allotment of shares does not make a shareholder owner of the company's property. On allotment, the shareholder acquires only the rights attached to the shares, including the right to participate in profits according to the articles, and not any interest in the company's assets. Since the charge under section 4(1)(a) arises only where there is a transfer of property for inadequate consideration, the absence of a transfer itself is .

Conclusion: The allotment of shares did not amount to a transfer of property and no deemed gift arose; the addition was unsustainable and the assessee succeeded.

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