Non-charging of interest on inter-corporate advances was not a deemed gift where no enforceable right to interest existed.

Non-charging of interest on advances to sister concerns did not amount to a deemed gift under section 4(1)(c) of the Gift-tax Act because no enforceable right to receive interest had accrued and no contractual or implied obligation to pay interest was shown. A deemed gift requires release, surrender, forfeiture or abandonment of an existing debt, claim or property interest; absent any pre-existing right, there was nothing capable of abandonment. The gift-tax charge therefore failed and the assessments were cancelled in favour of the assessee.

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Issues: Whether non-charging of interest on advances and loans given to sister concerns, in the absence of any express or implied agreement to charge interest, could be treated as a deemed gift under section 4(1)(c) of the Gift-tax Act.

Analysis: The assessee had no contractual right to receive interest, and the Department did not establish any covenant or mutual obligation requiring payment of interest on the outstanding balances. A deemed gift under section 4(1)(c) presupposes release, discharge, surrender, forfeiture or abandonment of an existing debt, contract, actionable claim, or interest in property. The concept of abandonment necessarily applies only where a person has a pre-existing right or property capable of being given up. Where no interest had accrued and no enforceable right to receive it existed, there could be no surrender or abandonment of such right. The definition of gift also contemplates transfer of existing movable or immovable property, and the absence of such existing right or property defeats the charge.

Conclusion: Non-charging of interest on the inter-corporate advances did not constitute a deemed gift under section 4(1)(c) of the Gift-tax Act, and the gift-tax assessments were rightly cancelled in favour of the assessee.

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