Deemed gift under Gift-tax law fails where intra-group transfer is supported by valuation and bona fide consideration.

Section 4(1)(a) of the Gift-tax Act applies only where property is transferred for consideration that is in fact inadequate on a bona fide assessment, not merely because a higher market value can be notionally computed. On the facts, the transfer of tenanted property by a holding company to its wholly-owned subsidiary for consideration satisfied by issue of shares was supported by valuation material and the intra-group relationship affected the practical significance of the stated value. The deemed gift provision was therefore not attracted, and the gift-tax assessment could not be sustained.

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Issues: Whether the transfer of property by a holding company to its wholly-owned subsidiary for the stated consideration attracted section 4(1)(a) of the Gift-tax Act as a transfer for inadequate consideration giving rise to a deemed gift.

Analysis: Section 4(1)(a) deems as gift the excess of market value over consideration where property is transferred otherwise than for adequate consideration. The relevant inquiry is whether the consideration was in fact inadequate on a bona fide assessment, and not whether a higher market value can be notionally arrived at in isolation. The transfer here was of property burdened with tenancy, the consideration was to be satisfied by issue of shares, and the parties were a holding company and its wholly-owned subsidiary, a relationship that reduced the practical significance of the stated value. The transaction was also supported by valuation material and was consistent with the special treatment accorded to such intra-group transactions in other tax contexts.

Conclusion: Section 4(1)(a) of the Gift-tax Act was not attracted and the deemed gift assessment could not be sustained.

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