Debt write-off on commercial grounds and limited recoverability does not create a deemed gift under the Gift-tax Act.

A debt write-off against trust assets was treated as a commercial recovery decision, not a deemed gift, where the trustees and creditor accepted sale proceeds in full satisfaction after the trust property had declined in value and yielded no further income. The analysis notes that continuing to wait for the original deferred sale period would have been impracticable and potentially harmful to beneficiaries, so the balance written off was not an abandonment without consideration under the Gift-tax Act. A separate write-off of a debt already barred by limitation was also regarded as a proper accounting act because the amount was no longer legally recoverable, and no taxable deemed gift arose.

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Issues: (i) Whether the writing off of the balance debt after acceptance of the trust's proposal to sell shares and wind up the trusts amounted to a deemed gift under section 4(1)(c) of the Gift-tax Act. (ii) Whether the write-off of another debt which had become barred by limitation was justified.

Issue (i): Whether the writing off of the balance debt after acceptance of the trust's proposal to sell shares and wind up the trusts amounted to a deemed gift under section 4(1)(c) of the Gift-tax Act.

Analysis: The debt had been secured through trusts created by the original debtors, repayments had earlier been received from trust income, and later the trust assets ceased to yield income and had fallen in value. The trustees and the assessee mutually agreed to sell the shares and accept the available sale proceeds in full satisfaction of the debt. The residuary beneficiaries received nothing on winding up. On these facts, the write-off of the balance was a commercial decision taken to recover as much as possible, not an abandonment without consideration. The reference to section 11 of the Indian Trusts Act, 1882 also supported the impracticability of waiting for the original deferred sale period when doing so would have been injurious to the beneficiaries.

Conclusion: The balance write-off did not constitute a deemed gift and was not taxable under section 4(1)(c) of the Gift-tax Act.

Issue (ii): Whether the write-off of the debt that had become barred by limitation was justified.

Analysis: The debt was no longer legally recoverable once limitation had expired. In those circumstances, its write-off was a proper accounting and commercial act.

Conclusion: The write-off was justified and no taxable deemed gift arose.

Final Conclusion: The assessments of deemed gift were rightly cancelled, and the revenue's appeals failed.

Ratio Decidendi: A write-off of debt does not amount to a deemed gift where the assessee, acting on commercial considerations, accepts the best realizable value from trust assets in full satisfaction after the debt has effectively become unrecoverable and there is no continuing recourse against the original debtors.

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