Commission disallowance cannot by itself create a taxable gift without proof of voluntary transfer and absence of consideration.

Disallowance of commission expenditure in income-tax proceedings did not, by itself, convert the payments into a taxable gift under the Gift-tax Act. Commission paid by cheque to sub-agents for sales promotion was not shown to be sham or gratuitous, and the settlement record did not establish a voluntary transfer without consideration. For gift-tax to apply, the Revenue had to prove a gift within the charging provision, including absence of quid pro quo and an intention to make a gift. On the stated facts, the disallowed commission could not be taxed as a gift.

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Issues: Whether the disallowance of a part of the commission expenditure in income-tax proceedings could, by itself, be treated as a gift and brought to tax under the Gift-tax Act.

Analysis: The commission payments were made by cheque to sub-agents for sales promotion activity, and the Settlement Commission did not hold that the transactions were sham or gratuitous. The fact that a portion of the expenditure was disallowed or settled for income-tax purposes did not establish that the payments were made without consideration in money or money's worth. For levy of gift-tax, the Revenue had to show that there was a voluntary transfer without consideration falling within the definition of gift and within the charging provision. The record did not support a finding that the assessee intended to make a gift or that the payments lacked quid pro quo for services rendered.

Conclusion: The disallowed commission could not be treated as a gift and gift-tax was not exigible on the assessee.

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