Deemed gift under Gift-tax law fails where arm's-length transfer shows no real inadequacy of consideration.

A transfer of assets was examined for alleged deemed gift treatment under section 4(1)(a) of the Gift-tax Act, 1958. The valuation difference between the declared consideration and the Departmental Valuation Officer's estimate was not substantial enough by itself to show inadequacy, and the transaction was between independent parties at arm's length. No material showed any device to confer a benefit by way of gift, while the participation and approval of the Gujarat Government, as a substantial shareholder with board nominees, supported bona fides. The dropping of acquisition proceedings under Chapter XX-A of the Income-tax Act also indicated that the consideration was not treated as inadequate. Section 4(1)(a) was therefore not attracted.

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Issues: Whether the transfer of assets was for inadequate consideration so as to attract deemed gift under section 4(1)(a) of the Gift-tax Act, 1958.

Analysis: The difference between the consideration declared by the assessee and the valuation made by the Departmental Valuation Officer was not so substantial as to justify an inference of inadequacy by itself. The transaction was between independent parties at arm's length, and no material showed any device to confer a benefit by way of gift. The participation and approval of the Government of Gujarat, which held a substantial shareholding and had nominees on the board, further supported the bona fides of the transaction. The dropping of acquisition proceedings under Chapter XX-A of the Income-tax Act also indicated that the consideration was not regarded as inadequate. On a broad view, the facts did not establish the prerequisite of inadequate consideration for invoking the deemed gift provision.

Conclusion: Section 4(1)(a) was not applicable, and the taxable gift could not be sustained.

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