Gift-tax treatment of share renunciation turns on commercial consideration, even where the benefit moves to a third party.

Under the Gift-tax Act, a voluntary transfer is taxable as a gift only if it is made without consideration in money or money's worth. The Bombay High Court applied the contractual sense of consideration, as qualified by the statute, and held that consideration need not pass directly to the transferor; it may consist of a commercial benefit conferred on a third party where the transferor accepts that benefit as part of the bargain. On the facts, the renunciation of right shares formed part of an integrated commercial arrangement under which the transferee agreed to supply vehicles and advance a loan to the company controlled by the assessees. The transfer was therefore not gratuitous and was not chargeable to gift-tax.

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Issues: Whether the renunciation of right shares in favour of Export was a transfer without consideration in money or money's worth and therefore a taxable gift.

Analysis: The definition of gift under the Gift-tax Act requires a voluntary transfer without consideration in money or money's worth. The Court treated the concept of consideration in the Act as importing the contractual notion of consideration, subject to the statutory qualifications in the gift-tax scheme. It held that consideration need not move directly from the transferee to the transferor and may consist of a benefit to a third party where the transferor treats that benefit as part of the bargain. On the facts, the share renunciation was part of a larger commercial arrangement under which Export agreed to supply vehicles and advance a loan to the company in which the assessees had a substantial interest and over which they exercised control. The assessees themselves described the transfer of rights as being in consideration of that agreement, and the transaction was viewed as one integrated commercial bargain rather than a gratuitous disposition.

Conclusion: The transfer of the right shares was not without consideration in money or money's worth and did not constitute a gift chargeable to gift-tax.

Ratio Decidendi: For purposes of the Gift-tax Act, consideration may be satisfied by a commercial benefit conferred on a third party where the transferor accepts that benefit as the price of the transfer, and a transfer is not a gift merely because the consideration does not move directly to the transferor.

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