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Issues: Whether the purchase of redeemable non-cumulative preference shares at face value, where the market value was lower, involved a deemed gift liable to gift-tax under section 4(1)(a) of the Gift-tax Act, 1958.
Analysis: The charging provision and the definition of gift under the Act require a transfer of property otherwise than for adequate consideration. The statutory concept of transfer under section 2(xxiv) and the deeming provision in section 4(1)(a) were examined in the light of the fact that the shares were acquired directly from the company as an allotment/subscription, not by transfer of existing property. It was further noted that, under section 69 of the Companies Act, 1956, shares could not be issued at a discount, and the transaction was supported by commercial expediency without any material showing a colourable device or non-business consideration. The proviso to section 4(1)(a) also supported the view that where the consideration is fixed under the company law framework, the deeming fiction does not operate.
Conclusion: The transaction did not involve the element of gift and was not liable to gift-tax; the question was answered in favour of the assessee.
Ratio Decidendi: Allotment of shares is not a transfer of existing property, and where shares are issued at a value fixed under the applicable company law, the difference between face value and market value does not, by itself, constitute a deemed gift under section 4(1)(a) of the Gift-tax Act, 1958.
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