Revocable trust and gift-tax: unrestricted power of revocation prevents complete divestment, so the settlement is not a taxable gift.

An unrestricted power of revocation reserved by the settlor prevents a trust settlement from constituting a taxable gift under the Gift-tax Act because the statutory concept of a gift requires a voluntary transfer without consideration and a sufficient divestment of property. Where the settlor can revoke the trust at any time, there is no complete or irrevocable divestment, so the trust does not answer the legal meaning of a gift for gift-tax purposes. Section 6(2) does not alter that position because it is confined to gifts that are not revocable for a specified period. Accordingly, such a revocable trust is outside gift-tax liability.

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Issues: Whether a trust created with an unrestricted power of revocation by the settlor constitutes a gift liable to gift-tax.

Analysis: The statutory concept of a gift under the Gift-tax Act required a transfer by one person to another made voluntarily and without consideration, and the scheme of valuation under section 6 proceeded on the footing that the donor had at least partially and for a period divested himself of the property. A trust under which the settlor reserved an unlimited power to revoke at any time did not effect a complete divestment of the property. The Court treated irrevocability, in this context, as part of the essential legal concept of a gift and held that a trust valid under trust law did not thereby become a gift for gift-tax purposes merely because property had been settled in trust. The alternate contention based on section 6(2) was not accepted, as that provision was confined to gifts not revocable for a specified period.

Conclusion: Such a revocable trust with an unrestricted power of revocation does not amount to a gift within the meaning of the Gift-tax Act, and is not liable to gift-tax.

Ratio Decidendi: For gift-tax purposes, a transfer is not a taxable gift unless the donor has effectively and irrevocably divested himself of the property, at least for a determinable period; an unrestricted power of revocation negates the complete divestment necessary to constitute a gift.

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