Gift of shares may be complete despite pending company registration when beneficial ownership has passed by valid settlement deed.

A gift of shares can be complete for gift-tax purposes once the donor executes a valid settlement deed, the donee accepts it, and possession is delivered, even if the transfer is not yet registered in the company's books. Registration under company law affects the company's recognition of the transfer, but pending entry the transferee may still acquire beneficial ownership. Where a later settlement supersedes an earlier life-interest arrangement with consent, the transfer is not confined to the donor's life interest and may extend to the full beneficial interest in the shares.

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Issues: (i) Whether there was a taxable gift of the shares for the relevant assessment year; (ii) whether, if there was a gift, its value was to be restricted to the donor's life interest only.

Issue (i): Whether there was a taxable gift of the shares for the relevant assessment year

Analysis: A gift under section 3 of the Gift-tax Act, 1958 read with the definition of gift and the law governing transfer of movable property may be completed by a registered instrument or by delivery. The later settlement deed was executed in the prescribed form, accepted by the daughter, and recorded that possession had been handed over. The fact that the shares remained unregistered in the company's books did not prevent a valid transfer as between the donor and the donee. The provisions governing transfer and registration of shares under the Companies Act operated only as against the company; pending registration, the transferor remained the registered holder, but the transferee acquired the beneficial interest.

Conclusion: There was a completed taxable gift of the shares, and the issue is decided against the assessee.

Issue (ii): Whether, if there was a gift, its value was to be restricted to the donor's life interest only

Analysis: The earlier settlement reserving a life interest did not govern the later disposition because the parties consented to the later deed and the daughter surrendered whatever interest she had under the earlier arrangement. The later settlement conveyed the shares absolutely and not merely the donor's life interest. The transfer therefore covered the entire interest in the shares.

Conclusion: The value was not confined to the donor's life interest and is decided against the assessee.

Final Conclusion: The reference was answered in favour of the Revenue because the later settlement effected a complete transfer of the full beneficial interest in the shares, notwithstanding the absence of registration in the company's register.

Ratio Decidendi: A transfer of shares may be a completed and effective gift as between the transferor and transferee once the donor has done everything necessary to divest himself of title, even though registration in the company's books is still pending and the legal title remains with the transferor vis-a -vis the company.

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