JUDGMENT

S.H. Kapadia, J. —

1. Leave granted.

2. This civil appeal filed by the assessee seeks to challenge judgment and order passed by the Karnataka High Court dated 1.8.2007 in Gift Tax Appeal No. 2/02. In this civil appeal we are concerned with the assessment year 1987-88.

3. Two questions arise for determination in this civil appeal, which are as follows:

(i) Whether any “gift” arose in terms of Section 2(xii) of the Gift-tax Act, 1958 (“1958 Act”) on the allotment of rights issue by the appellant company to its shareholders vide Board’s Resolution dated 29.1.1986?

(ii) Whether there was any element of “gift” as defined under Section 2(xii) in the appellant issuing Bonus shares in the ratio of 1:23 in April/May, 1986?

Answer to Question No. 1:

4. On 29.1.1986 the appellant company, on the other shareholders not exercising the option given to them to take up the right shares issued by the appellant, allotted them to the seven investment companies, who were the shareholders in the appellant’s company. At this stage, it may be stated, that in all there were twenty-seven shareholders. Twenty shareholders did not subscribe to the rights issue and consequently the appellant-company