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2002 (7) TMI 11 - HC - Income TaxGift Tax Act, 1958 - taxable gift - Whether, the Appellate Tribunal is right in law and on facts in holding hat when the assessee had reduced his share in partnership firm from 25 per cent. to 4 per cent., there was no taxable gift ? - facts brought on record by the assessee are that the partner whose share was reduced from 25 per cent. to four per cent. was 80 years of age and was totally blind and, therefore, was physically unfit for continuing as a partner of the firm and, therefore, it was necessary to transfer his right to share partnership profits to the other partners - Accordingly, our answer to the question referred to us is in the affirmative, i.e., in favour of the assessee and against the Revenue
Issues Involved:
Interpretation of gift tax on reduction of partnership share from 25% to 4%. Analysis: The High Court of Gujarat was tasked with providing an opinion on the question of whether a taxable gift occurred when an assessee reduced their partnership share from 25% to 4%. The Gift-tax Officer valued the reduced share at Rs. 90,247, considering the average five years' profit and debiting three years' purchase. The total gift amount declared was Rs. 25,000, resulting in a final figure of Rs. 1,10,247 after exemptions. The Appellate Tribunal, referencing a previous case, concluded that no gift was made. The court considered various Supreme Court decisions, emphasizing the need for evidence to establish a gift when partnership shares change. In this case, the partner reducing their share was elderly and blind, rendering them unfit to continue as a partner, necessitating the transfer of their profit-sharing rights to other partners. The court found that the Tribunal's decision in favor of the assessee was justified, citing the Supreme Court's stance that a change in profit-sharing ratio does not automatically imply a gift. The onus of proving a gift lies with the Revenue, which in this instance failed to do so. The court applied the precedent set in a previous apex court case where it was established that various factors, such as partners' abilities and circumstances, can influence changes in profit-sharing ratios. The court also referenced and explained previous Supreme Court decisions in similar contexts, affirming the applicability of these precedents to the current case. Conclusively, the court ruled in favor of the assessee, stating that no taxable gift occurred due to the circumstances surrounding the reduction of the partnership share. The reference was disposed of with no costs awarded, affirming the decision in favor of the assessee against the Revenue.
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