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Issues:
1. Whether the transfer of goodwill during the reconstitution of a partnership firm constitutes a gift liable to gift-tax? 2. Whether the reduction in the profit sharing ratio of a partner and the increase in another partner's share, along with the transfer of goodwill, involve adequate consideration and exemption under section 5(1)(xiv) of the Gift-tax Act? Analysis: 1. The case involved a partnership firm reconstitution where the goodwill was transferred to a partner. The Assessing Officer contended it was a deemed gift liable to gift-tax. The Commissioner (Appeals) held that the transfer of goodwill did not amount to a gift as it was reassigned within the firm and no specific partner had ownership. The Tribunal disagreed with the Commissioner (Appeals) and emphasized the transfer aspect. However, it considered the adequacy of consideration and exemption under section 5(1)(xiv) of the Act. The Tribunal found the transfer was for better business management, thus exempt from gift-tax. 2. Regarding the reduction in the partner's share and the increase in another partner's share, the Commissioner (Appeals) deemed it a bona fide reconstitution with adequate consideration. The Tribunal, while disagreeing on some points, confirmed the Commissioner (Appeals)'s decision based on the consideration and exemption under section 5(1)(xiv). The Department argued for gift-tax liability, citing a Supreme Court judgment. However, the High Court differentiated the present case from the cited case where no additional capital or increased responsibilities were involved, leading to a gift-tax liability. In the present case, the increased capital contribution and responsibilities of the partner receiving the goodwill were considered adequate consideration, thus exempt from gift-tax. In conclusion, the High Court ruled in favor of the assessee, stating that the transfer of goodwill and the reconstitution of the partnership firm did not constitute a gift liable to gift-tax. The Court highlighted the presence of adequate consideration in the form of increased capital and responsibilities, distinguishing the case from precedents where gift-tax liability was established.
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