1989 (3) TMI 128 - HC - Income Tax

Summary

Issues:
Assessment of gift tax on retirement from a firm - Whether there was a gift by the assessee to his wife and daughter-in-law?

Analysis:
The case involved the assessment of gift tax on the retirement of the respondent from a partnership firm, where his wife and daughter-in-law were inducted as partners. The respondent had a 1/4th share in the firm, and upon his retirement, his wife and daughter-in-law were admitted as partners with a 1/8th share each. The Gift-tax Officer considered this as a relinquishment of the respondent's share, resulting in a gift. The respondent contended that there was no gift and even if there was, it was exempt under section 5(1)(xiv) of the Act. The value of the gift was initially determined at Rs. 91,800 by the Gift-tax Officer, which was later reduced to Rs. 44,278 by the Appellate Assistant Commissioner. However, the Appellate Tribunal ultimately held that there was no relinquishment by the respondent, either to the other partners or to his wife and daughter-in-law, thus no liability to gift tax was incurred by the respondent.

The key point of contention was whether the respondent had the right to nominate or assign his interest in the partnership firm to another person. The court noted that the consent of the other partners was essential for inducting the wife and daughter-in-law of the respondent as partners, indicating that the respondent did not have the right to nominate or assign his partnership interest. As there was no evidence to show that the respondent had the right to relinquish his interest in the firm, the Appellate Tribunal concluded that there was no gift involved in the retirement arrangement. The court agreed with the Tribunal's finding that there was no gift by the assessee to his wife and daughter-in-law upon his retirement from the firm.

In conclusion, the court held that the Appellate Tribunal was correct in its decision that there was no gift by the assessee to his wife and daughter-in-law on his retirement from the firm. The answer to the question referred to the court was in the affirmative, against the Revenue and in favor of the assessee. The judgment would be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.