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Issues:
1. Whether the surrender of partnership interest constitutes a gift attracting gift tax. 2. Whether minors admitted to the benefits of a partnership acquire property liable to gift tax. 3. Evaluation of goodwill for gift tax purposes in a partnership. Detailed Analysis: 1. The appeal before the Appellate Tribunal involved the Revenue challenging the decision of the AAC regarding the assessment made by the Income Tax Officer (ITO). The Revenue contended that the AAC erred in vacating the assessment and should have sent the case back to re-determine the value of surrender of profits for quantifying the gift. On the other hand, the assessee argued that the surrender of partnership interest was not subject to gift tax as it was for a bona fide purpose. Additionally, it was claimed that minors admitted to the partnership did not acquire any property liable to gift tax. The AAC had held that the surrender of shares and profits to minors admitted to the partnership did not constitute a gift, relying on a previous decision of the Gujarat High Court. 2. The facts of the case involved a partnership between two individuals, where one partner passed away, leading to the dissolution of the partnership. The surviving partner then admitted her minor sons to the benefits of the partnership. The Gift Tax Officer (GTO) issued notices under the Gift Tax Act, and the assessee declared the gift as 'Nil'. The GTO, however, evaluated the taxable gift based on the goodwill of the business, resulting in a deemed gift amount. In the appeal, the AAC held that the surrender of shares and profits did not attract gift tax, emphasizing that the minors admitted to the partnership did not acquire any property subject to gift tax. 3. The Tribunal considered the evaluation of goodwill for gift tax purposes in the context of the partnership. It was noted that upon the death of one partner, the surviving partner became the sole proprietor. The GTO's valuation of goodwill based on the partnership's profits was deemed flawed as the partnership had ceased to exist. Furthermore, as per the Indian Partnership Act, a minor admitted to the benefits of a partnership does not hold any partnership rights and is considered a "third party" in relation to the firm. Therefore, the minors in this case did not acquire any goodwill and were not subject to gift tax liability. The Tribunal upheld the AAC's decision, dismissing the Revenue's appeal and the assessee's cross objections. In conclusion, the Tribunal affirmed that the surrender of partnership interest and profits to minors admitted to the partnership did not attract gift tax liability. The decision was based on the legal principles governing partnerships and gift tax provisions, ultimately leading to the dismissal of the Revenue's appeal and the assessee's cross objections.
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