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Gift-tax charge on share of profit in partnership firm due to reconstitution. Analysis: The appeal raised concerns regarding the imposition of gift-tax on the share of profit in a partnership firm due to its reconstitution. The assessee-HUF was initially a partner in M/s. Vadilal Dairy Frozen Food Industries with a specific profit-sharing ratio. Subsequently, there was a change in the firm's constitution resulting in a reduction of the assessee's share of profit. The Assessing Officer contended that this reduction constituted a gift of goodwill to the new partner, M/s. Vadilal Ice-cream (P.) Ltd., leading to the imposition of gift-tax. The Assessing Officer relied on legal precedents, including the Supreme Court decision in CGT v. Chhotalal Mohanlal, to support the tax liability. The assessee argued that the entry of M/s. Vadilal Ice-cream (P.) Ltd. as a new partner was backed by substantial capital contribution, thereby constituting adequate consideration and negating the existence of a taxable gift. The Commissioner of Gift-tax (Appeals) concurred with this argument, citing various legal judgments such as CGT v. Karnaji Lumbamji, CGT v. C.S. Patil, and CGT v. Smt. Kamla Devi Bhanot to support the absence of a gift-tax liability. It was emphasized that the Supreme Court decision in CGT v. Chhotalal Mohanlal was not directly applicable to the present case, further strengthening the argument against tax imposition. During the appellate process, the Departmental Representative upheld the Assessing Officer's decision, emphasizing the application of the Supreme Court's ruling in CGT v. Chhotalal Mohanlal. Conversely, the assessee's counsel supported the Commissioner's decision, highlighting the substantial capital contribution by the new partner as adequate consideration, supported by legal precedents such as Achalsinhji Keshrisinhji & Co. v. CIT. The Tribunal analyzed the facts and legal principles involved, particularly focusing on the Supreme Court's decision in CGT v. Chhotalal Mohanlal and subsequent interpretations by other High Courts. Drawing parallels with relevant cases, such as C. S. Patil, Smt. Kamla Devi Bhanot, and Achalsinhji Keshrisinhji & Co., the Tribunal concluded that the capital contribution by the new partner in this case constituted adequate consideration, thereby negating the presence of a taxable gift. The Tribunal dismissed the appeal, upholding the decision of the Commissioner of Gift-tax (Appeals) and ruling in favor of the assessee.
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