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Issues:
1. Assessment of gift tax on the relinquishment of share in a partnership firm. 2. Valuation of goodwill in the partnership firm for tax purposes. Detailed Analysis: 1. The appeal before the Appellate Tribunal ITAT CALCUTTA involved the assessment of gift tax on the relinquishment of a partner's share in a partnership firm. The assessee, a partner in M/s. M.O. Devasia & Co., retired from the firm with a 15% share in profits and losses. The Gift-tax Officer valued the goodwill of the firm and determined the assessee's share in the goodwill, bringing it to tax as a gift. The Commissioner (Appeals) upheld the assessment, valuing the goodwill at a different amount. Both the revenue and the assessee filed appeals and cross objections against this decision, challenging the valuation and the chargeability of gift tax on the relinquishment of the share. 2. The main contention revolved around the valuation of the goodwill and whether the relinquishment of the share constituted a gift chargeable to gift tax. The assessee argued that the method used for valuation did not consider the actual nature of the right to share in profits and assets. The Tribunal analyzed the partnership deed and relevant legal principles. It noted that during the subsistence of the partnership, a partner's right is limited to obtaining profits and does not extend to specific assets like goodwill. Relying on legal precedents, the Tribunal held that the alleged relinquishment of a share in goodwill without consideration cannot be taxed as a gift. It concluded that there was no gift involved in the retirement of the partner, as he received the amounts due from his capital and current accounts in the firm. 3. The Tribunal's decision was based on the principle that during the partnership, partners do not have individual rights to specific assets like goodwill. Therefore, the valuation of goodwill and the assessment of gift tax on its relinquishment were deemed incorrect. As a result, the Tribunal allowed the assessee's cross objection, canceling the assessment of gift tax and dismissing the revenue's appeal. The judgment clarified the legal position regarding the treatment of partnership assets and the tax implications of a partner's retirement, providing a clear precedent for similar cases in the future.
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