1978 (1) TMI 87 - AT - Income Tax

Summary

Issues:
1. Consideration for a gift in a partnership transaction.
2. Determining the value of consideration for a deemed gift in a partnership transaction.

Analysis:
1. The case involved a partnership transaction where the son became a partner with equal profit sharing ratio by contributing Rs. 1 lakh as capital. The Gift Tax Officer (GTO) treated the excess over the consideration as a deemed gift, as the son's capital was considered as the consideration for the transaction. The Commissioner of Gift-tax disagreed, stating that the capital was not consideration as it was credited to the son's account in the partnership books, and directed a fresh assessment without allowing for the capital provided. The Tribunal held that consideration in a gift does not require direct payment to the promisor and that the son's contribution of capital at the father's desire constituted consideration for the gift, as per the Indian Contract Act.

2. The Tribunal emphasized that the son's capital contribution and the risk taken in the partnership business constituted sufficient consideration for the gift. The capital contributed by the son, which was Rs. 1 lakh, was deemed as the value of consideration for the gift. The Tribunal clarified that the taxable gift would only be the value of the subject-matter of the gift in excess of the consideration provided, which in this case was Rs. 1 lakh. Therefore, the assessment by the GTO, which deducted the Rs. 1 lakh from the value of the gift, was deemed appropriate and in accordance with the law. The Tribunal concluded that the assessment was not prejudicial to the interest of Revenue and upheld the decision of the GTO.