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Issues:
Whether the assessee was liable to gift-tax on surrendering a share of profits in favor of other partners due to reconstitution of the firm. Analysis: The appeal involved a dispute regarding the imposition of gift-tax on the surrender of 27% of the assessee's share of profits to other partners following the reconstitution of the firm. The GTO determined the value of the surrendered shares at Rs. 70,000 based on past super profits, leading to the imposition of gift-tax. The AAC upheld the GTO's decision, citing the Madras High Court's ruling that such realignment of profit shares constituted a gift chargeable to tax. The assessee argued that there was adequate consideration for the surrender, as the new partners had made significant capital contributions and shared losses equally. The assessee relied on precedents where similar circumstances were not deemed liable for gift-tax. The departmental representative contended that the induction of new partners was a tax-saving scheme, emphasizing the lack of relevance of past cases cited by the assessee. He argued that the new partner's expertise was unrelated to the firm's business, suggesting a contrived arrangement to reduce tax liability. The representative highlighted a clause in the partnership deed allowing partners to retire and receive their capital and profits, implying that the surrender was not genuine. However, the assessee cited a Madras High Court decision emphasizing that capital contribution sufficed as consideration unless proven otherwise. The Tribunal analyzed the case in light of relevant precedents and factual considerations. It noted that the reallocation of profit shares among partners could be deemed a gift, as per earlier court decisions. However, considering the capital contributions, shared losses, and services rendered by the new partners, the Tribunal concluded that there was adequate consideration for the surrender. The Tribunal rejected the department's arguments regarding the genuineness of the reconstitution and the lack of consideration, ultimately ruling in favor of the assessee. The Tribunal emphasized that the partnership deed provisions were genuine and applicable to all partners, negating the department's contention that the surrender lacked consideration. Citing previous decisions, the Tribunal held that the transaction was not subject to gift-tax due to the presence of both consideration and adequate consideration. Consequently, the Tribunal set aside the lower authorities' orders and ruled that the transaction was not liable for gift-tax. In conclusion, the Tribunal allowed the appeal, determining that the surrender of profit shares by the assessee was not subject to gift-tax due to the presence of adequate consideration.
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