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Distribution of partnership shares and its tax implications under the Gift-tax Act. Analysis: The judgment involved a peculiar question regarding the distribution of partnership shares and its tax implications under the Gift-tax Act. The assessee was a partner in a firm that underwent reconstitution, resulting in the redistribution of shares among partners. The Gift-tax Officer treated this redistribution as a gift, charging gift-tax on the value of the two-ninths share. However, the Appellate Assistant Commissioner and the Tribunal held that there was no transfer of existing rights, as the redistribution was based on mutual consent and did not involve surrendering shares. The central issue was whether this redistribution constituted a gift liable for gift-tax. The court analyzed the definition of a gift under the Gift-tax Act, which includes the transfer of any existing property made voluntarily and without consideration. Property encompasses any interest in property, movable or immovable. The court emphasized that a partner's right to share in the profits of a firm is a valuable property right capable of transfer. Therefore, the redistribution of partnership shares among partners, even with mutual consent, amounts to a transfer of property, diminishing one partner's interest and increasing others' shares. The court concluded that the redistribution of shares did constitute a gift chargeable to tax under the Act. The court addressed the argument that a right to share in future profits is not an existing right and that a partner's interest in a firm is not a specific right to any asset of the firm. However, the court rejected this argument, emphasizing that a partner's right to share in profits is a valuable property right capable of transfer. The court distinguished previous cases cited by the assessee, highlighting that they dealt with different issues and did not address the specific question of redistributing partnership shares as a gift under the Gift-tax Act. Regarding the valuation of the gift, the court noted that the redistribution did not involve a share in the goodwill of the firm. The court refrained from providing a specific valuation method, pointing out the need for rules to be prescribed for valuing properties under the Act. Ultimately, the court ruled in favor of the revenue, holding that the redistribution of partnership shares constituted a gift liable for gift-tax, without awarding costs to either party.
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