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TMI Blog1986 (7) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... onstitution of the firm under which a minor by name George Jacob, son of Shri M. George, was admitted to the benefits of the partnership. The minor was given one-ninth share in the profits only. He did not contribute any capital for his being admitted into the firm for the benefits of the partnership. The GTO held that the admission of the minor resulted in reduction of the share of each partner and that the forfeiture of a part of each partner's share of profits in the firm was without consideration and had been effected with a view to benefit the incoming partner and that this act on the part of these assessees tantamounted to gifts. He further held that the assessees had foregone 1/72 portion of their rights to enjoy profits of the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not on the partners individually. Reference may be made to the submissions made by the assessee and the observations of the High Court in the case of M.K. Kuppuraj v. CGT [1985] 153 ITR 481 at pp. 483 and 484 (Mad.). The case of V.A.M. Ayya Nadar is distinguishable because in that case only one partner's share was reduced and he was assessed to gift-tax. Reference may also be made to the case of CGT v. Harinder Katyal [1985] 23 Taxman 9 (Delhi). 5. The arguments of the departmental representative were to the following effect : As rightly pointed out by the GTO each of the assessees had foregone 1/72 portion of their rights to enjoy profits of the firm in favour of the incoming minor. The case of M.K. Kuppuraj clearly applies to the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the firm for the benefits of the partnership and not the partners individually. It was an 'act of firm' within the meaning of section 2(a) of the Indian Partnership Act. Thus, in the present case, it has to be held that it was the firm that had effected the transfer in favour of the minor because not only the shares of the two assessees herein but the shares of all the partners were reduced and all partners had suffered detriment. So, if any assessment has to be made under the Gift-tax Act, 1958 ('the Act') in respect of the said transfer it should have been made on the firm and not on these two assessees. This view has been approved by the Madras High Court in the case of M.K. Kuppuraj. In the said case, Kuppuraj was originally assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he minors had obtained a corresponding benefit, then one could say that there has been a transaction of a gift by the partnership or by the partners to the minors, who have been admitted to the benefits of the partnership. It is true no doubt that it is only with the consent of the other partners the assessee can bring in the minors for getting the benefits of the partnership. But the consent of the other partners had been obtained by the assessee on his parting with 8 per cent of his profit-sharing ratio in favour of the minors, who have been admitted to the benefits of the partnership. Thus, the assessee alone suffered a detriment for the purpose of bringing in the minors into the partnership, though the consent of the partners only enabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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