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TMI Blog1982 (5) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... he preamble to the partnership deed it has been stated that the three employees have been assisting the assessee partner in the conduct of the business for the past many years, that they expressed the desire to join the firm as working partners and that the assessee had agreed to take them as working partners with a view to giving them encouragement and make them feel actively involved in the business. Clause 4 of the partnership deed provides that the entire capital of the firm shall be contributed by the assessee, that his capital shall be the amount standing to his credit as on 1st April, 1974 that the other partners shall only be working partner and not entitled to any goodwill and assets of the firm nor responsible for the liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 60,000 in all, the remuneration to the other parties at Rs. 15,000 and interest at 12 per cent of the average capital employed of Rs. 1,12,586 at Rs. 13,510. The net figure arrived at was Rs. 51,764 This is followed by the next item in the computation described as goodwill arrived at by multiplying the figure of Rs. 51,764 with 1/2 The good will thus came to Rs. 77,646.44 per cent of this was worked out at Rs. 34,166. 4. The GTO did not accept this computation He considered that in a business of this type it is necessary to adopt two years income and that the managerial allowance to the assessee should be restricted to Rs. 18,000 By so doing he worked out the goodwill (with out calling it goodwill) at Rs. 1,87,528, and 44 per cent the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... muneration to the assessee was correctly computed at Rs. 18,000 per month. 6. In the ground of appeal it has been urged that the gift has been made in the course of the business that the deed indicated that the intention has been only to continue the business and give encouragement to the employees who are taken as partners. It is stated that both the AAC and the GTO had not considered the decision of the Madras High Court in CGT. Tamil Nadu V G. Shanmugam and Anr. (1979) 9 CTR (Mad) 202 : (1979) 118 ITR 890 (Mad) the Kerala High Court in CGT vs. K.J. Pothem (1973) 87 ITR 256 (Ker) CGT vs. Devadasan (1973) 91 ITR 464 (Ker) and V. O. Markose vs. CIT (1975) 98 ITR 504 (Ker) It is also submitted that if It is held that goodwill is to be tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We agree with the department that the assessee had not been able to establish an integral connection between the transaction and the business carried on by him. Such an integral connection is necessary for the purpose of holding that the gift has been made in the course of the business and also the decision of the Supreme Court in CGT vs. Gheevarghese (P) Ltd. 1972 CTR (SC) 286; (1972) ITR 83 403 (SC). 9. However we feel that the assessees main contention is that in view of the circumstances under which the employees have been inducted as partners in the new partnership there cannot be any gift at all. The question whether the exemption under s. 5(1)(xiv) is available to an assessee arises only after it is shown that there is a gift by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has taken in as partners. In these circumstances, the assessment made by the GTO cannot be considered to have been validly made as goodwill was not the subject matter of the gift. 10. It has been pointed out by the ld. counsel for the assessee that by the induction of the employees as partners there has been a substantial increase in the turnover and profit of the business. For the asst. yr. 1974-75 the net profit was only Rs. 1,83,531, This was when the assessee was the proprietor of the business. In 1975-76 it has resulted to Rs. 2,29,330. In 1976-77 it was increased to Rs. 2,48,509 in 1977-78 to Rs. 3,19,240 and 1978-79 to Rs. 3,78,004. It is clear that the working partners have contributed their individual efforts for the prosperit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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