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TMI Blog1994 (5) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... six partners are founder partners. Clauses 11 and 12 of the partnership deed dt. 1st April, 1978 are as follows: "11. The capital profits, losses appreciation in the value of the assets and goodwill of the business of the firm shall belong only to the parties of first to sixth part of this deed in the following ratio: 1. Smt. N.V. Gowramma 25% 2. Smt. G. Nagarathnamma 25% 3. Smt. J. Radhalakshmamma 25% 4. Smt. N. Suneetha 9% 5. Sri T.V. Umesh Gupta 8% 6. Sri T.V. Viswanath Gupta 8% 12. The parties of the seventh to twelfth part to this deed in and the Minor shall not be entitled to such capital appreciation, accretion, appreciation in value of the assets and the goodwill of the firm shall belong to the parties of the first to sixth part only." On 16th Feb., 1979, Smt. Gowramma, Smt. Nagarathnamma, Smt. Radhalakshmamma and Smt. Suneetha retired from the firm. The other major partners continued in partnership alongwith minor admitted to the benefits of partnership. A deed of retirement evidencing the retirement of the four partners, namely Gowramma, Nagarathnamma, Radhalakshmamma and Sun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith all the capital profits or losses, goodwill, appreciation in the value of the assets and goodwill, of the business of the firm shall belong only to the party of the seventh part. The other parties to this deed shall not be entitled to such capital profits or losses, capital appreciation, accretion in value of the assets and the goodwill of the firm. The party of the seventh part, namely, Kwality Biscuits Pvt. Ltd., has agreed to pay Rs. 24,000 each to the party of the first part Shri T.V. Umesh Gupta and the party of the second part Shri T.V. Viswanath Gupta as mutually agreed upon for taking over their respective right under cl. 11 of the partnership deed dt. 1st April, 1978." 2. The GTO was of the view that the consideration received by the four retiring partners from Kwality Biscuits Pvt. Ltd., one of the continuing partners, was not adequate for the transfer of their special rights in goodwill and capital appreciation of the assets. Similarly, he was of the view that the consideration received by Shri Viswanath Gupta and Sri Umesh Gupta, two of the continuing partners, for giving up their special rights in the goodwill and capital appreciation of the assets of the firm w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners and the difference was treated as deemed goodwill. Therefore, it was contended that the basis adopted by the GTO was erroneous, the manner in which the goodwill was calculated was erroneous and the method by which the deemed gift was ascertained was equally erroneous. All these contentions were rejected by the CIT(A) and the assessments were upheld. There was also another objection by the assessee namely that he had elected to choose 31st March, 1979 as his previous year in the IT assessments and therefore if at all there was any goodwill, it should be considered only in the asst. yr. 1979-80 and not 1980-81. This contention was rejected by the CIT(A) on the ground that the GTO did not accede to the change of the previous year from June to March, and therefore, the gift was properly assessable in the previous year ending on 30th June, 1979 relevant to the asst. yr. 1980-81. The assessees are in second appeal. 4. We have heard rival submissions and perused the records. Obviously at the time of retirement there could be no transfer as has been held by the following decisions: 1. CIT vs. Mohanbhai Pamabhai (1973) 91 ITR 393 (Guj) as approved by the Supreme Court in Add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there was any gift or deemed gift because the value of their rights while the firm is subsisting cannot be ascertained with any degree of certainty. Unless that is ascertained, the inadequacy of consideration cannot be proved. Hence, we hold that even in their cases, there is no gift or deemed gift. 5. Assuming for the sake of arguments that there was gift or deemed gift in such transactions, we hold that such gift or deemed gift should be ascertained only with reference to the value of all the assets and liabilities as on the date of the transaction—16th Feb., 1979. On the other hand, the learned GTO and the CIT(A) have taken the revaluation done in respect of the assets as on 17th March, 1981 when the firm was finally dissolved. The time interval between the date of alleged gift and the date at which the assets were revalued is more than two years. In the meanwhile, the firm had acquired further assets and they have been revalued on 17th March, 1981. From such revalued figures as on 17th March, 1981, the GTO has worked out probable value of the assets as on 16th Feb., 1979 on a pro-rata basis. There is no scientific reason to support such a computation. From the pro- ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce profits are expressed in terms of current prices, it is proper that fixed assets should also be valued at current prices. A refinement is that the figure of capital employed should be the average for the year concerned since the figure changes at least because of the profit or loss during the year." This has not been done. Further tax referable to the profits has not been deducted before capitalisation. For these reasons, we are not able to accept the value of the goodwill as computed by the GTO. Further the goodwill of the firm as a whole must be ascertained first and then the share of the retiring partners and the other two continuing partners should have been ascertained. Instead the authorities have computed the goodwill only with reference to the capital of the four retiring partners and two continuing partners. This is an incorrect approach. For all these reasons, we hold that the value placed on the goodwill by the authorities cannot be accepted. 6. In the light of our discussions, we hold that the ascertainment of the value of the assets based on the revalued figure of the assets after efflux of two years from the date of the transaction and failure to deduct the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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