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TMI Blog1989 (12) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee joined it and a minor (Miss Nishi Mahajan) was admitted to the benefits of the partnership. Immediately prior to the reconstitution, the firm consisted of 9 partners. Smt. Raj Devi had 12 per cent share. A new partnership deed was executed, on14-4-1977when Nishi Mahajan attained majority. There was otherwise no change in the constitution of the firm. On1-1-1978the firm was reconstituted again. Out of the 14 partners 8 partners retired and the following partners continued the business of the firm :-- 1. Smt. Kamal Saroj 20% 2. Shri Rajesh Mahajan 20% 3. Smt. Nirmal Kanta 10% 4. Smt. Raj Devi 15% 5. Shri Rakesh Mahajan 20% 6. Km. Nishi Mahajan. 15% ----------- Total 100% ----------- On18-9-1979Smt. Raj Devi voluntarily retired from the firm. A deed of dissolution of the firm dated18-9-1979was executed. The remaining 5 partners took over all the assets and liabilities of the business of the firm as a going concern with effect from19-9-1979. As a result of the retirement of Smt. Raj Devi, the shares of three of the remaining partners were modified and there was no change in the share of the other two partners. Thus, with effect from19-9-1979Smt. Kamal S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's share of goodwill had been determined at Rs. 4,54,000 in the order dated18-6-1980passed by the Assistant Controller of Estate Duty, Karnal, the Gift-tax Officer also adopted the value of the gift at Rs. 4,54,000 and completed the gift-tax assessment on23-3-1987accordingly. The assessee preferred an appeal before the Commissioner of Gift-tax (Appeals) who vide his impugned order held that the value of assessee's share in the goodwill of the assessee firm was Rs. 40,000 as against Rs. 4,54,000 adopted by the Gift-tax Officer. He further held that no gift-tax liability was attracted on the facts of the case because according to him the relinquishment by Smt. Raj Devi of her share in the goodwill of the firm on18-9-1979did not constitute a gift at all. 6. Shri Puneet Gangal, learned Departmental Representative, strongly relied on the Gift-tax Officer's order. 7. Shri Hari Har Lal, learned counsel for the assessee, on the other hand, made submissions on the following lines. The Gift-tax Officer without applying his mind had adopted the value of assessee's share in the goodwill at Rs. 4,54,000 from the Estate Duty order dated18-6-1980passed by the Assistant Controller of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and examined the facts on record. Gift is defined in section 2(xii) of the Gift-tax Act as under :-- " 'gift' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer of any property deemed to be a gift under section 4." The learned counsel for the assessee does not challenge that goodwill of a firm is an asset. The Punjab Haryana High Court (Full Bench) decision in the case of State v. Prem Nath [1977] 106 ITR 446 has held that the goodwill of a firm is an asset of the firm. The Supreme Court in the case of Khushal Khemgar Shah v. Khorshed Banu Dadiba Boatwalla [1970] 3 SCR 689 has held that goodwill of a firm is an asset. Its transfer would, therefore, be a gift. In the case of CGT v. Chhotalal Mohanlal [1987] 166 ITR 124/31 Taxman 512 the Supreme Court held that goodwill is property and when minors are admitted to the benefits of a partnership in a firm the share of an existing partner is reduced thereby and the right to the money value of the goodwill stands transferred and the transaction constitutes a "gift" under the Gift-tax Act. On the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e family members and close relatives and the existing partners may have decided not to charge anything from the incoming partners towards goodwill. Perhaps they were satisfied that by excluding the retiring partners, etc. from the partnership firm their purpose was achieved and the goodwill continued to be that of the firm. But when partnership deed of1-1-1978was drawn up it was specifically mentioned that the goodwill of the firm shall belong to all the parties in proportion to the shares fixed in the deed. Thus the assessee at the time of her retirement had undoubtedly 15 per cent share in the goodwill of the firm. If the intention was not to claim her share of the goodwill at the time of retirement, the partnership deeds would have been worded differently. This was, however, not done. On the contrary, clause 15 of the partnership deed dated1-1-1978was made more specific which entitled the assessee to receive her share of 15 per cent in the goodwill. The mere fact that on1-1-1977she had not paid anything towards her share in the goodwill would not mean that her not claiming the share in goodwill at the time of her retirement was bona fide. That would, in fact, be a far-fetched pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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