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TMI Blog1994 (10) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... e bringing of land and building into the partnership as a transfer without adequate consideration, he was of the view the assessee was liable to gift-tax on the difference between the value at which the property was brought into the books of the firm and its market value. A notice under section 16(1) was accordingly issued to the assessee. Assessee filed a return declaring nil gift. After the issue of notice under section 15(2) Assessing Officer completed the assessment under section 15(3) holding that the difference between the value at which it was brought to the books of the firm and the market value of that property was deemed gift. The contention raised on behalf of the assessee that the assessee had contributed land and building towards his capital contribution and that the valuation of partners interest was to take place only when there is a dissolution of the firm or any of the partner retires, was not accepted by the Assessing Officer. The alternative claim of the assessee that even if the capital contribution made by the assessee is considered to be deemed gift, the same was exempt under section 5(1)(xiv) of the Gift-tax Act, was also rejected by the Assessing Officer. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the value adopted by the DVO is the correct value and that the same should be adopted for the computation of the deemed gift. 5. It has also been pleaded before us on behalf of the revenue that there has been a transfer by the assessee to the firm within the meaning of section 4(1)(a) of the Gift-tax Act. Revenue has also placed its reliance on the decision of the Supreme Court in the case of Sunil Siddharthbhai in support of the contention that when a partner brings property into the firm towards his capital contribution there is a transfer notwithstanding the fact that such transfer has not been effected by means of a registered document. 6. We have given our careful consideration to the rival contentions. The issue before us is as to whether there has been a transfer of a capital asset when assessee has contributed the property, being land and building. In the firm towards his capital contribution. If so, whether provisions of section 4(1)(a) are attracted. When answer to the above two questions is against the assessee then only the valuation of the property in question would be relevant. We, therefore, proceed to consider as to whether there has been a transfer of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest in property is a larger interest than a share in that property. To the extent to which the exclusive interest is reduced to a shared interest, it would seem that there is a transfer of interest. Therefore, when a partner brings in his personal assets into the capital of partnership firm as his contribution to its capital, he reduces his exclusive rights in the assets to shared rights in it with the other partners of the firm. While he does not lose his rights in the assets altogether what he enjoys now is a abridged right which cannot be identified with the fullness of the right which he enjoyed In the assets before it entered into the partnership capital." In the light of the aforementioned decision of the Supreme Court we have to consider as to whether there has been a transfer within the meaning of Gift-tax Act. At this stage we may usefully refer to some definitions under the Gift-tax Act, 1958 --- Under section 2(xii) 'Gift' is defined 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 or conversion of any proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferor : Provided that nothing contained in this clause shall apply in any case where the property is transferred to the Government or where the value of the consideration for the transfer is determined or approved by the Central Government or the Reserve Bank ofIndia; " For invoking the aforementioned provisions of the Gift-tax Act, three factors are to be determined : (a) there should be a transfer of property ; (b) the transfer should be otherwise than for adequate consideration ; and (c) the value of the property/transfer has to be determined in the manner laid down in Schedule II. If the value determined as above exceeds the value of the consideration, the difference can be deemed to be a gift. 8. We have held above that there has been a transfer by the partner to the firm. So one of the conditions for attracting section 4(1)(a) of the Gift-tax Act, 1958 is satisfied. The other factor that has to be considered is as to whether the transfer has been for adequate consideration. Here arises the difficulty. Though bringing in the property into the firm by a partner towards his capital contribution amounts to the transfer yet its consideration cannot be evaluated imm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is share in the net assets on the dissolution of the firm or upon the partner's retirement." The issue before the Hon'ble Supreme Court in the case of Sunil Siddharthbhai was as to whether capital gain arises on assessee's bringing in his property into the firm towards his capital contribution. Their Lordships held that though there was a transfer yet since the consideration could not be evaluated within the meaning of section 48, no profit or gain can be said to arise for the purposes of the Income-tax Act. The principle laid down by their Lordships in therefore mentioned case applies in all fours to the proceedings under section 4(1)(a) of the Gift-tax Act. The credit entry of Rs. 10 lakhs made in the capital account of the assessee in the books of the partnership firm does not represent the true value of the consideration. As held by their Lordships of the Supreme Court in the aforementioned case, it is a notional value only intended to be taken in account at the time of determining the value of partner's share in the net partnership assets on the date of dissolution or his retirement, a share which will depend upon deduction of the liabilities and prior charges existing on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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