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TMI Blog1978 (7) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... d to pass under s. 9 by observing as under in the order of assessment: "Property deemed to pass under s. 9 : The deceased and his sister Saren Bi were partners in M/s. Noor and Co. having equal shares, w.e.f. 1st Apr, 1971 Sri Abdul Kader son of Mrs. Saren Bi was admitted as a partner and the share of the deceased was reduced to 1/3 rd. The deceased did not receive any sum towards the share in route value foregone by him in favour of his nephew. The amount foregone by the deceased in favour oh his nephew within 2 years of death will be assessed under s. 9. 1/6th share in the route value as already discussed above Rs. 26,667." On appeal the Appellate CED observed that for the application of s. 9 of the Estate Duty Act the prime requisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned counsel also referred to the deed of partnership dated 4th June, 1971 and pointed out that the sister's son of the deceased was taken in as a partner in order to take his services for carrying on the business more efficiently and profitably and for expanding the business and that therefore it was a Bona fide commercial transaction. He further pointed out that the sister's son Abdul Khader had contributed capital of Rs. 20,000. In these circumstances he urged that there was consideration for taking in the nephew into the firm and the provisions of s.9 would not therefore apply. He referred to the following rulings in support of his stand: 1. Additional Commissioner of Gift-tax Madras-I vs. A.A. Annamamalai Nadar (3) 2. Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Villupuram South Arcot Dt, under a deed of partnership dated 5th Jan., 1966 and whereas the parties No.1 and 2 on account of their age and ill health thought it desirable to take the services of party No. 3 for carrying on the business more efficiently and profitably and for expanding the business and whereas party No 3 is willing to offer his services only in return for a share of profit in the business and whereas the parties agreed to take him as a Partner from 4th June, 1971 and whereas the parties deem it necessary that the terms and condition of the partnership shall be in writing, now this deed of partnership witnesseth as follows." A plain reading of the above clauses indicate that the deceased by reason of his old age (his ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the extinguishment of a portion of the deceased's share in the firm should be deemed to be a disposition made by the deceased in favour of his nephew and therefore the benefit conferred by the extinguishment of such a right would amount to property. The point that now arises for consideration is whether this disposition should be deemed to operate as a gift in order in invoke the provisions of s.9 of the Estate Duty Act. s. 27(1) of the Estate Duty Act reads as under: "27. Dispositions in favour of relatives (1) Any disposition made by the deceased in favour of a relative of his shall be treated for the purposes of this Act as a gift unless : (a) the disposition was made on the part of the deceased for full consideration in mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... third partner has contributed capital. On these facts it is clear that the transaction by which the third partner was taken, as a result of which the share of the deceased in the firm got reduced, would not amount to a gift. The Madras High Court in the cases reported in 113 ITR 574 and 113 ITR 440 referred to above, considered the identical issue and held that the existence of consideration of money or money's worth was thus established and there was no gift. The Madras High Court in the case reported in 110 ITR 237 referred to above, held that where the gift was made Bona fide in the course of carrying on the business and for the purpose of the business, the gift fell within the ambit of exemption under s. 5(1) (xiv) of the Gift Tax Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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