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TMI Blog1980 (9) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... nto partnership by taking his wife Smt. K. Shankuntala, his two major sons K. Janaki Raman and K. Gopal and his daughter-in-law Smt. G. Jaya as partners. His minor son K. Selvaraj was also admitted to the benefits of partnership. A deed of partnership was entered into on 14th April, 1971. It was agreed thereunder that the partners would carry on the business which had been carried on by the assessee previously as sole proprietor in partnership under the name and style "S. Krishnaswamy Sons". It was provided in the deed that the partners were to contribute capital necessary for the business according to their convenience, that interest would be paid to them on the capital contribution at the rates agreed to between them from time to time a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing at the value of the goodwill. 80 per cent thereof was taken as the value of the gift. 4. Aggrieved by such assessment, the assessee preferred appeal to the AAC reiterating the contention that there was no gift involved in the transaction. The AAC rejected the contention. Hence this appeal. 5. It was first contended before us on behalf of the assessee that there was no transfer involved in the transaction by which the assessee converted his proprietary business into partnership business w.e.f. 1st April, 1970 and that even if there was any transfer it was supported by consideration. It was pointed out that the other shares had brought in capital and had agreed to bear the loss in the event of there begin loss. It was stated that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounted to a transfer of property, as has been pointed out by the Madras High Court in CGT vs. V.A.H. Ayya Nadar. 7. The next question to be considered is whether the above transfer was without consideration. The contention of the assessee is that since the other partners had brought in capital of Rs. 101 each and had agreed to bear the loss in the event of there begin loss, the transfer involved in the transaction could not be said to be one without consideration. In CGT vs. N. Palaniappa Mudaliar (1978) 113 ITR 440 (Mad) two persons were partners in the firm carrying on the business of plying lorries for hire and dealing in cotton having share of 7 annas and 9 annas respectively. The said firm was reconstituted by taking four sons of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and by taking 3 sons into the partnership the assessee had transferred 75 per cent of the value of goodwill of the business and such transfer amounted to gift. This was confirmed by the AAC. But the Tribunal on further appeal held that the transfer by the assessee of 75 per cent share of the value of goodwill was for consideration. The High Court on reference noticed that the major son had been taken as a partner and the minor sons were admitted to the benefits of partnership for adequate consideration, the consideration begin the capital contributed by all of them in addition to the rendering of service by them. Reliance was placed upon the recital in the partnership deed that the assessee having become old and not being in a position to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of capital. The bulk of the capital of Rs. 2,20,000 was contributed only by the assessee. Thus the capital contribution by other partners is only illusory and it is not possible to hold that such capital contribution was consideration for the grant of partnership. It is also seen that the persons taken in as partners had no prior experience in the business at all. In fact, two of them were ladies. It is not the case of the assessee that the two major sons taken as partners had any prior experience. Therefore, it is not possible to accept the contention that the service rendered by them earlier was the consideration for the grant of partnership. For the above reasons we hold that the transaction by which the assessee converted his prop ..... X X X X Extracts X X X X X X X X Extracts X X X X
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