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TMI Blog1989 (11) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... as Pack Marine, a registered firm assessed in the Karikudi Income-tax Circle-I(4) since its inception in 1973. He had 60% share in the firm and contributed a capital of Rs. 36,000. He retired from the firm w.e.f. 31-3-1976. The firm had only two major partners. On his retirement, the remaining partner Mr. Cleetus admitted Mrs. Irene Mary as partner with 40% share in the business. Tle incoming partner brought in Rs. 1,20,000 towards her share of capital. The G.T.O. considered that taxable gift arose in the transaction by which Mr. Ronald Ferns retired and new partner was taken in. He issued a notice under sec. 16(1) and a nil return was filed in response. The G.T.O. considered that there was surrender of share of goodwill to the remaining pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o brought out a fallacy in the assessment order inasmuch as the entire value of three years' average profits has been brought to tax even though the surrender was only to the extent of 70% of the share in the profits. Shri Kochunni Nair invited attention to the Board's Circular dated 27-2-1959 considered by the Rajasthan High Court in Smt. Vidyawati Devi Rathi v. CGT [1988] 169 ITR 708 and argued that there was no element of gift involved in the retirement of the partner. What has happened was only a settlement of accounts among the partners and this did not attract the provisions of the Gift-tax Act as per the ruling in CIT v. T.M. Porinchu [1989] 178 ITR 677/44 Taxman 343 (Ker.) and CGT v. T.M. Luiz Kannamally [1989] 180 ITR 257/47 Taxman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the partners was unequal and it appeared from the relevant facts that one partner received assets of value less than the value of assets to which he was entitled, then the transfer would amount to a gift within the meaning of the Gift-tax Act. Shri Anil Kumar pointed out that in coming to this conclusion the Andhra Pradesh High Court was relying on the ruling of the Madras High Court in CIT v. Bharani Pictures [1981] 129 ITR 244. 5. After hearing the arguments from both sides we find that the matter does not rest in elaborate illustration of the legal issue at all. There can be no quarrel with the submission of the Departmental Representative that there is an element of gift to be considered, whether it is a case of dissolution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. The learned counsel had also invited our attention to the ruling of the Kerala High Court in Luiz Kannamally holding that when a partner retires from a firm there can only be a readjustment of the rights between the retiring partners and the continuing partners in the assets of the firm and there was no element of transfer. The High Court had referred to the observations of the Supreme Court in Addl. CIT v. Mohanbhai Pamabhai [1987] 165 ITR 166 to the effect that when a partner retired from the firm and received his share of an amount equivalent on the value of net partnership assets including goodwill of the firm, there was no transfer of interest of the partner in the goodwill. The Kerala High Court was following the principles enun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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