9911796707
TMI Blog1985 (7) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... another partner Shri Mahendra R. Patel holding share of 33 per cent. This partnership was evidenced by a deed of partnership dated 3-11-1967. There was a change in the constitution of the firm by which one Shri Rasiklal D. Patel was admitted as third partner which is evidenced by a deed of partnership dated 1-4-1974. As per this deed, the shares of the assessee, Shri Mahendra R. Patel and Shri Rasiklal D. Patel were 40 per cent, 40 per cent and 20 per cent respectively. According to the GTO, the surrender of shares of 27 per cent in favour of the other two partners should be deemed to be gift in terms of section 41(c) of the Gift-tax Act, 1958 ('the Act') and he has determined the value thereof at Rs. 70,000 roundly on the basis of super pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icient consideration for surrender of shares by the assessee in favour of the other two partners and, thus, the facts of the case squarely fell within the ratio of the Madras High Court's decision in the case of CGT v. Ali Hussain M. Jeevaji [1980] 123 ITR 420. Reliance was also placed on the decision of the Tribunal, Madras Bench 'C', in the case of Second GTO v. Smt. G. Saraswathi Ammal [1984] 10 ITD 198, wherein in similar circumstances, following the decision of the Madras High Court in Ali Hussain M. Jeevaji's case, the Tribunal held that the relinquishment of share in favour of new partners did not constitute gift liable to tax. 5. The learned departmental representative prefaced his submission stating that there could be no quarrel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice in writing of his or her intention to do so. A partner retiring as aforesaid shall be entitled to be paid by the other partners within six months of his or her account in the books of the firm on the date of the retirement together with his or her share of profits, if any, till the date but shall not be entitled to any share in the assets or goodwill of the firm." According to him, a partner retiring from the partnership was entitled to be paid not only his capital but his share of profit too and this showed that the agreement to share the profits or losses of the business by the incoming partners was not bona fide and true. Therefore, the agreement to share the loss of partnership which was in the nature of executory contract was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, wherein a partner has surrendered 8 per cent of his share of profit in favour of four minor sons, who were admitted to the benefits of partnership and the Court held that the transaction amounted to a gift, as there was no consideration at all for the admission of minors. As has been stated earlier, the learned departmental representative prefaced his argument by conceding the principles laid down by the Madras High Court in the case of Ali Hussain M. Jeevaji. In that case, two of the partners relinquished 50 per cent of their shares in favour of their sons but there was consideration therefor and, hence, there was no gift attracting liability to gift-tax. The High Court held that contribution of capital, rendering of service, sharing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid his capital and also his share of profits, if any. In our view, the words 'profits, if any' are of significance which denotes that only if the business results in profit, the retiring partners would be entitled to it and not otherwise. Further, the amount was to be paid within six months of the date of retirement. Therefore, within a period of six months whatever be the profits or losses up to the date of retirement were bound to be accounted for and adjusted before the retiring partner was paid off. The clause applies equally to the assessee who was the ex-proprietrix and, therefore, the provisions of this clause are genuine and meant to be applied for all the partners of the firm. Therefore, there is no warrant for the contention of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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