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TMI Blog1972 (2) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... expiration of such a notice, the partnership shall determine. Clause 14 of the partnership deed further provided that, on dissolution of the partnership, the junior partner, namely, Kuppuraj Chetty, the son of the assessee, shall be entitled to be paid the amount contributed by him as capital and his share of profits, if any, till the date of dissolution after deducting all the amounts drawn by him and that the goodwill of the firm and all assets including trade marks, patent rights, etc., and liabilities of the firm shall vest in the senior partner, namely, the assessee. The trade marks and patent rights, which had hitherto been in the registered name of the assessee, were transferred in the name of the firm. The assessee, on December 25, 1957, issued a notice for determining the partnership on March 26, 1958, and accordingly the firm was dissolved under a deed of dissolution, dated March 26, 1958. This deed of dissolution provided for payment to the assessee by his son, the surviving partner, of the amounts that stood to the credit of the assessee's capital account after adjustment of withdrawals as on that date and also his share in the profits of the business for the period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the goodwill at Rs. 2,00,000. On the application by the Commissioner of Gift-tax, Madras, the following two questions were referred by the Tribunal : " (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that there was no gift or deemed gift chargeable under the Gift-tax Act ? and (2) If the answer to question No. (1) is in the negative, whether the gift was only of a 10 annas share of the goodwill of the firm ? " In the application for reference, the Commissioner of Gift-tax, Madras, required the Tribunal to refer a question as to whether there was any material for the Tribunal to hold that the value of the goodwill was Rs. 2,00,000 only in addition to the other two questions which have been referred to by the Tribunal. Since the Tribunal refused to refer this question, he filed T.C.P. No. 17 of 1966 in this court, under section 26(3) of the Act. In compliance with the order, dated October 24, 1966, of this court made in T.C.P. No. 17 of 1966, the Tribunal has referred the following further question for decision : " Whether, on the facts and in the circumstances of the case, there was any material for the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions and liabilities and indemnify the senior partner against all claims or demands in respect of such obligations and liabilities. It was contended by the learned counsel for the assessee that clause 14 of the partnership deed vesting the goodwill of the firm in the assessee on dissolution of the partnership will apply only in a case where the junior partner retires from the firm and the senior partner continues the business. We are of opinion that there is no warrant for this contention in the language of clause 14. It may be noted that the clause relating to goodwill forms a separate sentence, though it is in the same clause 14. In our opinion, clause 14 deals with dissolution as such and not merely a case of a dissolution when the junior partner retires. In either case of dissolution, the senior partner will be entitled to the goodwill and the trade marks and patent rights. But that right was given to the junior partner under the deed of dissolution. This is also clear from the fact that subsequent thereafter, on an application by the new firm of which the assessee's son was a partner, the Registrar of Trade Marks registered the trade marks in the name of the new firm. The q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaning " sale " is a transfer of property for a price and adjustment of rights of persons in a dissolved firm by allotment of its assets is not a transfer nor is it for a price. But the definition of " transfer of property " in section 2(xxiv) of the Gift-tax Act is wider than the definition of " sale " under the Sale of Goods Act. These decisions therefore, are not of much assistance for determining the question now in issue. In Velo Industries v. Collector, Bhavnagar, a Full Bench of the Gujarat High Court, held that, when a partner retires from the partnership and the amount of his share in the partnership is given to him, the amount received by him is not a price for the sale of his interest in the partnership. This decision was also concerned with the question of " sale " under article 25 of the Schedule I of the Bombay Stamp Act and is, therefore, not of much assistance. In Sundararajan v. Chellappan it was held that where, on a dissolution of a firm doing transport business, the buses and workmen are apportioned between the erstwhile partners, there was no transfer of ownership as such involved, a view similar to one taken by the Supreme Court in Commissioner of Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mily. A coparcener has no definite share in the family property before its division. A partition is a process by which a joint enjoyment is transferred into an enjoyment in severalty. It is in those circumstances the Supreme Court held that a partition of a Hindu joint family did not effect any transfer of property as generally understood in law. Though partners own the entire partnership assets as co-owners, they have definite shares in the property. The definition of " transfer of property " in section 24(xiv) includes a " disposition ". The Supreme Court held that the word " disposition " in the context means " giving away or giving up by a person of something which was his own ". In the present case, under the partnership deed, on dissolution of the firm, the assessee becomes the owner of the goodwill. That ownership of the goodwill he gave up in favour of his son under the deed of dissolution. It is not contended that any consideration was received by the assessee for the transfer of the goodwill. We have, therefore, no doubt that there was a gift of the goodwill by the assessee to his son. In any case, we are of the view that the transaction will fall under section 2(xxiv)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to vest the goodwill in the surviving partner, whoever was the surviving partner. We are unable to agree with the contention of the learned counsel for the assessee. We have no doubt that clause 14 is a clause relating to the dissolution and it could not be restricted to a case where a junior partner of the firm retired. There is no question of junior or senior partner retiring in the case of a dissolution of a partnership consisting of only two partners. Clause 14, in our opinion, provides for the vesting of the goodwill in the assessee on dissolution of the firm, whether the business was continued by the junior partner or the senior partner and that the assessee who is entitled to the entire goodwill transferred the same to his son on dissolution of the partnership. The only other question that remains to be considered is the one that was referred to us in T.C. No. 131/67. The Tribunal valued the goodwill on the basis 'of 18 months' purchase of the average super profit. In determining this method of valuation, the Tribunal took into account that the assessee's son having been associated with the assesse for some years had come to know of the secret formula and that, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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