1972 (11) TMI 7

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..... sons Co. Prior to August 29, 1957, the was entitled to a half share in the firm and the other two partners were entitled to a one-fourth share each. By a supplementary deed of partnership dated November 15, 1957, all the partners agreed to a change in the profit-sharing ratio and from August 29, 1957, the assessee's share being fixed at one-third and the shares of the other two partners being fixed at one-third each. The Gift-tax Officer took the view that the relinquishment of one-sixth share by way of reduction of the assessee's share from one-half to one-third without any consideration amounted to a gift in favour of the other two partners of the firm, and called upon the assessee to file a gift-tax return for the assessment year 1959 .....

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..... luating the interest transferred by the assessee in terms of goodwill. The revenue preferred an appeal to the Tribunal against the said order of the Appellate Assistant Commissioner. The Tribunal alsotook the view that the reallocation of shares between partners cannot be construed as a transfer by one partner in favour of others, that it was always open to the partners of the firm by mutual agreement to change the profit-sharing ratio amongst themselves and that unless such a change in the profit-sharing ratio was brought about by an express transfer of the share of one partner in favour of another, it is not possible to infer an implied transfer in the case of every change in the profit-sharing ratio. Ultimately, the Tribunal held that .....

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..... correspondingly increasing the value or quantum of the shares held by the other partners. With respect, we entirely agree with the said decision and hold that the decision of the Tribunal that the re-distribution of the shares in a partnership between partners resulting in the diminution of a partner's interest and corresponding increase in the interest of the other partners without any consideration will not amount to a gift cannot be accepted as correct. We have to, therefore, hold that the distribution between the other partners by way of realignment of the one-sixth share of the assessee did amount to transfer of property amounting to a gift chargeable to tax. However, in this case, the Gift-tax Officer has regarded the transaction as .....

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