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TMI Blog2004 (8) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... estion of law under section 26(1) of the Gift-tax Act, 1958, hereinafter referred to as "the Act" for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in holding that there was no deemed gift of the share of the goodwill in favour of the new partners?" The present reference relates to the assessment year 1976-77. M/s. Chowdhary Sweet House was a firm consisting of the following four partners: S.No. Name of Partners Extent of shares 1. Shri Shyam Lal 28% 2. Shri Ram Chand (Ram Lal) 28% 3. Shri Nand Lal 24% 4. Shri Ashok Kumar 20% This firm was constituted under the partnership deed dated April 13, 1970. All the partners as per cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Shri Shyam Lal R/o. Way Lane, Lucknow. 20% 2. Smt. Meera, W/o. Shri Ram Chand, R/o. Way Lane, Lucknow. 20% 3. Smt. Parmeshwari Rai, W/o. Late Shri Verhomal, R/o. 10-Nazar Bagh, Lucknow. 16% 4. Shri Ashok Kumar, S/o. Shri Nand Lal, R/o 5-Rana Pratap Marg, Lucknow. 20% 5. Shri Raj Kumar S/o. Nand Lal, R/o. 5-Rana Pratap Marg, Lucknow. 14% 6. Shri Nand Lal, S/o. Teoomal R/o. 5-Rana Pratp Marg, Lucknow. 10% Clauses 5, 6 and 9 of the above deed are important, which read as under: "5. That the partners shall get interest at 15 per cent, per annum on their investment in the firm. 6. That the partners shall draw salary as they mutually decide from time to time. 9. That Smt. Parmeshwari Rai shall not be entitled to goodwill of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the new partners as per the partnership deed dated March 8,1976, relating to the annexe business. Since his own shares in the main shop was reduced to 10 per cent, from 44 per cent, in the old shop, the Gift-tax Officer was further of the view that the balance of 34 per cent, in the goodwill of the old firm falling to the share of Shri Nand Lal could also be treated as a gift by him. In pursuance of the above findings, the Gift-tax Officer levied gift-tax on Shri Shyam Lal, Shri Ram Lal and Shri Nand Lal, respectively. For this purpose, he computed the value of the goodwill of the old firm and then determined the taxable gift in the hands of the respective partners, i.e., the assessees before us. He rejected the claim of the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that from a perusal of the partnership deed, it will be seen that the amount of investment which all the partners were to bring in had not been specified and, on the other hand, it has been provided that they shall get interest at 15 per cent, per annum on the investment in the firm. It has however been provided that the partner shall draw salary as mutually decided from time to time. According to him, as a result of the change in the partnership deed, wherein new partners were inducted, the existing partners had relinquished some portion of the share in the goodwill of the two firms and, therefore, it would be a deemed gift under the Act. He relied upon the decision of the hon'ble Supreme Court in the case of CGT v. Chhotalal Mohanlal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their relinquishing the share in the goodwill. Merely because the partners have invested capital in the business or they are being paid salaries is not determinative of the factor that consideration was adequate or sufficient for relinquishment of the share in the goodwill. The partnership deed did not provide any amount of investment as capital investment by the partners. Further any amount which is invested by the partners carried interest at 15 per cent. Per annum. Thus, the investment made by the partners towards capital cannot be said to be adequate or sufficient consideration. The hon'ble Supreme Court in the case of Chhotalal Mohanlal [1987] 166 ITR 124 had said that once goodwill is taken to be property and with the admission of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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