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TMI Blog2017 (11) TMI 917X X X X Extracts X X X X X X X X Extracts X X X X ..... collateral security' furnished by the person concerned and the 'personal guarantee' offered by her have not been taken into consideration or dealt with by the Revenue. We are of the view that the first appellate authority as well as the Tribunal were perfectly justified in passing Annexures B and C orders; holding that there was no instance of 'gift' coming within the purview of section 4 (1) of the Act; in turn setting aside Annexure A order passed by the assessing authority. As it stands so, we are of the view that the substantial questions raised are not liable to be answered in favour of the Revenue and they stand answered in favour of the assessee. Appeal fails - G.T.A. No. 1 of 2008 - - - Dated:- 17-10-2017 - MR. P.R. RAMACHANDRA MENON AND SHIRCY V., JJ. For The Appellant : Sri.George K. George, Standing Counsel For The RESPONDENT : Sri.M.Gopikrishnan Nambiar, Sri.P.Gopinath, Sri.K.John Mathai, Sri.Joson Manavalan, Sri.Kuryan Thomas And Sri.Paulose C. Abraham JUDGMENT Ramachandra Menon , J. This appeal is filed under Section 27A of the Gift Tax Act 1958 [in short 'the Act'], at the instance of the Revenue. Challenge is against Annex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 [K.K. Achuthan Vs. CGIT]. The assessee took up the matter in appeal before the Commissioner, challenging the course and events with specific reference to the facts and figures and also the relevant provisions of law/binding judicial precedents. Reliance was also sought to be placed on the verdict rendered by the Apex Court reported in [2001] 249 ITR 518 (S.C.) [CGT Vs. D.C. Shah and Others]. The subsequent decision rendered by the Apex Court as reported in [2003] 261 ITR 279 [Sree Narayan Chandrika Trust Vs. Commissioner of Gift Tax], which was passed placing reliance on D.C. Shah's case [cited supra], was also brought to the notice of the appellate authority. After detailed deliberation, the appellate authority held, as per Annexure B order, that the transaction did not involve any gift. It was accordingly, that Annexure A order was set aside and Annexure B order was passed in favour of the assessee. Though the matter was taken up further [by the Revenue] before the Tribunal, it did not yield any positive result, but for dismissal as per Annexure C order dated 16.02.2007, which made the Revenue to approach this Court by way of this appeal, raising/suggesting two subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for granting the relief in favour of the assessee by the Supreme Court was with reference to the additional contribution of capital of ₹ 25,000/- and the obligation of the partner to sincerely and faithfully carry on the business of the firm, which was stated as adequate consideration for reallocating the shares of profit to the incoming partner. The person by name Suman Vijoo, in the instant case - in whose favour the shares were transferred by the assessee, was already a partner of the firm and as such, she was already having an obligation to sincerely and faithfully carry out the business of the firm. It was also pointed out that the additional capital contributed by Suman Vijoo was only ₹ 1,23,750/-; whereas the total profit of the firm for the assessment year 1997 - '98 was ₹ 1,45,31,960/-. By virtue of the reallocation of the shares, the profit which could have been earned by the assessee during 1997-'98 based on the shares existed prior to transfer was ₹ 28,33,732/- which came to be reduced to ₹ 16,34,845/-, by virtue of the reallocation of the shares. In effect, it contributed an increase of profit of the other partner by name Suman Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case [cited supra] have to be analysed and applied in the said facts and circumstances. 8. With regard to the law declared by the Division Bench of this Court in K.K. Achuthan's case [cited supra], it was a case where the assessee and his three sons were doing business as partners in the firm M/s Greate Oriental Circus. The assessee had 40% of the shares till 31.03.1977 and on 11.04.1973, a new partnership was constituted; whereby the assessee's share was brought down to 25% consciously and willingly surrendering 15% of his shares to the three sons. This was taken as a 'gift' and it was assessed by the assessing authority, which was set aside by the appellate authority, accepting the plea that the assessee was entitled for exemption under Section 5 (1) (xiv) of the Gift Tax Act. On further appeal by the Revenue, the Tribunal reversed the appeal and held that the assessee was not entitled to get exemption under Section 5 (1) (xiv) of the Act, which led to the reference at the instance of the assessee. In spite of the fact that the assessment was at the instance of the assessee, he had not turned up, despite completion of service of notice; under which ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsed by the Apex Court as per the decision reported in [1987] 166 ITR 124 [CGT Vs. Chhotalal Mohanlal] . It was accordingly, that the reference was answered against the assessee and in favour of the Revenue. The reliance placed by the assessing authority on the said decision, to have passed Annexure A order in favour of the Revenue, is obviously with reference to the subsequent ruling rendered by the Apex Court in Sree Narayana Chandrika Trust's case [cited supra] and that of the Apex Court rendered earlier in D.C. Shah's case [cited supra]. 9. Coming to the verdict passed by the Supreme Court in D.C. Shah's case [cited supra], correctness of the verdict passed by the Karnataka High Court reported in [1982] 134 ITR 492 (Karn.). [Shan (D.C.) Vs. CGT] was the subject matter of consideration there. The main question which was referred to be answered by the Karnataka High Court, as extracted by the Apex Court in the said verdict reads as follows : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was a taxable gift by the assessee when his share of profit in the firm was reduced from 19 paise to 14 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The gift of a part of a partner's share to another partner has to be established by relevant evidence. The onus of doing so is on the Revenue. It has not been discharged in the present case . 10. It was accordingly held by the Apex Court, that the fact that the share of one partner was decreased and that of another partner got correspondingly increased would not by itself lead to the inference that the former had gifted the difference to the latter. The Apex Court also observed that, the 'profit sharing ratio' in a firm can vary for a number of reasons, and among them, the ability of the partner to devote time to the business of the firm was also significant factor. The Apex Court had further made it clear, that the gift of a part of a partner's share to another partner has to be established by relevant evidence and that the 'burden of proof' in this regard was purely on the Revenue, which was held as not satisfied in the said case. It was accordingly, that interference was declined and the verdict passed by the Karnataka High Court was affirmed. 11. The Apex Court had a further occasion to consider similar circumstances involving reduction of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, that it was never an instance of transfer of share for inadequate consideration so as to amount taxable gift coming within the purview of section 4(1) of the Gift Tax Act 1958. The Judgment rendered by this Court reported in [2001] 248 ITR 275 was intercepted and reversed, answering the position in favour of the assessee. The relevant portion of the said verdict is extracted below for convenience of reference : The facts found in the present case are that the incoming partner [M.U. Indira] had contributed ₹ 25,000/- towards her share of the capital. The value of her services of usefulness to the firm as partner has not been disputed by the Revenue Authorities. As pointed out by this Court in D.C. Shah's case [2001] 249 ITR 518, the mere fact that upon reconstitution of the firm the share of one partner decreased and that of another increased cannot lead to the inference that the former had gifted the difference to the incoming partner. There is no other material placed on record by the Revenue to show that, in the facts and circumstances of the case, particularly taking into consideration the obligations of all the partners in the partnership deed dated Octobe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical figures with reference to the total profit in the year in question, which came to be reduced and reduction in the probable portion of profit of the assessee as worked by the appellant/Revenue do not reflect the correct picture in this regard. The more important aspect with reference to the 'collateral security' furnished by the person concerned and the 'personal guarantee' offered by her have not been taken into consideration or dealt with by the Revenue. 14. In the above circumstances, we are of the view that the first appellate authority as well as the Tribunal were perfectly justified in passing Annexures B and C orders; holding that there was no instance of 'gift' coming within the purview of section 4 (1) of the Act; in turn setting aside Annexure A order passed by the assessing authority. As it stands so, we are of the view that the substantial questions raised are not liable to be answered in favour of the Revenue and they stand answered in favour of the assessee. Appeal fails and it is dismissed accordingly. The Registry is directed to forward a copy of this judgment to the Income Tax Appellate Tribunal, in terms of the relevant provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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