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TMI Blog2002 (11) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ENT The judgment of the court was delivered by G. SIVARAJAN J.- The matter arises under the Gift-tax Act, 1958 (for short, "the Act"). The following question of law is referred for decision to this court at the instance of the assessee: "Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law and fact in holding that the surrender of share of 30 per cent. in the firm by the assessee is liable to gift-tax?" The assessee was a partner in a firm, M/s. P.J. Corporation, Cochin, with 50 per cent. share of the profits therein. There were two partners. There was a reconstitution of the said firm with effect from April I, 1989, by which the firm admitted a new partner and four minors to the benefits of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciples laid down by the honourable Supreme Court in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 and by following the appellate order in the case of the other partner, namely, Shri P. Jacob, in similar circumstances, the Tribunal held that the firm had a goodwill and there is a gift to the extent of the reduction of the share capital from 50 per cent. to 20 per cent. Shri P. Balakrishnan, learned counsel for the assessee, submits that the firm, M/s. P.J. Corporation, in which the assessee is a partner is only engaged in the business of transporting contractors with M/s. Indian Potash Ltd. He further submits that the said company was inviting tenders from year to year and that the contract is being awarded only to the party who satisfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ascertainment of goodwill, had considered the facts of the assessee's case and had correctly found that the firm is having a goodwill. Senior counsel accordingly submitted that the Tribunal was perfectly justified in holding that the transaction is exigible to tax. We will first dispose of the preliminary contention raised by learned senior standing counsel. In this case, the question regarding the exigibility to gift-tax arises only if it is found that the firm is having a goodwill, since the Assessing Officer has determined the amount of gift only in respect of goodwill. The Assessing Officer and the Tribunal, after considering the factual situation, came to the conclusion that the firm is having a goodwill. However, the first appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal on the basis of those findings. In other words, the question framed should be read as to whether, on the facts and in the circumstances of the case, as found by the Tribunal, the sum of Rs. 18,00,000 paid to the company was a revenue receipt and as such assessable to income-tax. Curiously enough, despite the fact that the question referred to the High Court for its opinion did not in any manner challenge the correctness of the facts found by the Tribunal, the High Court proceeded to reexamine the material on record and reversed the findings of fact reached by the Tribunal. It came to the conclusion that all the proceedings relating to the termination of the managing agency of the company were not genuine transactions. It fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrectness of the finding of the Tribunal regarding the goodwill. Now, coming to the merits of the matter, we notice that the assessing authority has taken the view that when the share capital of a partner is reduced from 50 per cent. to 20 per cent. by the induction of new partners and allotment of shares to them, there is a deemed gift exigible to tax under the Gift-tax Act. The deemed gift, according to the Assessing Officer, is in regard to the goodwill. Goodwill is the value of the attraction to customers arising from the name and reputation in skill, integrity, efficient business management or effective service. The Supreme Court in ClT v. B.C. Srinivasa Setty [1981] 128 ITR 294, considered the basic features of the goodwill and obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id down by the Supreme Court in B.C. Srinivasa Setty's case [1981] 128 ITR 294 the Tribunal considered the question of goodwill thus: "M/s. P.J. Corporation was constituted on April 1, 1980, as a partnership with three partners, for carrying on the business of transporting goods for M/s. Indian Potash Ltd. From the first year onwards the firm was transporting caustic chemicals for that company. It appears that the firm had not done any other business, nor had it transported goods for any other parties. The firm continued the business without interruption. Indian Potash Ltd. had entrusted with the transporting work with this firm only. There is nothing to show that there was any competition for the assessee in this particular line of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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