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TMI Blog2002 (11) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... nto partnership could be treated as gift under the Gift-tax Act, 1958 ? 2. When the proprietary concern is converted into a partnership concern and the closing stock is transferred as its book value, whether it is necessary to value the closing stock at market value and arrive at the taxable gift?" The assessee one M. Kathiresan was carrying on business in jewellery in the name and style of Sujatha Jewellers from 1977. He continued the business up to May 5, 1982, and from May 6, 1982, the proprietary business was converted into partnership concern by taking in one Savithri, M. S. Kumaraguruparan and another K. Shanmugavelayutham as partners. The assessee's share of profit was 40 per cent. and the other three partners were entitled to 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed of the loan facility in a sum of Rs. 1,84,000. The Tribunal also held that there was a gift of goodwill and, therefore, the provisions of the Gift-tax Act would be applicable. As far as the value of the closing stock is concerned, the Tribunal applied the principles laid down by the Supreme Court in A. L. A. Firm v. CIT [1991] 189 ITR 285 and held that in a case where there is dissolution of the firm and when some of the partners are retired and new partners are introduced, the closing stock has to be valued only at the market price and not at the cost price. In this view of the matter, the Tribunal held that there was a deemed gift and the value determined by the Income-tax Officer was also reasonable and allowed the appeal preferred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of 20 per cent. each though the new partners have contributed a capital of Rs. 40,000 and Rs. 30,000 each. Therefore, we hold that it cannot be held that the transfer was made without any consideration, as there was adequate consideration by way of capital contribution by the new partners and they were taken as partners and shared the profit of their contribution of capital. The fact that one of the partners availed of the loan facility from the firm subsequently after she became a partner is not a ground to hold that the transfer was made without any consideration. We hold that as a partner she was entitled to draw loan from the partnership and when it was granted, it cannot be said that the transfer itself was made without consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f valuation adopted by the Gift-tax Officer, which was upheld by the Tribunal, that the closing stock should be valued at the market price is not correct. Further, the Supreme Court in Reva Investment (P.) Ltd. v. CGT [2001] 249 ITR 337 has approved the view taken by this court in CGT v. Indo Traders and Agencies (Madras) (PJ Ltd. [1981] 131 ITR 313 and held that in order to constitute the deemed gift under section 4(1)(a) of the Gift-tax Act, 1958, there must be appreciable difference in the value of the properties gifted and the parties deliberately showed the valuation of the gifted properties to evade tax. The Supreme Court also held that such a conclusion cannot be drawn merely because according to the Assessing Officer there is some ..... X X X X Extracts X X X X X X X X Extracts X X X X
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