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TMI Blog2001 (9) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... t there has been no gift involved in the transfer of goodwill on the reconstitution of the firm of which the assessee is a partner, on April 1, 1976? (2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal's finding that even if the consideration is not adequate, the gift is exempt under section 5(1)(xiv) of the Gift-tax Act, is rational and reasonable?" The brief facts leading to the above reference are as under: The assessee has been and continues to be the managing partner of M/s. South Indian Mining and Slab Co. at Bethamcherla. The firm extracts Cuddapah stones (rough slabs) in its stone quarry. It incidentally gets lime stone lumps. Both these activities are in the nature of mining act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evident from the deed that the reward was to match the responsibilities of management of the firm. Other partners also stood to gain by the goodwill remaining intact as all the partners had the benefit of goodwill by way of profits during the subsistence of the firm. Sri E. V. Rajendra Sarma had a capital of about Rs.30,000 at the relevant time. The partnership share was with reference to the capital contribution. The partnership deed envisaged greater finance and it is for this reason that the capital was also doubled from Rs.80,000 to Rs.1,60,000. The capital contribution from the other partners was increased for this purpose. Even the partnership deed dated April 1, 1972, placed on the assessee's son greater responsibilities than on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer after hearing the assessee concluded that the reduction of the share of the assessee in the partnership firm as a result of reconstitution under the fresh partnership deed, dated April 1, 1976, and also the goodwill, which was exclusively reserved for the assessee was transferred to his son and the same would amount to transfer of an asset giving rise to a gift liable to gift-tax. Accordingly, the Assessing Officer computed the gift liable to gift-tax and levied a gift-tax of Rs.59,992. This was contested by the assessee before the Commissioner (Appeals). The Commissioner (Appeals) dealt with the transfer of goodwill as well as the reduction of the share in the partnership firm of the assessee and the increase in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and proportionate increase in the share of the assessee's son, who is also another partner, it was held that the said change in the profit sharing ratio was as a result of bona fide reconstitution of the firm and there was no gift or transfer of property. According to the Commissioner (Appeals), it was proved with reference to the facts and circumstances of the case that there was introduction of additional capital as well as devoting of more time to the business by the assessee's son, who is a partner and the same would constitute adequate consideration. Therefore, it was held that there is no transfer in respect of both the aspects and accordingly allowed the appeal. The Department carried the matter in appeal to the Income-tax Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was adequate consideration" was not raised in the above decision rendered by this court. But such an argument was advanced in the present case and with reference to the said contention the Tribunal recorded the following finding: "We have found that there is a transfer in the arrangement here notwithstanding the fact that it was a partnership agreement. It is true that all the partners had to agree to the transfer of goodwill from the assessee to his son. We have every reason to believe that they agreed because they were also convinced that the transfer of the goodwill from the father to the son with consequent increase in share in the son's favour was for the better management of the business and ultimately for increased profits f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted facts set out by the Tribunal, it had recorded a finding that the transfer was for adequate consideration by way of increased capital contribution as well as additional responsibilities, thereby reducing the responsibility of the assessee as well as the reduction to share lesser loss as well as lesser liabilities in case the liabilities exceed the assets and simultaneous increased share of profits of the assessee's son with increasing responsibilities and to share a larger loss in the event of loss and to a larger liability in case the liabilities exceed the assets, in the event of dissolution. In the light of the said findings recorded by the Income-tax Appellate Tribunal, we do not find that there is any merit in the present cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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