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TMI Blog1995 (7) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... o a partnership firm, the assessee continuing as one of the partners. The other partners are her two major daughters and her husband in his capacity as a trustee of a trust called "Krishnadev Trust". Three minor daughters of the assessee and two minor children of two married daughters are the beneficiaries of the trust. A partnership deed was executed wherein the share of each partner was specified. The assessee has 35 per cent. share and the two major daughters 15 per cent. each and the remaining 35 per cent. goes to the trust. The three incoming partners had invested Rs. 10,000 each and the said amount was treated as their respective share of capital in the partnership business in view of the terms of the deed. The Gift-tax Officer, however, completed the assessment for the year 1980-81 under section 15(3) of the Act fixing the goodwill of the proprietary business at Rs. 28,754. The officer further found that the assessee had gifted 65 per cent. of her right to share profits to the incoming partners. The contention of the assessee that transfer of interest was supported by consideration was rejected. Finally, the officer has passed an assessment order dated December 31, 1980 (ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the meaning of the word "gift" in section 2(xii) of the Act. One of the essential ingredients constituting the gift under this provision is that the transfer of property by one person to another must be "without consideration in money or money's worth". However, the word "consideration" is not defined in the Act and, therefore, it must carry the meaning assigned to it in section 2(d) of the Indian Contract Act, 1872. In Keshub Mahindra v. CGT [1968] 70 ITR 1, the Bombay High Court, in a similar situation, adopted the said course. Section 2(d) of the Indian Contract Act is thus : " When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. " The above provision is no doubt subject to such qualifications or limitations as contained in the Gift-tax Act. Under the Contract Act, the adequacy or inadequacy of the consideration is immaterial but under the Gift-tax Act an agreement to transfer property "otherwise than for adequate consideration" gives rise to a gift to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to augment this point, the following observation of Lord Lindley as quoted in Lindley on the Law of Partnership (Sixteenth edition) is brought to the notice of this court : " By the capital of a partnership is meant the aggregate of the sums contributed by its members for the purpose of commencing or carrying on the partnership business, and intended to be risked by them in that business. The capital of a partnership is not, therefore, the same as its property. " This court has absolutely no disagreement with the above position of law governing the partnership business and its capital. But the cardinal issue in this case has to be solved within the framework of the provisions contained in section 2(xii) of the Gift-tax Act read with section 2(d) of the Indian Contract Act. The incoming partners had made available a sum of Rs. 30,000 for the transfer of the interest of the assessee as desired by her. This is not a voluntary action of the incoming partners, but an action in terms of the partnership deed governing the transfer. No doubt this is a benefit to the promisor and so this is a consideration for the promise and at her desire or request, this may be adjusted towards capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Moothan's case [1972] 84 ITR 758 (Ker) have no decisive effect in the present case. The law applicable in the present set of facts appears to have been correctly laid down by this court in CGT v. K. A. Abdul Razack [1992] 196 ITR 578. There it has been held that the capital contributed by the minors should be treated as consideration for the gift of interest surrendered in favour of the minors in determining the value of the taxable gift. That was a case where the assessee, a partner of a firm, had gifted Rs. 2,500 each to his four minor sons and there was a reconstitution of the firm whereby two new partners and the four minor sons of the assessee were also admitted. The assessee was entitled to 25 per cent. of the partnership before the reconstitution of the firm and it was reduced to 5 per cent. thereafter. Thus the assessee has transferred 20 per cent. of his share in the firm. The Gift-tax Officer worked out the goodwill of the firm at Rs. 2,13,972 and 20 per cent. of the same, namely, Rs. 42,794, was treated as the proportionate value of the goodwill surrendered by the assessee in favour of his four minor sons. Thus, this is a case where the goodwill has been transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as part of the properties and assets of the business which the assessee had transferred to the partnership. But the Departmental authorities had never treated all those assets and properties of the assessee as the subject of gift. The Supreme Court did not say that the transfer of the goodwill as such is not liable to tax. It only said that the practice of picking up of goodwill alone cannot be justified. In the facts of that case, the court, however, held that no gift-tax was payable on the goodwill of the assessee's business. In Khushal Khemgar Shalt v. Mrs. Khorshed Banu Dadiba Boatwalla, AIR 1970 SC 1147 ; [1970] 1 SCC 415, the Supreme Court held that the goodwill of a firm is an asset. So also in Rustom Cavasjee Cooper v. Union of India, AIR 1970 SC 564, it said : "Goodwill of a business is an intangible asset". In CGT v. Chhotalal Mohanlal [1987] 166 ITR 124 (SC), again it held : "Once goodwill is taken to be property and with the admission of the two minors to the benefits of partnership in respect of a fixed share, the right to the money value of the goodwill stands transferred, the transaction does constitute a gift under the Act." What this court in Ganapathy Moothan's ..... X X X X Extracts X X X X X X X X Extracts X X X X
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