9911796707
TMI Blog1991 (7) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... ary 1, 1974, the four minor sons of the assessee were admitted to the benefits of the partnership by a deed entered into on that day. According to this, the four minor sons were together allotted 20 per cent. share in the profits of the firm while the assessee's share in the firm was reduced to 5 per cent. While completing the assessment, the Gift-tax Officer considered that the assessee had surrendered 20 per cent. of his interest in the firm with effect from January 1, 1974, and such surrender amounted to a gift taxable under the Gift-tax Act, 1958. He worked out the goodwill of the firm at Rs. 2,13,972 and 20 per cent. of the same, viz., Rs. 42,794, was treated as the proportionate value of the goodwill transferred by the assessee in favour of his four minor sons. Adding this to the cash gift of Rs. 10,000 and allowing the deduction under section 5(2) of the Gift-tax Act, 1958, the taxable gift was fixed at Rs. 47,794. The assessee objected to the Gift-tax Officer's views before the Appellate Assistant Commissioner. The assessee's contentions were that there was no goodwill for the firm at the time of reconstitution on January 1, 1974, and that this is not a case where the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f gift-tax was not accepted by the Tribunal. They held that the extent of the contribution should be evaluated with reference to the value of the interest transferred by the assessee to determine the question whether there was adequacy of consideration. They considered the fact that the capital contribution of Rs. 10,000 made by the minors came as withdrawal from the capital account of the assessee in the firm and held that it is to be treated as consideration for the transfer and held that this amount should be adjusted against the value of the property transferred on admission of the minors to the benefits of the partnership. In that view of the matter, they directed the Gift-tax Officer to evaluate the interest of the assessee in the firm which has been forgone in favour of the minors and adjust the amount of contribution of capital made by them and thus determine the value of the taxable gift. The Revenue felt that the decision of the Tribunal that the gift of capital by the assessee himself to the minors admitted to the benefits of the partnership should be treated as consideration for the gift of his interest surrendered in favour of the minor is not right. According to the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1958. The evaluation of the gift liable to be taxed was also questioned. It was contended that the assessee's son had brought in his own capital while joining the respective firms and the assessee's share of profit was decreased only from the rearrangement of the constitution of the firm and, therefore, it could not be termed as a gift within the meaning of section 2(xii) of the Gift-tax Act, 1958. The contribution of capital by the incoming partner, rendering service to the respective firms and sharing future liabilities and losses, would constitute sufficient consideration. It was also submitted that the reconstitution of the firm is in the regular course of business and, therefore, exempted under section 5(1)(xiv) of the Gift-tax Act, 1958. But the authorities rejected this contention. The Commissioner, in revision for the assessment years 1979-80 and 1980-81, held that the relinquishment of the interest in the firm was without any consideration. In O. P. No. 1149 of 1987, for the assessment year 1980-81, the petitioner who was a partner in the firm, Messrs. Mercantile and Marine Services, with 25 per cent. share reconstituted the firm admitting the petitioner's brother, S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gift made in his favour by the person who causes or has caused the property to be so vested. In CGT V. Chhotalal Mohanlal [1987] 166 ITR 124, the Supreme Court held that on reconstitution of a firm with minor sons of a partner admitted to the benefits of partnership, there will be a gift of the goodwill. The Supreme Court held that (at page 127): "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. Since there has been no dispute about valuation of the goodwill as made by the Gift-tax Officer: with the conclusion that there has been a gift in respect of a part of the goodwill, the answer to the question referred has to be in the affirmative, that is, it constitutes a gift under the Act." But, in this case, the Supreme Court was considering a case where the minors did not make any capital contribution to the partnership. The Supreme Court observed that reconstitution of a firm admitting in minors to the benefits of the partnership would involve a gift under the Act. The Karna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elinquished a part of his share in favour of his sons who were existing partners in the firm, there is a gift. In doing so, this court followed the decision in CGT v. Chhotalal Mohanlal [1987] 166 ITR 124 (SC). Here also, there was no capital contribution by the partner. The question whether the reconstitution of a firm by inducting one or more new partners in an existing firm would involve transfer or gift will depend upon the appreciation and interpretation of the terms of the document. In CGT v. V. M. Philip [1985] 154 ITR 819 (Ker), the assessee who owned a plantation as proprietary business decided to form a partnership with his son to run the business and transferred 50 per cent. of his interest in the proprietary business to his son who contributed rupees one lakh as his share of the capital for the partnership business. The Gift-tax Officer assessed the value of the gift diminished by the sum of rupees one lakh as share capital. The Commissioner held that the sum of rupees one lakh could not be taken into account in computing the amount on which gift-tax was payable as the contribution by the son was not a payment to the assessee in consideration of the assets transferred t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
