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TMI Blog1979 (2) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... f one K. Subramania Iyer, on 17th November, 1969. He was a partner in the firm of T. Purushotham Co., with 22% share till 8th November, 1969, when he retired from the partnership. On the 9th November, 1969, his two major sons were admitted as partners and his minor son was admitted to the benefits of the partnership, each one of them having a 7 1/3 per cent. share in the firm with the consequence that the 22% share held by him till then came to be held by the two major sons and the minor son after his retirement. The Asst. CED came to the conclusion that there was a transfer by the deceased of interest in the partnership firm in favour of his sons and that it was gift under s. 9 of the E.D Act (hereinafter referred to as the Act) . The net assets of the firm were valued and 22% share representing the interest of the deceased was included in the dutiable estate as the deceased died within a very short period after he retired and the two major sons and the minor joined the partnership. The amount so included came to Rs. 47,739. The accountable person appealed to the Appellate Controller who confirmed the assessment by applying s. 9 of the Act to the aforesaid facts. On further a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased was not a party to this partnership deed. Therefore, this document by itself cannot be taken to be a transaction or a disposition made by the deceased. The learned counsel for the revenue, however, placed strong reliance on the recital in which it is stated that the deceased, due to old age and ailment, expressed his intention to retire from the partnership in favour of his sons, to which the other parties agreed. As the recital is part of a document to which the deceased was not a party, the learned counsel for the accountable person submitted, that the deceased cannot be held responsible for the recital, and that if persons made such a recital for their own purposes, that would not have any consequence as far as the deceased was concerned. Unfortunately, no fact has been brought on record to show that there was an agreement as such between the deceased and the other partners who constituted the firm up to November 8, 1969). As a father, the deceased may have requested his erstwhile partners to take his sons into the firm." The other partners may not have objected to it. But the point is whether there was any enforceable agreement between the deceased and the other partners. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel for the revenue is quite right in drawing our attention to s. 27, even though that provision has not been noticed either by the Appellate Controller or by the Tribunal. This provision is in the nature of a definition provision of the word " gift " in so far as relatives are concerned. Therefore, wherever a gift in relation to relatives has to be considered, then this provision will have to be taken along with s. 9. Absence of reference to this provision in the orders of the authorities or in the questions will not have, therefore, any significance. Even with reference to this provision what is required is that there must be a disposition made by the deceased in favour of a relative. This provision contemplates the deceased having an interest in the particular asset and his disposing of it in favour of a relative. On November 8, 1969, the interest of the deceased ceased in the partnership and when on November 9, 1969, the new partners came to join the firm, there was no interest to be disposed of. A sum of Rs. 22,000 appeared in the capital account of the deceased and this sum was taken over to the account of the two major sons and the minor sons. This sum was utilise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the partition. The question was whether on the death of the karta, the provisions of s. 9 read with Expln. 2 to s. 2(15) and s. 27 were attracted. The learned judges after referring to the decision in Rajamani Ammal's case [1972] 84 ITR 790 (Mad), pointed out that they agreed with the decision in Valliammai Achi's case [1969] 73 ITR 806 (Mad), and they did not agree with the decisions taking a contrary view (to Valliammai Achi's case [1969] 73 ITR 806 (Mad)]. The decision in Valliammai Achi's case [1969] 73 ITR 806 was approved by the Supreme Court in CED v. Kantilal Trikamlal [1976] 105 ITR 92. In this decision the Supreme Court pointed out that where on the partition of a HUF, a coparcener takes less than his share, there was a disposition within the meaning of Expln. 2 to s. 2(15) by him of that part of his share which he relinquished, and, on his death within two years of the partition, that part of his share would be property deemed to pass under s. 9(1) read with s. 27(1) and Expln. 2 to s. 2(15). In construing the word " disposition ", it was pointed out that the word had acquired, beyond its normal ambit, an extended meaning on account of the special definition in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtnership firm were two independent transactions with different contracting parties, and in the absence of privity of contract between the deceased and his sons it could not be held that the deceased has transferred his interest in the partnership firm in favour of his sons. Therefore, there is no scope for applying this part of s. 27 also. The result is that the first question is answered in the affirmative and in favour of the accountable person. We shall now consider the second question. The deceased was contributing to two chit funds in the names of his relatives, Smt. Chellammal and Smt. Lakshmi. These contributions were made by debiting the capital account of the deceased in the books of the firm. In May, 1967, the amount due in respect of these chits was received and this came to Rs. 9,450 in each case. The total amount thus received came to Rs. 18,900. This sum of Rs. 18,900 came to be credited in the books of the firm in the names of these two ladies; and the deceased, as seen already, was a partner in the firm till November 8, 1969. The question is whether the deceased was excluded from the enjoyment of Rs. 18,900. The Asst. CED included this sum of Rs. 18,900 applying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a partner in a firm owned a house property which was let to the firm as tenant-at-will. In August, 1953, he executed a deed of settlement by which he transferred the said property to his two sons absolutely: The firm paid the rent to the donees thereafter. The deceased further transferred from his account in the firm a sum of Rs. 20,000 each to the credit of his five sons in the firm's books. The sons did not withdraw the amount from their accounts and they were credited with interest at the rate of 7 1/2% and the deceased continued to be a partner till 13th April, 1957, when the firm was dissolved and he died on May 5, 1967. The question was whether the value of the house property settled on his sons and the sum of Rs. one lakh transferred to his sons could be taxed by reference to s. 10 of the Act. The: Supreme Court held that neither the house property nor the sum of Rs. one lakh could be deemed to pass under s. 10. The Supreme Court went into the question as to what was the subject-matter of the gift and it was found that the transfer of the property was subject to the tenancy in favour of the firm and that the transfer of the sum of Rs. 20,000 each to his sons was subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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