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TMI Blog1976 (11) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... Mercantile Bank Ltd. by the assessee-firm to its partners within the meaning of the Gift-tax Act, 1958 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the transfer of 270 shares in the same company by the assessee to the three ladies was not for inadequate consideration and, hence, provisions of section 4(1)(a) of the Gift-tax Act are not attracted ?" The assessee is a partnership firm consisting of two partners, Veerappa Chettiar and Chinnan Chettiar. The partnership firm owned 520 shares in the Chettinad Mercantile Bank Ltd. The original cost of acquisition of these shares was Rs. 60 per share. The assessee-firm sold these shares to the following persons at the prices noted aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was no liability to gift-tax. With regard to the transfer in favour of the three ladies, that officer held that the price of Rs. 75 per share cannot be said to be inadequate consideration merely because the value arrived at by the break-up method was found to be more than the price for which the assessee-firm sold the shares to these three persons. Consequently, the Appellate Assistant Commissioner allowed the appeal preferred by the assessee. Against the order of the Appellate Assistant Commissioner, the department preferred an appeal to the Tribunal. Before the Tribunal, the revenue contended: (i) the firm and the partners constituting the firm are two different units of assessment and there can be a legal transfer by the firm to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the shares in two separate categories. The first is the sale of the shares to the two partners themselves. With regard to this, the question that was considered by the authorities below was whether there was any transfer at all so as to attract the provisions of the Gift-tax Act, since on the face of it, the consideration was inadequate when compared with the price for which the shares were sold to the other three ladies. The second is the transfer of shares to the three ladies, the two wives of the two partners and the mother of one of the partners. With regard to this, the question was whether there was an element of gift involved in the transfer on account of the inadequacy of the price as contemplated by section 4(1)(a) of the Gift- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip assets or a particular share in the totality of the partnership assets, and his only right is to obtain his share of the surplus of the assets over the liabilities when the partnership is dissolved and the accounts are taken or to receive his share of the profits when the partnership is carrying on its business. That proposition also has no relevancy to the facts of this case. In this case, as pointed out already, the firm which held the shares sold a number of shares to the two partners separately for cash consideration, and after such sale, each of the partners became exclusively, entitled to the shares which had been sold to him, and in these shares, the other partner had no interest whatever. To such a situation, the decisions referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than for adequate consideration, it cannot be held that he committed any illegality. As a matter of fact, the Tribunal would appear to have gone entirely off at a tangent. In the course of its order, the Tribunal did not consider this aspect at all, but chose to make certain general observations as to what would constitute an adequacy or inadequacy of consideration and what would be the effect of such adequacy or inadequacy of consideration in the field of contracts. While so holding, the Tribunal committed an error in thinking that the shares were acquired by the assessee at Rs. 50 per share, and, therefore, the transfer of shares at Rs. 75 per share could not be said to be for inadequate consideration, forgetting that the Tribunal itself ..... X X X X Extracts X X X X X X X X Extracts X X X X
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