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TMI Blog2000 (10) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... on to his share was in excess thereof, did not amount to a gift within the meaning of the Gift-tax Act ?" The High Court by the impugned judgment answered the said question in the negative and against the assessee. Briefly stated, the facts leading to the filing of this appeal are as follows: The appellant and his brother, Bishanlal Ahuja, were the partners of a partnership firm constituted on January 9, 1965, under the name and style of "3-Aces". The firm was engaged in the business of a restaurant in a building known as "Mohsin-ul-Muilk Kothi", situated at Abid Road, Hyderabad. An agreement was entered into between the appellant and his brother, Bishanlal on April 15, 1971. The terms of the said agreement are set out below : "(i) Sri Jagatram (assessee) is to retire before December 31, 1971. (ii) Steps are to be taken to finalise accounts relating to the partnership and determination of the amount due to Sri Jagatram on retirement. (iii) Sri Bishanlal agreed to pay a sum of Rs. 1,50,000 to Sri Jagatram towards the value of 50 per cent. share of the goodwill of the firm. (iv) The above sum of Rs. 1,50,000 payable by Sri Bishanlal to Sri Jagatram shall be in addition to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 16 of the Act of 1958, by reopening the assessment already made. He valued the share of the appellant in the partnership assets at Rs. 12,67,015. An amount of Rs. 3,00,000 paid by Bishanlal to the appellant was deducted and thus the value of the property alleged to have been gifted by the appellant to his brother, Bishanlal, was arrived at Rs. 9,67,015. On appeal by the appellant, the Commissioner of Gift-tax (Appeals) confirmed the order of the Gift-tax Officer. However, he reduced the total value of the gift by Rs. 3,77,000. The appellant took up the matte], in further appeal before the Tribunal. The Tribunal accepted the appeal holding that the distribution of assets between partners on the dissolution of the firm, even though unequal, does not amount to "transfer of property" within the meaning of section 2(xxiv) and, therefore, did not amount to "gift" as defined in section 2(xii) of the Act. At the instance of the Revenue, the Tribunal referred the abovestated question under section 26(1) of the Act for the opinion of the High Court. The High Court referring to the various decisions and for the reasons stated in the impugned judgment took the view in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rship or interest in property ; (c) the exercise of a power of appointment (whether general, special or subject to any restrictions as to the persons in whose favour the appointment may be made) of property vested in any person, not the owner of the property, to determine its disposition in favour of any person other than the donee of the power ; and (d) any transaction entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person ;" This court in CGT v. N. S. Getti Chettiar [1971] 82 ITR 599, arising under the Act itself construing and considering the very same provisions held that in a Hindu joint family by allotting a greater share to the other members of the coparcenary than that to which they were entitled, the assessee could not be held to have made a gift. The facts of the case were that the assessee was the karta of a Hindu undivided family consisting of himself, his son and his six grandsons. There was a partition in the family property. The total value of the properties divided was Rs. 8,51,440 but the assessee, the karta took properties worth only Rs. 1,78,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch one of the sharers had an antecedent title and, therefore, no conveyance is involved in the process, as a conferment of a new title is not necessary.' The Madras High Court again examined the question in M. K. Stremann v. CIT [1961] 41 ITR 297, with reference to section 16(3)(a)(iv). It observed that 'obviously no question of transfer of assets can arise when all that happens is separation in status, though the result of such severance in status is that the property hitherto held by the coparcenary is held thereafter by the separated members as tenants-in-common. Subsequent partition between the divided members of the family does not amount either to a transfer of assets from that body of the tenants-in-common to each of such tenants-in-common'." This court in Getti Chettiar's case [1971] 82 ITR 599, the aforementioned has stated thus : "A reading of this section clearly goes to show that the words disposition', 'conveyance', 'assignment', 'settlement', 'delivery' and 'payment' are used as some of the modes of transfer of property. The dictionary gives virious meanings for those words but those meanings do not help us. We have to understand the meaning of those words in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liament intended to bring within the scope of that provision partitions of the type with which we are concerned, nothing was easier than to say so. In interpreting tax laws, courts merely look at the words of the section. If a case clearly comes within the section, the subject is taxed and not otherwise." This court again in Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, considering the provisions of sections 14, 15, 29, 32, 37, 38 and 48 of the Partnership Act, 1932, has explained as to the nature of property during the subsistence of the partnership and after its dissolution. It is held that : "From a perusal of these provisions it would be abundantly clear that whatever may be the character of the property which is brought in by the partners, when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm has no legal existence, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... takes place. Hence, there was no element of transfer in such a case. Yet, in another case of CIT v. Dewas Cine Corporation [1968] 68 ITR 240 (SC), dealing with the provisions of section 10(2)(vii) of the Income-tax Act again referring to Addanki Narayanappa's case, AIR 1966 SC 1300, this court took the view that a partner might in an action for dissolution insist to sell the assets of partnership to realise his share. But where in satisfaction of the claim of a partner to his share in the value of the residue determined on the footing of an actual or notional sale, the properties so allotted cannot be taken to have been sold to him. On principles and in view of the clear ratio, the decision of Getti Chettiar [1971] 82 ITR 599 of this court supported the case of the appellant which decision was rightly applied by the Tribunal to the facts of the case. The High Court in relation to the said decision has stated thus (page 647 of 172 ITR) : "Be that as it may, it is not for us to express any opinion on the said criticism. By virtue of article 141 of the Constitution, the said decision and even the observations aforesaid are binding upon us. In our opinion. however, the ratio of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he observations there, read de hors the particular statute, might reinforce the assessee's stand. This court interpreted the expression 'transfer of property' in section 2(xxiv) and held that the expression 'disposition' used in that provision should be read in the context and setting of the given statute. The very fact that 'disposition' is treated as a mode of transfer takes the legal concept along a different street, if one may use such a phrase, from the one along which that word in the Estate Duty Act is travelling. Mr. Justice Hegde rightly observed, if we may say so with respect, that : 'Words in the section of a statute are not to be interpreted by having those words in one hand and the dictionary in the other. In spelling out the meaning of the words in a section, one must take into consideration the setting in which those terms are used and the purpose that they are intended to serve.' (pages 605-606 of 82 ITR) The word 'transaction' in section 2(xxiv) of the Gift-tax Act takes its colour from the main clause, that is, it must be a 'transfer' of property in some way. Since a partition is not a 'transfer' in the ordinary sense of law, the court reached the conclusion tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e now refer to the cases relied on by the High Court to support its view. In CGT v. Chhotalal Mohanlal [1987] 166 ITR 124, this court reversed the decision of the Gujarat High Court in CGT v. Chhotalal Mohanlal [1974] 97 ITR 393 and in the light of the facts and circumstances of the case, held that there was a gift for the purpose of the Gift-tax Act. In that case, a firm by name Chhotalal Mohanlal came into existence with three partners namely, Chhotalal Mohanlal, G. Chhotalal and P. Vedilal with 7 annas, 4 annas and 5 annas shares, respectively. During the assessment year 1963-64, under the new deed, P. Vedilal retired. The share of G. Chhotalal remained unchanged. One R. Chhotalal became a partner with 4 annas share. The share of the assessee, Chhotalal Mohanlal, was reduced to 4 annas. For the remaining 4 annas share, two minor sons of Chhotalal Mohanlal were admitted to the benefits of the firm with 12 per cent. and 13 per cent. interest, respectively. There was also no change in the share capital standing in the name of the assessee. As can be seen from the facts stated above, P. Vedilal retired and the firm was reconstituted ; two minor sons of Chhotalal Mohanlal, one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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