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TMI Blog1996 (1) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... UF was a partner in M/s. Vadilal Dairy Frozen Food Industries from 29-4-1971 - Originally the firm was constituted with the partners with profit sharing ratio as under :- 1. Laxmanbhai R. Gandhi, HUF 40% 2. Ramchandra R. Gandhi 45% 3. Virendra R. Gandhi, HUF 15% There was a change in the constitution of the firm as per partnership deed dated 25-8-1981 and for the accounting year ended on 31-12-1981 the constitution was as under : 1. Laxmanbhai R. Gandhi - HUF 34% 2. Virendra R. Gandhi - HUF 22% 3. Shailesh R. Gandhi 22% 4. Rajesh R. Gandhi 22% Further with effect from 1-1-1982 the firm was reconstituted with Vadilal Ice-cream (P.) Ltd. joining as new partner and the profit sharing rati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the assessee's 9% share in the goodwill of the firm be not ascertained and charged to the levy of gift-tax. A written reply dated 18th December, 1990 was filed before the Assessing Officer contending that the new partner, namely, M/s. Vadilal Ice-cream (P.) Ltd. has contributed substantial capital and, therefore, there was adequate consideration. It was pointed out that in the new partnership deed, it was stipulated that M/s. Vadilal Ice-cream (P.) Ltd. would bring in capital of at least Rs. 3 lakhs. For this consideration, the new partner was given 25% share resulting into proportionate reduction in the share of the existing partner. In this reply, it was also contended that at the relevant point of time, a company, namely, M/s. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of 25% of the share to the new partner was not without adequate consideration because the new partner, viz., M/s. Vadilal Ice-cream (P.) Ltd. had contributed substantial capital and hence there was no gift chargeable to tax as contemplated under the Gift-tax Act. He accordingly reduced the value of taxable gifts to Re. Nil. In support of his finding he relied upon the judgment of the Gujarat High Court in the case of CGT v. Karnaji Lumbamji [1969] 74 ITR 343; Karnataka High Court decision in the case of CGT v. C.S. Patil [1989] 180 ITR 97 ; and the decision of the Madhya Pradesh High Court in the case of CGT v. Smt. Kamla Devi Bhanot [1988] 171 ITR 398. He further held that the Supreme Court decision in the case of Chhotalal Mohanlal was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution, P retired, G contributed as before, the share of C was reduced to four annas one R was inducted as a partner with four annas share and two minor sons of C, K and D were admitted to the benefits of the partnership, with a right to a share of 12% and 13% respectively in the profits. The question was whether there was a gift by C to his two minor sons under the Gift-tax Act, 1958. The Tribunal and, on a reference, the High Court held that there was no gift. On appeal to the Supreme Court : Held, reversing the decision of the High Court, that there was a gift within the meaning of section 2(xii) of the Gift-tax Act, 1958, by C in respect of a part of the goodwill. Goodwill is property and when minors are admitted to the benefits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest on the admission of the new partners. " While arriving at the above conclusion the Karnataka High Court took note of the facts of the case of Chhotalal Mohanlal wherein the Apex Court took cognizance of the fact that the minors had been admitted to the benefits of partnership and they did not bring any capital which was clear from the last sentence in the first paragraph of the judgment of the Supreme Court at page 126 which reads as under :--- " No alteration was, however, made regarding the share capital standing in the name of the assessee. " The Hon'ble Karnataka High Court at page 101 of their Judgment also distinguished the Supreme Court decision stating "That case again, in our opinion, is distinguishable, for, that was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that the said partnership agreement was executed on December 8, 1971, while it was brought into operation from an earlier date, namely, October 20, 1971, and as per the definition of "consideration", even the promise for investing the amount of Rs. 5,000 was a consideration for entry into the partnership. Further, under clause 10 of the deed, M had agreed for 10 per cent share in the profit which meant that she had also undertaken liability to bear losses. This 10 per cent share of profit (or loss) was also consideration to other partners on the point of bearing loss. Therefore, it could not be said that the agreement of partnership was without consideration. " In the present case as per clause 9 of partnership deed dated 11-3-1982 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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