9911796707
TMI Blog1990 (11) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... on 1-1-1984 when a fresh deed was drawn up and as a result of such change 4 minors were admitted to the benefits of partnership and the share of profits and losses of the appellant company was reduced from 65% to 25% and the profit sharing ratio as recorded in para-5 of the newly drawn partnership deed stood as under : Profit sharing ratio Loss sharing ratio (i) Mr. N.M. Irani 5% 5% (ii) Mrs. Z.S. Lawyer 10% 30% (iii) Bakhtawar Construction Co. P. Ltd. 25% 25% (iv) Mrs. Bakhtawar Bejen Chenoy 10% 30% (v) Mrs. Mehroo N. Irani 10% 10% (vi) Miss Farah Sohrab Lawyer 10% ------- (vii) Master Rustom Sohrab Lawyer 10% ------ (viii) Master Darius Bezan Chenoy 10% ------ (ix) Miss Nazak Bezan Chenoy 10% ------- ----------- --------------- 100% 100% ----------- --------------- On these facts, the GTO held that the company had surrendered a part of its interest in the partnership firm in favour of certain minor children (of some of the shareholders) who had been admitted to the benefits of partnership inasmuch as the company's share in the profits was reduced from 65% to 25% and the balance of 40% had been given to the new partners each of whom was given 10% share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,52,48,584 ----------------------------------- 65% share Rs. 99,11,580 25% share Rs. 38,12,146 ------------------------------------- 40% share thereof Rs. 60,99,434 or say Rs. 61,00,000 ------------------------------------ On the basis of this calculation, the valuation of the taxable gift will be as under : 40% share of goodwill Rs. 61,00,000 Less: Withdrawal of fixed capital Rs. 25,50,000" --------------------------------- Since this amount of gift was higher than the one adopted by the assessing officer, the CGT(A) issued an enhancement notice and directed the assessing officer to substitute Rs. 35,50,000 as the value of gift in place of the figure adopted by him. It is against this finding of the CGT(A) that the present appeal is filed. 4. Although several grounds have been raised in the grounds of appeal, substantially the case of the appellant is that the CGT(A) erred in holding that there was a gift of goodwill by the appellant company in favour of the four minors who were admitted to the benefits of partnership under a deed of re-constitution dated 1-1-1984 and in further holding that the assessable value of the gift was Rs. 35,50,000 and that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no question of gift even in respect of goodwill. The capital contributed by the new partners constituted adequate consideration not only in respect of the right to share future profits but also in respect of the property in the goodwill. Shri Harish also relied on a decision of the Rajasthan High Court in CGT v. Kishan Chand [1990] 184 ITR 31/52 Taxman 444. In that case, the Court remitted the case back to the Tribunal to consider whether contributions of capital made by the minors towards the capital of the firm on their admittance to the benefits of partnership was adequate consideration for the shares which were allotted to them. Shri Harish also relied on another decision of the Karnataka High Court in D.C. Shah v. CGT [1982] 134 ITR 492. The Court held in that the mere induction of persons as partners in an existing firm would not result in a transfer as such resulting in a gift. Merely because the share in profits and losses allotted to one or the other persons is reduced compared to the position obtaining prior to the reconstitution of the firm and allotment is made to the new partners, it cannot be assumed that the allotment to the new partners is of the reductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Supreme Court in Chhotalal Mohantal's case. Shri Keshav Prasad mainly relied on an earlier decision of the Supreme Court in P. Gheevarghese, Travancore Timber Products' case. 7. We have considered the submissions made at length by both sides and have gone through the papers filed. There are certain aspects of this case which would seem to distinguish it from the case decided by the Supreme Court in Chhotalal Mohanlal's case, which is the sheet-anchor of the department's case. In Chhotalal Mohanlal's case, there were three partners C, G and P. On a reconstitution, P retired, G continued and the share of C was reduced to four annas, whereas one R was inducted as a partner with four annas share and two minor sons C, K and D were admitted to the benefits of partnership with a right to share of 12% and 13%. The minors had not brought in any capital nor had there been any reduction in the capital of partner C whose share of profit was reduced from seven annas to four annas. In the present case, there was a reduction of the capital of the appellant along with the reduction in the share of profit from 65 % to 25%. Secondly, the appellant was not the only partner whose share o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court's decision in Chhotalal Mohanlal's case would seem to support the case of Shri Harish since the facts in the case decided by the Karnataka High Court are very much similar to the facts in the present case. In the case before the Karnataka High Court, the six partners admitted to the firm had contributed capital to the firm and there could be no question of gift in respect of goodwill because, observed the Court, unless a business had goodwill, no person would like to join it as a partner and contribute capital. It was the goodwill of the firm itself which attracted new capital. Therefore, the capital contributed by the new partners constituted adequate consideration not only in respect of the right to share future profits but also in respect of the property in the goodwill. In that case also, the learned counsel for the revenue had relied on the judgment of the Supreme Court in Chhotalal Mohanlal's case but that case was distinguished by the Karnataka High Court by pointing out that that was the case where there was no reduction in the capital contribution of the original partners, whereas, in the present case, the capital contribution had been altered. Further, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present appeal is that there appears to be no nexus between the capital withdrawn by the appellant from the firm and that contributed by the minors, although this has never been the case of the revenue. 7.2 We will finally deal with the authorities relied upon by the learned Departmental Representative. We have already seen that the facts in Chhotalal Mohanlal's case relied upon by the Departmental Representative in Chhotalal Mohanlal's case are distinguishable and, therefore, the ratio of that judgment is not applicable here. The Madras High Court in the case of CIT v. T. Saraswathi Achi [1982] 133 ITR 315 was dealing with the provisions of section 64(4). This was not a decision under the Gift-tax Act. The facts are altogether different and we do not see how this decision helps the department's case. The Calcutta High Court in the case of Nani Gopal Mondal was dealing with a case where one of the partners in a firm had made a gift of his 1/3rd share to his three sons and filed a gift-tax return in respect of it. The G.T.O. noticed that the goodwill in respect of the share was not included in the amount returned and calculated the value of the goodwill of the firm and included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a business or whether it is bona fide gift made for the purpose of such business does not arise. Therefore, we would hold that the question of considering this transaction as gift exempt under section 5(1)(xiv) does not arise. 7.3 After considering the totality of circumstances and after taking into account the fact that the minors who were admitted to the benefits of partnership had brought in substantial capital from their independent sources, we would hold that there is no element of gift in the transaction and the finding of the CIT(A) in this regard cannot, therefore, be sustained. The primary facts to be considered in this regard in our opinion, are that there was substantial reduction in the capital of the appellant company when it reduced its share of profits and the minors had brought in their own capital from their independent sources, both of which facts distinguish this case from the case relied upon by the revenue, namely, Chhotalal Mohanlal's case. We would further hold that the quantification of the alleged gift made by the CGT(Appeals) is not correct. It suffers from several defects pointed out by the appellant's counsel inasmuch the CGT(A) has not taken into a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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