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TMI Blog1987 (3) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... nors were partners of three firms each having a certain specified share which varied from firm to firm and partner to partner, while the minors (Leila and Razia) had been admitted to the benefits thereof. The firms were (1) M/s. Isani Enterprises, (2) M/s. Ismail Jusab Virani, and (3) M/s. Isani Traders. Not all the assessees were partners in all the three firms. While few were partners in one, the composition in the other two firms was different. There were also some others in the partnership of the same family group but they are not assessees before us. 4. Two family Trusts by name 'Virani Trust' and 'Isani Trust' had been founded in August, 1978 and the beneficiaries under the two Trusts are no other than the members of Virani group and Isani group. 5. During the previous year relevant to the assessment year 1979-80, Virani Trust was taken as a partner in M/s. Isani Enterprises with 50% share and as a result thereof 50% of the share of each existing partner got reduced. For example, Altaf V. Isani had 2% share in M/s. Isani Enterprises and by the induction of Virani Trust into the firm, his share got reduced to 1%. Similarly, Isani Trust was admitted to the partnership with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as that of the AAC were critically commented upon to say that they were perfunctorily made and that they do not even show how the value of the deemed gift had been computed. He even went to the extent of stating that the matter should not even be remanded to have the Revenue a second inning supporting himself with some observations in the decision of the Jabalpur Bench of the Tribunal in the case of GTO v. Mahboob Mohammad [1986] 19 ITD 576. For the Revenue, it was urged that the non-co-operation by the assessees in not furnishing relevant facts and figures have greatly contributed to the poorness of the orders, for, they, who were in possession of facts, did not reveal anything, but filed 'Nil' returns. It was also contended that for lapses (if any) on the part of the Officers, Revenue should not be made to suffer on that account and there a duty cast upon the higher authority to protect the interest of the State. Mahboob Mohammad's case really does not lend assistance to the point canvassed by Shri Parikh. That was the case where there was total lack of material to show even a prima facie case of gift. Such is not the position obtaining here. As we later on point out, these are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons belonging to the two family groups. 11. The deeds of partnership whereby the assessees became partners in the three firms in 1977 are ad idem. The indenture of partnership whereby Virani Trust or Isani Trust became partners in the firms in September, 1978 are also identical in nature as are the deeds whereby the assessees retired from the firm. 12. According to the terms of dissolution, towards the balance standing to the credit of the partners in the books of the firm, the retiring partners agreed to get paid by the Trusts in convenient instalments. Obviously, there was no money in the Trust to pay off forthwith. Mere return of the capital does not ipso facto mean that the partner's release of the goodwill did not amount to deemed gift. The partner of a firm has right to share profits as also to share assets of the firm. Since the shares of the assessees were realigned when the Trusts were admitted, there is need to value the right to share profits---See Gulanikar on Gift-tax. 13. It is seen from the dissolution deeds brought about in April 1979 that the retiring partners assigned and released all that they had in the firm in favour of the Trust and the relevant port ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was a 'gift' within the meaning of section 4(1)(c) in 1980-81. There was also deemed 'gift' within the meaning of section 4(1)(c) even in 1979-80 when the assessees' share got reduced by 50% by the admission of the Trusts into the firms. 15. The next question is of valuation. The comment of Shri Parikh that the assessments do not furnish the basis of valuation is not altogether unfounded. At the hearing, even the learned departmental representative was not able to furnish us the basis on which the gift had been valued in the two years. During the hearing, we called for information regarding the business performance of the firms in the last four or five years and it was responded to. Shri Parikh even furnished a computation of his own and which he desires to be adopted by us. According to this working, taxable gift would be far less than what is assessed. We will furnish the details a little later. 16. From the assessment order the basis of valuation is not ascertainable. Shri Parikh suspects that the GTO must have taken profits of one or two years and this, according to him, is not proper. He suggests that at least four or five years' profits should have been considered. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically noted that the capital contributed by the partners shall not bear any interest. Interest was payable only in respect of additional capital introduced by way of loan and no such thing is made out before us. Even so, it would be proper to allow interest on capital on principle. One cannot adopt the rate of interest charged by banks on the loans advanced. Neither we can take the other extreme, interest on deposits. The Board, in the circular, approves deduction of 12% interest. We direct that interest shall be allowed at 12%. 21. Now remains about the purchase value. The super profits are capitalised at three years' purchase in case of non-profession---See Gulanikar in Gift-tax. The circular of the Board says that in case of business firm multiple of three may be adopted. We, therefore, direct that capitalisation shall be made at three years' purchase, considering that the said firms held agencies of consumer durables. 22. In the result, we remit the matter of valuation to the GTO with a direction to compute the value of gift in both the years bearing in mind the observations in this order and the Board's circular and compute the taxable gift for all the assessments i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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