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TMI Blog1995 (3) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... made a gift of 18% of her share by way of surrender. Certain new partners were inducted and four minors were also admitted to the benefits of the firm. 4. The assessee went in appeal with the plea that the share ratio was reduced on the reconstitution of the partnership firm and it was not a gift at all but it was a case of voluntary surrender. Since it was a unilateral action and no part of assessee's share was assigned to anyone, there was no element of gift in the exercise. The assessee had retained a lesser share in the new partnership after reducing her capital. But the assessee's plea did not find favour and the appeal was rejected. 5. The ld. counsel for the assessee has submitted that earlier, there were 8 partners and after the reconstitution, three new partners, namely, Sanjiv Kumar, HUF, with 3% share, Rajiv Kumar, HUF, also with 3% share and M/s. Sanraj Properties Pvt. Ltd. with 34% share, were introduced in the partnership firm. Five minors with 1 % share each were also admitted to the benefits of the partnership. M/s. Sanjiv Kumar Sons., HUF, had already an account in the assessee firm and there was a credit balance of Rs. 1,37,000 as on 1-4-1982. A sum of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profit sharing ratio, i.e., @ Rs. 1,000 for 1% share. The source of capital contribution in respect of all the new partners had been duly explained by filing the copies of the accounts of the those persons which existed either in the assessee's firm or in other firms. In the case of the minors, it has been explained that Master Raghav had an account in the firm Jagtumal Kundanlal where a sum of Rs. 40,000 was shown as having been deposited on 30-12-1982. A sum of Rs. 1,000 was brought from that account as share capital to the new firm M/s. Jagat Theatre. Similarly, in the case of Kumari Ruchika, she had opened an account in Kiran Cinema by making a deposit of Rs. 50,000 there on 2-1-1982. It was from that account that the share capital of Rs. 1,000 was brought to M/s. Jagat Theatre. Master Madhav also brought a sum of Rs. 1,000 as capital contribution from his account in the firm M/s. Jagatumal Kundanlal. There he had a credit balance of Rs. 70,000 and thereafter certain more deposits had been made. This is how the ld. counsel has explained the source of share capital not only in respect of the three new partners but also the five minors admitted to the benefits of the firm. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e carrying on the business in some other name and had expertise in carrying on the business which was also being carried on by the firm in which assessee was a partner. On the reconstitution of the firm, the benefit of their expertise was available to the reconstituted firm which constituted consideration for the surrender of the assessee's 40% share. The assessee's sons had also contributed a major portion of the capital in the new constituted firm. In the next case also, a new partner was introduced who had contributed capital. The second partner had agreed to work for the firm. These were treated as adequate consideration and no gift tax was held to be leviable on the reallocation of the shares. The Rajasthan High Court also took the same view in the case of CGT v. Mannalal Surana [1986] 162 ITR 688. There also, the assessee converted his proprietary business into a partnership on account of ill-health and for the expansion of business. One major son and two minor sons were inducted and the assessee relinquished 90% share in favour of the sons. The major son had contributed capital to the firm and was taken as a working partner. The minors did not contribute any capital but only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer of Rs. 25,000 from the assessee's account to the account of each of the daughters. All the assets of the proprietary business were transferred to the partnership and the assessee and his daughters were entitled to shares in proportion to their share capital. The profits and losses were to be divided in equal shares. The assessee filed a return in respect of gift of Rs. 50,000 in favour of his daughters representing the share capital contributed by them. The GTO held that, in addition, the assessee had also gifted 1/3rd share each in the goodwill of the business to his daughters. It was held that according to the deed of partnership, goodwill was a part of the properties and assets of the business which the assessee had transferred to the partnership. No gift tax was held to be payable on the goodwill of the business. The ld. counsel for the assessee has submitted that in the light of the said decision of the Supreme Court, gift tax could be levied if certain capital was transferred to the incoming partners' account or to the minors. But, in the present case, there is nothing like that. By way of transfer of capital and all the new partners brought in their capital contribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d son into the partnership and assigned them a portion of the share capital. In that case also, we find that the assessee had transferred the share capital also. In another case of CGT v. K.P.S. V Duraiswamy Nadar [1973] 91 ITR 473 (Mad.), a question of redistribution of the shares in a partnership came to be examined tnd it was noted that when a partner transferred a portion of his share in the partnership to the other partners, they acquired that interest which was attributable to the transferred portion of the net assets of the firm. Diminution of a partner's interest and corresponding increase in the interest of the other partners without any consideration was held to be a gift chargeable to gift-tax. A similar matter came to be examined by the Bombay High Court in the case of CGT v. Premji Trikamji Jobanputra [1982] 133 ITR 317. It was held in that case that it was not possible to lay down a general rule which will be applicable to all cases where there is a change in the constitution of the firm as a result of which a major partner had been introduced and minors were admitted to the benefits of the partnership and the reduction in the share of the partner was given to the min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft of 18% either to any specific new partner or to the minors. The facts in the present case are very clear so far as the capital contribution by the new partners including the minors is concerned. The new minor partners have specifically brought in their capital contribution from different sources and there is no transfer of any capital by Smt. Manjari Gupta in favour of any new partner. 10. We may also look to the cases of the other two appellants, namely, Shri Sham Lal and Smt. Sunaina Gupta. In the case of Shri Sham Lal, it is to be noted that he had 5% share as a partner in M/s. Jagat Theatre and this share was reduced to 1% on the reconstitution of the partnership on 1-1-1983. Here also, it is to be noted that the voluntary surrender of 4% share could not be assigned to any new partner including the minors. The surrender was unilateral and voluntary and in proportion to the share capital of Shri Sham Lal. We have already seen that the excess capital was withdrawn by the partner concerned whose share was reduced. No part of the share of Shri Sham Lal could, therefore, be assigned to any new partner. Whatever excess capital was found in the old firm, that was withdrawn and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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