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2003 (4) TMI 94 - SUPREME COURTWhether even though the reconstitution of the firm resulted in the reduction of the share of profit of the assessee-trust, there was no gift exigible to tax in its hands ? Whether even though there was a transfer by the assessee in favour of the incoming partner and existing partners, the consideration for the transfer could not be evaluated during the subsistence of the partnership and so the question of adequacy or inadequacy of consideration could not be quantified and so there was no gift exigible to tax ? Held that:- The facts found in the present case are that the incoming partner (M. U. Indira) had contributed Rs. 25,000 towards her share of the capital. The value of her services or usefulness to the firm as partner has not been disputed by the Revenue authorities. As pointed out by this court in D. C. Sitah's case [1996 (9) TMI 120 - SUPREME Court] , the mere fact that upon reconstitution of the firm the share of one partner decreased and that of another increased cannot lead to the inference that the former had gifted the difference to the incoming partner. There is no other material placed on record by the Revenue to show that, in the facts and circumstances of the case, particularly taking into consideration the obligations of all the partners in the partnership deed dated October 1, 1982, there was inadequate consideration for the reallocation of 12 per cent. of the share in favour of the incoming partner. In our view, the contribution of Rs. 25,000 towards the capital together with the obligations undertaken of sincerely and faithfully carrying on the business for the common advantage of the firm was adequate, consideration for reallocating the share of the profits and giving 12 per cent. of the share in favour of the incoming partner, M. U. Indira. That C. K. jinan was the managing partner and C. N. Purushuthaman was the administrative head, did not take away the obligations of the other partners including those of M. U. Indira which arose generally under the Partnership Act, as well as under the partnership deed dated October 1, 1982. We are of the view that even assuming that there was a transfer of 12 per cent. of the share of profit/loss in favour of the incoming partner, M. U. Indira by the appellant-assessee, it was not a situation of transfer for inadequate consideration so as to amount to a taxable gift within the meaning of section 4(1)(a) of the Gift-tax Act, 1958. In the result, we answer question No. 1 against the Revenue and in favour of the assessee. In view of our answer thereto, it is not necessary to answer the second question.
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