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Issues Involved:
1. Whether there was a "transfer of property" under section 2(xxiv) of the Gift-tax Act. 2. Whether there was a "gift" under section 2(xii) and/or section 4(a) of the Gift-tax Act. Issue-wise Detailed Analysis: 1. Transfer of Property under Section 2(xxiv) of the Gift-tax Act: The first issue to determine was whether there was a "transfer of property" in respect of 40% of the goodwill of the sole proprietary concern of the assessee to his son, Virendra, as a result of the partnership deed dated 25th June, 1958. The court noted that the assessee had been working as a chartered accountant and tax consultant and had formed a partnership with his son, Virendra, who had qualified as a chartered accountant. The partnership deed specified that the net profits and losses would be divided in the proportion of 60% to the assessee and 40% to Virendra. The court examined the definition of "transfer of property" under section 2(xxiv) of the Gift-tax Act, which includes any disposition, conveyance, assignment, settlement, delivery, payment, or other alienation of property. The court observed that by forming the partnership, the assessee enabled Virendra to acquire a 40% interest in the goodwill of the erstwhile sole proprietary concern. This was deemed a transfer of property as per the statutory provisions. The court referred to the Kerala High Court decision in CGT v. Ganapathy Moothan, where it was held that forming a partnership and transferring goodwill constituted a transfer of property under section 2(xxiv)(b). The court agreed with this view, concluding that there was indeed a transfer of property in this case. 2. Gift under Section 2(xii) and/or Section 4(a) of the Gift-tax Act: The second issue was whether this transfer constituted a "gift" under section 2(xii) and/or section 4(a) of the Gift-tax Act. The court noted that "gift" is defined under section 2(xii) as a transfer of property made voluntarily and without consideration in money or money's worth. Section 4(a) further provides that where property is transferred otherwise than for adequate consideration, the amount by which the market value of the property exceeds the value of the consideration shall be deemed a gift. The court analyzed the facts and observed that the partnership agreement did not specifically provide for the transfer of goodwill, nor was there a separate agreement for this purpose. The transfer of goodwill was incidental to the formation of the partnership. The court emphasized that a partnership is a contract supported by consideration, which includes mutual rights and reciprocal obligations. The court disagreed with the Kerala High Court's conclusion that the transfer amounted to a gift, noting that the consideration for the partnership agreement as a whole should be considered, not just the transfer of goodwill. The court found that the formation of the partnership was supported by consideration, including Virendra's agreement to devote his full time and attention to the partnership business and his acceptance of mutual obligations and liabilities. The court also referred to several other cases, including decisions from the Madras High Court and the Gujarat High Court, which supported the view that the formation of a partnership involves consideration and does not constitute a gift. The court concluded that the transfer of 40% interest in the goodwill was not without consideration and therefore did not amount to a gift under section 2(xii) or section 4(a) of the Gift-tax Act. Conclusion: The court answered the reframed questions as follows: 1. Question No. (1) - In the affirmative, confirming that there was a transfer of property under section 2(xxiv) of the Gift-tax Act. 2. Question No. (2) - In the negative, holding that there was no gift under section 2(xii) and/or section 4(a) of the Gift-tax Act. The Commissioner was ordered to pay the assessee's costs of the reference.
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