1987 (11) TMI 150 - AT - Income Tax

Summary

Issues:
1. Assessment of deemed gift based on partnership reconstitution and capital contribution.
2. Determination of deemed gift by GTO and relief granted by CGT(A).
3. Appeal by Revenue against relief granted and cross objection by assessee.
4. Interpretation of deemed gift provisions under GT Act.
5. Consideration of capital contribution and reduction in share as factors for deemed gift assessment.

Analysis:
The judgment involves an appeal and cross objection arising from the assessment of a deemed gift based on a partnership reconstitution and capital contribution. The assessee, an individual, reconstituted a partnership by inducting two new partners, reducing his share from 50% to 40%. The GTO determined a deemed gift based on the market value of properties brought in as capital and reduction in share of the assessee. The CGT(A) partially upheld the deemed gift assessment, granting relief only in relation to the capital brought in by the new partners.

The Revenue appealed against the relief granted by the CGT(A), while the assessee filed a cross objection challenging the entire deemed gift assessment. The Tribunal considered the provisions of the Gift Tax Act and relevant case law to determine the validity of the deemed gift assessment. The Tribunal emphasized the need for establishing that a transfer was made without adequate consideration before deeming it as a gift.

Regarding the properties brought in as capital, the Tribunal relied on a Madras High Court decision to conclude that the credit given to the assessee's capital account was for adequate consideration, as the assessee remained the owner benefiting from any value enhancement. Therefore, no deemed gift could be established in this regard. Additionally, the reduction in the assessee's share and worth of the firm was found to be bona fide, supported by the new partners' contribution and shared losses.

The Tribunal dismissed the appeal by the Revenue and allowed the cross objection by the assessee, annulling the GTO's deemed gift assessment. The judgment highlights the importance of establishing transactions as gifts under the Gift Tax Act and considering factors such as capital contribution and share reduction in determining deemed gifts.