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TMI Blog2004 (8) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the assessment year 1976-77. M/s. Chowdhary Sweet House was a firm consisting of the following four partners: S.No. Name of Partners Extent of shares 1. Shri Shyam Lal 28% 2. Shri Ram Chand (Ram Lal) 28% 3. Shri Nand Lal 24% 4. Shri Ashok Kumar 20% This firm was constituted under the partnership deed dated April 13, 1970. All the partners as per clause 6 of the above deed were working partners and were also entitled to salary. Clause 10 of the above deed is relevant for our purpose. It reads as under: "10. That business assets, business premises and its goodwill shall remain vested in partners Shri Shyam Lal, Shri Ram Chand and Shri Nand Lal in the ratio of 28 per cent., 28 per cent, and 44 per cent. re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Shri Nand Lal, S/o. Teoomal R/o. 5-Rana Pratp Marg, Lucknow. 10% Clauses 5, 6 and 9 of the above deed are important, which read as under: "5. That the partners shall get interest at 15 per cent, per annum on their investment in the firm. 6. That the partners shall draw salary as they mutually decide from time to time. 9. That Smt. Parmeshwari Rai shall not be entitled to goodwill of this partnership business." Similarly, with regard to the business carried on in the annexe, another firm was constituted in which besides Shri Shyam Lal and Shri Ram Chand (Ram Lal) three new other partners were admitted. The constitution of this firm vide partnership deed dated March 8, 1976, with effect from October 1, 1975, was as under: S.No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of Shri Nand Lal could also be treated as a gift by him. In pursuance of the above findings, the Gift-tax Officer levied gift-tax on Shri Shyam Lal, Shri Ram Lal and Shri Nand Lal, respectively. For this purpose, he computed the value of the goodwill of the old firm and then determined the taxable gift in the hands of the respective partners, i.e., the assessees before us. He rejected the claim of the assessee that the gifts were exempt from tax under section 5(1)(xiv) of the Gift-tax Act. All the assessees appealed to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, following certain decided authorities, held that there was no gift by any of the partners. She accordingly cancelled the assessments and allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner shall draw salary as mutually decided from time to time. According to him, as a result of the change in the partnership deed, wherein new partners were inducted, the existing partners had relinquished some portion of the share in the goodwill of the two firms and, therefore, it would be a deemed gift under the Act. He relied upon the decision of the hon'ble Supreme Court in the case of CGT v. Chhotalal Mohanlal [1987] 166 ITR 124 wherein the apex court has held that goodwill is property and when minors are admitted to the benefits of partnership in a firm and the share of the existing partner is reduced thereby, the right to the money value of the goodwill stands transferred and the transaction constitutes a gift under the Act. He fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment as capital investment by the partners. Further any amount which is invested by the partners carried interest at 15 per cent. Per annum. Thus, the investment made by the partners towards capital cannot be said to be adequate or sufficient consideration. The hon'ble Supreme Court in the case of Chhotalal Mohanlal [1987] 166 ITR 124 had said that once goodwill is taken to be property and with the admission of the two minors to the benefit of partnership in respect of a fixed share, the money value of the goodwill stands transferred the transaction itself constituted a gift under the Act. As the consideration for transfer and relinquishment of the goodwill is not adequate, there would be deemed gift in the present case. In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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