TMI Blog2002 (11) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer was made without any consideration and it is also not correct in holding that the closing stock should be valued at market price. Accordingly, both the questions of law are answered in favour of the assessee and against the Revenue - - - - - Dated:- 26-11-2002 - Judge(s) : N. V. BALASUBRAMANIAN., K. RAVIRAJA PANDIAN. JUDGMENT The judgment of the court was delivered by N. V. BALASUBRAMANIAN J. - This is a reference under the Gift-tax Act, 1958, and the questions of law referred to us read as under: "1. Whether, on the facts and in the circumstances of the case, when the proprietary concern was converted into a partnership with a capital contribution of other partners and when share of profit is commensurate with it, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellery and silver at less than the market value, the assessee had made a deemed gift of Rs. 5,95,613 which was 60 per cent. of the market value of the stock as on May 5, 1982. In this view of the matter, the Gift-tax Officer computed the total value of the gift at Rs. 6,73,261 made up of Rs. 5,95,613 and Rs. 77,648 and after deducting the basic exemption, he levied the gift-tax. On appeal by the assessee before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) allowed the appeal preferred by the assessee. The Tribunal, however, on appeal by the Revenue, held that there was a gift by the assessee in favour of the three partners. The Tribunal also held that the three partners have contributed capital, subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has given up 60 per cent. of his rights in favour of the new partners and, therefore, there was a deemed gift. However, the Gift-tax Officer as well as the Tribunal overlooked the fact that the new partners have contributed a sum of Rs. 20,000 each as capital when they became partners and the capital contribution by the new partners would be adequate consideration when they became partners in the firm. The three partners have received the share of profits by virtue of their capital contributions and, therefore, there is no question of any gift when the new partners have contributed their capital and their share of profits is also fixed with reference to the capital contributed by them. As a matter of fact, it was found that the new par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable to the facts of the case. Subsequently in Sakthi Trading Co. v. CIT [2001] 250 ITR 871, the Supreme Court has held that since there was no cessation of business, the closing stock had to be valued at cost or market price whichever is lower as it is an established rule of commercial practice and accountancy that where there was no discontinuance of business, the closing stock is to be valued at cost or market price, whichever is lower by conversion. We are of the view that since the proprietary concern was converted into a partnership, there was no cessation in the business as the firm continued the same business and, therefore, the principles laid down by the Supreme Court in Sakthi Trading Co. v. CIT [2001] 250 ITR 871 would apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the transaction. However, it is not open to the Gift-tax Officer to pick one of the assets and value the same for the purpose of levy of tax. The Gift-tax Officer should have valued the entire business as a whole and on that basis, he should have considered the question whether there was an inadequate consideration in the transfer. The Gift-tax Officer however has picked only one of the assets of the assessee for the purpose of levy of gift-tax and we are of the view that it is impermissible for the Gift-tax Officer to pick only one of the assets for the purpose of valuation of the gift. The Supreme Court in CGT v. P. Gheevarghese, Travancore Timbers and Products [1972] 83 ITR 403 has held that the Gift-tax Officer would not be justified ..... X X X X Extracts X X X X X X X X Extracts X X X X
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