TMI Blog2000 (8) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax ?" The assessee in this case is Sree Narayana Chandrika Trust (hereinafter referred to as "the trust"). The trust is a partner in a firm and the trust was having 45 per cent. share in the partnership as per the deed executed on April 1, 1980. The firm was reconstituted under a deed executed on October 1, 1982. As per the deed, the assessee's share in the profit of the firm was reduced to 30 per cent. from the earlier 45 per cent. On the view that the assessee surrendered a 15 per cent. right in the profits of the firm in favour of the other partners, the Gift-tax Officer initiated proceedings and issued notice under section 16(1) of the Gift-tax Act, requiring the assessee to file a return of gift. Accordingly, the assessee filed the return showing the net taxable gift at nil. The Assessing Officer completed the assessment by annexure A order. He found Rs. 7,36,650 as the average profit of the firm taking into consideration the profits for the years 1978-79 to 1982-83. After adjustment, three years purchase price was arrived at at Rs. 21,16,000. The value of 15 per cent. share surrendered by the assessee was put at Rs. 3,17,400. The Assessing Officer fixed the gift-tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er). It went on to consider the question whether there was any consideration for the transfer. The Tribunal relied on the decision of the Supreme Court in Sunil Siddharthbhai v. CIT [1985] 156 ITR 509, which held as follows : "The consideration for the transfer of the personal assets is the right which arises or accrues to the partner during the subsistence of the partnership to get his share of the profits from time to time and, after the dissolution of the partnership or with his retirement from the partnership, to get the value of his share in the net partnership assets as on the date of the dissolution or retirement after deduction of liabilities and prior charges. The credit entry made in the partner's capital account in the books of the partnership firm does not represent the true value of the consideration. It is a notional value only, intended to be taken into account at the time of determining the value of the partner's share in the net partnership assets on the date of dissolution or on his retirement, a share which will depend upon deduction of the liabilities and prior charges existing on the date of dissolution or retirement. It is not possible to predicate before ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only at the time of dissolution of the firm and, hence, the question of adequacy or inadequacy can be considered only at the time of dissolution. In CGT v. Chhotalal Mohanlal [1987] 166 ITR 124, the Supreme Court had to consider the question whether minor sons of partner admitted to the benefits of partnership and the share of father was reduced. Dealing with this contention, the Supreme Court held as follows : "Once goodwill is taken to be property and with the admission of the two minors to the benefits of partnership in respect of a fixed share, the right to the money value of the goodwill stands transferred, the transaction does constitute a gift under the Act. Since there has been no dispute about valuation of the goodwill as made by the Gift-tax Officer, with the conclusion that there has been a gift in respect of a part of the goodwill, the answer to the question referred has to be in the affirmative, that is, it constitutes a gift under the Act." In CGT v. K. A. Abdul Razack [1992] 196 ITR 578, a Division Bench of this court had occasion to consider a similar question. This court held that under section 2(xii) of the Gift-tax Act, 1958, one of the essential conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. As far as this case is concerned the question of such consideration did not arise inasmuch as the goodwill is treated to be the interest transferred." Thus, the Supreme Court and this court are of the view that the good-will can form part of the assets of the firm and if the transfer is not supported by consideration, then there will be a gift. It is further stated that under the Gift-tax Act, the consideration should be adequate. In the present case, the Tribunal relied on the decision of the Supreme Court in Sunil Siddharthbhai v. CIT [1985] 156 ITR 509. There, the question arose under the Income-tax Act and the question was whether the assessee was liable to pay tax on capital gains. In that case, the assessee was a partner in Suvas Trading Company, a partnership firm constituted under a deed of partnership dated September 27, 1973. As his contribution to the capital of the partnership firm, the assessee made over certain shares of limited companies which were held by him as his capital assets. The book value of those shares in his account books was shown as Rs. 1,49,819, but on the date when he contributed those shares to the partnership firm, he revalued the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset, the following amounts, namely :--- (i) expenditure incurred wholly and exclusively in connection with such transfer ; (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto." It was in that context that the Supreme Court held that the share of a partner cannot be ascertained. This is clear from the following observations of the Supreme Court in the same judgment : "we are unable to hold that the consideration which a partner acquires on making over his personal asset to the partnership firm as his contribution to its capital can fall within the terms of section 48". Further, at page 523 of the above decision, it is observed as follows : "Inasmuch as we are of opinion that the consideration received by the assessee on the transfer of his shares to the partnership firm does not fall within the contemplation of section 48 of the Income-tax Act and further that no profit or gain can be said to arise for the purposes of the Income-tax Act, we hold that these cases fall outside the scope of section 45 of the Act altogether." The question in this case is whether the relinquishment of the share of the assessee will amount to a gift ..... X X X X Extracts X X X X X X X X Extracts X X X X
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