TMI Blog2000 (1) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... t of case is as follows: The assessee was the sole proprietor of a business carried on in the name and style "Mercantile and Marine Services". On May 1, 1972, the said proprietorship business was converted into a partnership business by taking the assessee's major son, daughter and minor sons as partners. The Gift-tax Officer held that by converting the proprietary business into a partnership and allowing his children to share 80 per cent. of the profits of tile business, the assessee had gifted 80 per cent. value of the goodwill in the firm and 80 per cent. value of the immovable assets as reduced by the credit given to him by way of capital. Accordingly, the value of the gift was computed and tax was levied. In appeal, the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 beforehand what will be the position in terms of monetary value of a partner's share on that date. At the time when the partner transfers his personal asset to the partnership firm, there can be no reckoning of the liabilities and losses which the firm may suffer in the years to come. All that lies within the womb of the future. It is impossible to conceive of evaluating the consideration acquired by the partner when he brings his personal asset into the partnership firm when neither can the date of dissoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, surrender, forfeiture or abandonment. Where a person absolutely entitled to a property causes or has caused the same to be vested in whatever manner in himself and any other person jointly without adequate consideration and such other person makes an appropriation from or out of such property, the amount of appropriation used for the benefit of the person making the appropriation or for the benefit of any other person is deemed to be a gift made in his favour by the person who causes or has caused the property to be so vested. Strong reliance has been placed by learned counsel for the Revenue on a decision of the apex court in CGT v. Chhotalal Mohanlal [1987] 166 ITR 124, to contend that there was a deemed gift. On a close reading of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ... It is impossible to conceive of evaluating the consideration acquired by the partner when he bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Only one factor seems to have been stressed upon by the Revenue, i.e., that there has been a transfer, but the remaining ingredients have not been established. That being the position, section 4(1)(a) cannot be applied and no inference of deemed gift can be drawn. As has been observed in Sunil Siddharthbhai's case [1985] 156 ITR 509 (SC), consideration for a transfer is unascertainable until dissolution of the partnership. There is no factual finding with reference to the partnership deed or any other material that the amount recorded in the books of account of the firm was the value of the capital asset contributed by the partners of the firm and it has to be the consideration received or accrued as a result of transfer of the capital ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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