TMI Blog1989 (3) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner in the firm, Shree Milk Supply. During the accounting year relevant to the assessment year 1975-76, there was realignment of shares in the firm on the admission of new partners. Prior to April 1, 1974, there were four partners in the firm including the assessee. The share of profit of each of them was 25 per cent. By a partnership deed dated April 14, 1974, change in the constitution of the firm Was brought about by admitting six more partners. The original four partners had the following credit balances to their capital account as on April 1, 1974. Rs. C. S. Patel 12,000 C. B. Fatakia 70,000 P. N. Sharma 40,000 R. C. Patel 90,000 ----------------- Total 2,12,000 ----------------- Under the partnership deed dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----- The Gift-tax Officer considered that the surrendering of 10% share of profit by the partners in favour of the incoming partners amounted to gift and accordingly he computed the amount of gift and brought it to tax. The order of the Gift-tax Officer was taken in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner confirmed the order of the Gift-tax Officer. He, however, gave some relief to the assessee in the matter of computation. The matter was taken in appeal by the Revenue before the Income-tax Appellate Tribunal. The Tribunal took the view that when new partners were admitted And the existing partners surrendered their share of profit in favour of the incoming partners, it would amount to a g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Supreme Court held that goodwill is property and when minors are admitted to the benefits of partnership in a firm and the share of an existing partner is reduced ' thereby, the right to the money value of the goodwill stands transferred and the transaction constitutes a "gift" under the Gift-tax Act. Learned counsel for the assessee submitted that the ratio of the said decision would have been applicable to this case if the incoming partners had not contributed any share capital and as a result there was no alteration in the share capital standing in the name of the assessee. In particular, learned counsel invited our attention to the last sentence in the first paragraph of the judgment of the Supreme Court at page 126, which reads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the past. before the induction of a new partner and, therefore the extent of transfer of an interest in goodwill amounts to gift. For this proposition, learned counsel again relied upon the decision of the Supreme Court in Chhotalal Mohanlal [1987] 166 ITR 124. That case again, in our opinion, is distinguishable, for, that was a case where there was no reduction in the capital contribution of the original partners, whereas in the present case, the capital contribution had been altered as indicated earlier and there was entirely a new complexion so far as the contribution towards the capital is concerned. If there was contribution of capital from new partners, there can be no question of gift even in respect of goodwill because unless a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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