TMI Blog1984 (2) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... ujakasha Mondal. On the 1st day of the accounting year 1355, Ramnabami, there was a partition and as a result of the partition, each brother got 1/3rd share in the said business. Thereafter, they formed a partnership which took over the business carried on by the undivided family in a running state. In the partnership firm each of the said three persons held. 1/3rd share. On September 14, 1944, a partnership deed was executed and clause 7 of the deed stated that on the death of any partner, the partnership would not be dissolved but the remaining partners would take in heirs and legal representatives of the deceased partner as partners in his place and the partnership business would continue. According to clause 14 of the said deed, no new partner would be introduced into the business without the concurrence or opinion of the then existing partners. It appears that Benukar Mondal, a partner, died on October 21, 1967. After his death, in his place, his five sons, namely, Radha Charan Mondal, Bishnu Charan Mondal, Shyama Charan Mondal, Apurba Charan Mondal and Adaitya Charan Mondal, were admitted to the partnership, each holding 1/15th share in the partnership. partnership deed was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the assessee, inter alia, contended that the assessee could not transfer his 1/3rd share in the firm of Nani Gopal Mondal and Bros. and that in the case of a running business of partnership, no partner could predicate that he had definite share in a particular property of the firm and that the assessee did not have any share in the goodwill of the firm and, therefore, there was no question of his making a gift of his goodwill to his sons. The learned counsel for the assessee relied on the decisions in the case of Addanki Narayanappa v. Bhaskara Krishnappa [1966] AIR 1966 SC] 300 and CED v. Shri Ved Parkash Jain [1974] 96 ITR 303 (P H), and CGT v. P. Gheevarghese [1972] 83 ITR 403 (SC). The Revenue, on the other hand, relied on the decision of Madras High Court in the case of CGT v. A. M. Abdul Rahman Rowther [1973] 89 ITR 219 (Mad), and submitted that the doctrine that a partner could not transfer his share of goodwill to others applied only in cases of transfer to his legal heirs and not in cases of transfer to other partners and that there could be a valid transfer of goodwill to partners. Considering the decisions cited on behalf of the parties, the Tribunal held: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cate that he had a definite share in any particular property of the firm. The assessee did not have any share in the goodwill of the firm and, therefore, no question of his making a gift of any goodwill of the firm would arise. In support of the above submission, reliance was placed on several decisions to which I shall refer hereinafter. In order to show the nature of interest which a partner has in a partnership firm and its assets and properties, various cases were cited by the parties at the Bar. These cases no doubt relate to assessment of estate duty and do not relate to gift-tax, yet they throw considerable light on the question regarding the nature of a partner Is interest in the partnership and assets and properties of the firm. In the case of CGT v. P. Gheevarghese, Travancore Timbers Products [1972] 83 ITR 403 (SC), the assessee who was the sole proprietor of a business, converted it into a partnership by a deed dated August 1, 1963. The partnership was to consist of the assessee and his two daughters. The capital of the partnership was Rs. 4 lakh of which his contribution was Rs. 3 lakhs 50 thousand and the contribution of the capital of Rs. 25 thousand from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which he was entitled to. It was held there was a transfer of interest in property when the assessee took his daughter and son into the partnership, assigned them a portion of the share capital and realigned the shares in the partnership and the profit-sharing ratio, which amounted to a gift chargeable to tax and the redistribution of the profit-sharing ratio on the admission of the two new partners amounted to a "gift" by the assessee of portion of his share in the goodwill of the firm. In the case of Devaraj v. CWT [1973] 90 ITR 400 (Mad), the deceased was at the time of his death a partner in a firm, which was the managing agent of a mill, having 3/16ths share in the profits and losses of the firm. The Assistant Controller valued the share (of goodwill) of the deceased in the firm at Rs. 66,000 and included this sum in the estate duty assessment rejecting the contention of the accountable persons that the managing agency firm had no goodwill. It was held by the High Court, inter alia, that the Tribunal was in error in holding that the managing agency had no goodwill. In the case of CED v. John Gregory Apcar El 979] 119 ITR 192 (Cal), it was held that upon the death of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ): " From a perusal of these provisions, it would be abundantly clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership, it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realisation of this property and upon dissolution of the partnership, to a share in the money representing the value of the property. No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in cl. (a) and sub-cls. (i), (ii) and (iii) of cl. (b) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s entitled to is his share of profits, if any, accruing to the partnership from the realisation of the property, and upon dissolution of the partnership, to a share in the money representing the value of the property, yet since a firm has no legal existence, the partnership property will vest in all the partners and, in that sense, every partner has an interest in the property of the partnership. It was further observed that the whole concept of partnership is to embark upon a joint venture and for that purpose to bring in LS capital money or even property including immovable property. Once that is done, whatever is brought in would cease to be the exclusive property of the person who brought it in. It would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. It would, therefore, appear that in the above case where the partnership holds immovable property as an asset and by a document styled as karar in which it was recorded that the partnership had come to an end and a partner had given up his interest in some of the partnership assets to the other partners, then w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shnappa, AIR 1966 SC 1300, it was held that during the subsistence of a partnership, no partner can deal with any part of its property as his own, nor can he assign his interest in a specific item of the partnership property to anyone. His only right is to obtain such profits, if any, as fall to his share from time to time and, in case a partner assigns his share to another, then the assignee would get only the right to receive the share of profits of the assignor. Therefore, on the death of partner, where the firm was continued after his death, no specific share in the goodwill passed on to his heirs as he did not own any specific share in the goodwill of the firm. Under s. 5 of the E.D. Act, duty is leviable only upon the principal value of the property which passes on his death. Goodwill has no value in a going concern of partnership. In the case of State v. Prem Nath [1977] 106 ITR 446 (P H) [FB], it was held that the goodwill of a firm is an asset of the firm. The share of the deceased partner in which, along with his share in the other assets of the firm devolves, for purposes of estate duty, on his death, upon his legal representatives notwithstanding any clause in the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of Khushal Khemgar Shah v. Khorshed Banu Dadiba Boatwalla, AIR 1970 SC 1147, that goodwill of a firm is an asset and, in the absence of a provision expressly made or clearly implied, the normal rule that the share of the partner in the assets devolves upon his legal representatives will apply to goodwill as well as to other assets. The principle laid down in the above case, in my view, applies to a case where a partner transfers his interest or share in the firm to a third party. Upon transfer, the share or interest in the property of the firm of the transferring partner including the goodwill becomes the share or interest of the transferee. In the instant case, Nani Gopal Mondal by the deed of gift transferred his share or interest in the firm which included his share of goodwill also. Hence, for the purpose of payment of gift-tax, the value of one-third share of the assessee in the goodwill shall also be taken into account. It should be noted that no dispute has been raised regarding the value of the goodwill. In the above view of the matter, I answer the question referred to this court for its opinion in the negative and in favour of the Revenue. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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