TMI Blog1975 (11) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of 40% of the goodwill of the sole proprietary concern of the assessee to the assessee's son, Virendra, as a result of the partnership deed dated 25th June, 1958, between the assessee and his son, Virendra ? (2) Whether, on the facts and in the circumstances of the case, and on a proper interpretation of section 2(xii) and/or section 4(a) of the Gift-tax Act, there was a ' gift ' in respect of 40% of the goodwill of the sole proprietary concern of the assessee to the assessee's son, Virendra, as a result of the said partnership deed, so as to be liable to gift-tax under that Act ?" A few facts may be stated : The reference relates to the assessment year 1959-60, the relevant previous year being the Samvat year ending on 11th November, 1958. The assessee had been working as a chartered accountant for several years, carrying on his profession as chartered accountant and tax consultant at 418, Kalbadevi Road, Bombay-2, in the firm name and style of " Bhogilal Chimanlal Shah Co." He had a son by name Virendra, who had qualified himself as a chartered accountant. After passing his C.A. examination, Virendra had been employed by the assessee as an assistant on a salary of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. The AAC held that the admission of Virendra as a partner in the firm of Messrs. Bhogilal Chimanlal Shah Co. was without any consideration or without adequate consideration and a right and interest in the property and assets of the firm had been gifted, which gift was assessable to gift-tax. The assessee carried the matter further to the Tribunal, where it was contended on behalf of the assessee that this was not a transaction which was brought within the scope of the provisions of the G.T. Act, particularly s. 2(xxiv) or s. 4(a), which were the sections relied upon by the AAC. The value of the gift as estimated by the AAC was not disputed before the Tribunal. On the other hand, it was contended by the departmental representative representing the revenue that there was consideration for the formation of the partnership but that there was no consideration in money or money's worth as regards the share in the goodwill which was transmitted or transferred to Virendra by the assessee as a result of the formation of the partnership. According to the Tribunal, there was no " gift " in the instant case covered by s. 2(xii) read with s. 2(xxiv) of the G.T. Act. It was further of opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any person--... (xiv) in the course of carrying on a business, profession or vocation, to the extent to which the gift is proved to the satisfaction of the Gift-tax Officer to have been made bona fide for the purpose of such business, profession or vocation." It was submitted by Mr. Joshi that the view taken by the Tribunal and the observations to be found in paras. 3 to 7 of its order were erroneous and arose from a misreading and misconstruction of the statutory provisions. It was submitted that some goodwill must be deemed to attach to the business or profession of chartered accountants and tax consultants which the assessee was carrying on as an individual in the name and style of Bhogilal Chimanlal Shah Co. prior to 1st April, 1958. According to Mr. Joshi, with effect from this date the partnership firm of the assessee and Virendra carried on the very same business at the very same premises under substantially the same name, and in the assets of this firm the assessee would have a 60% share, whereas Virendra would have 40% by reason of their respective shares in the profits and losses as provided under cl. 6 of the partnership deed. It was submitted that the goodwill w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f property " has been defined in words of the widest amplitude as meaning any disposition, conveyance, assignment, settlement, delivery, payment or other alienation of property and further, without limiting the generality of the foregoing, as including the grant or creation of any lease, mortgage, charge, easement, licence, power, partnership or interest in property. By reason of the formation of the partnership it would be possible to say that Virendra was enabled to acquire 40% interest in the goodwill of the erstwhile sole proprietary concern of the assessee in which name the assessee was carrying on his business or profession of chartered accountant and tax consultant. In this opinion I am fortified by the view taken by the Kerala High Court in CGT v. Ganapathy Moothan [1972] 84 ITR 758. The assessee, who was concerned in the reference before the Kerala High Court, was carrying on business in rice-milling and paddy in the name and style, of K. Ganapathy Moothan ; he was also doing business in grocery. In 1962, he converted this proprietary concern into a partnership, there being 4 partners, viz., the assessee and his three major sons. Three points arose for consideration before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound contained in s. 2(xii) of the G.T. Act, 1958, which would have a bearing on the second question as reframed, appears to have been given to some extent in a cursory manner. In my opinion, although the decision on the first two points as indicated earlier is correct, it is not possible to agree with the conclusion of the Kerala High Court on the third aspect of the question as to whether the transfer amounted to a gift. In arriving at this conclusion, the Kerala High Court has emphasised that there was no consideration on the part of the assessee in transferring the goodwill to the new partnership which would refer to the share of the same to the extent of the interest of the new partners in the partnership assets. This approach would not appear to be correct inasmuch as there need not be specific or separate consideration for each of the items under an agreement and the question whether any transaction is supported by a consideration or not will have to be dealt with as a whole and not by considering each item separately by itself. Analysing the facts of the instant case, it is important, in the first place, to note that there was no provision in the deed of partnership for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the profits and assets. It would be impermissible in this view of the matter to consider the transmission or transfer of the goodwill de hors the formation of the partnership. It is to be considered as part and parcel of the same transaction and, considered as such, it would be impossible to come to the conclusion that the formation of partnership, particularly a professional partnership, as arises in the instant case, was one without any consideration. It is undoubtedly true that one of the benefits received by Virendra as a result of the formation of partnership between him and the assessee under a deed of partnership dated 25th June, 1968 may be understood to be a 40% interest in the goodwill. But the same consideration as would sustain the agreement of partnership between the assessee and Virendra would constitute a consideration for the transmission of this interest in the goodwill. As stated earlier, one of the requirements for the application of s. 2(xii) was that the transfer must be without consideration in money or money's worth. The transfer of 40% interest in the goodwill cannot be accepted or held to be one without consideration in the instant case. Before considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the view taken in favour of the assessee by the Gujarat High Court in CGT v. Karnaji Lumbaji [1969] 74 ITR 343, and the said decision has been cited with approval in a later decision of the Gujarat High Court in CGT v. Chhotalal Mohanlal [1974] 97 ITR 393. In the latter case, it was held that when a firm is reconstituted and as a result of its reconstitution the shares of some of the partners are diminished, there was no transfer of property within the meaning of s. 2(xxiv) of the G.T. Act, and, therefore, s. 2(xii) could not be attracted. As stated earlier, on the view expressed by me that there was consideration for the transfer or transmission of 40% interest in the goodwill which was merely a consideration which would support the partnership between the assessee and Virendra, it is unnecessary to consider these authorities in detail though the observations in CGT v. Karnaji Lumbaji [1969] 74 ITR 343 (Guj) are totally in favour of the assessee. A similar view appears to have been taken by the Allahabad High Court in CGT v. Sardar Wazir Singh [1975] 99 ITR 104. According to the Allahabad High Court, there was consideration for converting the proprietary business of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that the consideration was not adequate. One of the reasons which may be given is that it would not be possible to precisely assess or evaluate the totality of the obligations and liabilities undertaken and the services agreed to be rendered by Virendra. It is true that it may not be possible to sustain the discussion to be found in para. 8 of the order of the Tribunal ; but the conclusion that s. 4(a) was not available will have to be sustained on the footing indicated above. That the approach of the revenue is an improper one is suggested by the observations to be found in a Supreme Court decision, viz., CGT v. Gheevarghese [1972] 83 ITR 403. Mr. Munim on behalf of the assessee contended that even if this was regarded as a gift, it must be deemed to be a gift exempted under the provisions of s. 5(1)(xiv), which provisions have been earlier set out. Our attention was drawn in this connection to two decisions of the Kerala High Court in (1) CIT (GT) v. Devadasan [1973] 91 ITR 464 and (2) V. O. Markose v. CIT [1975] 98 ITR 504. In my opinion, this aspect of the matter will not arise from the question referred to us by the Tribunal, which question has been reframed into two ..... X X X X Extracts X X X X X X X X Extracts X X X X
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