TMI Blog2003 (4) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... the former had gifted the difference to the incoming partner. There is no other material placed on record by the Revenue to show that, in the facts and circumstances of the case, particularly taking into consideration the obligations of all the partners in the partnership deed dated October 1, 1982, there was inadequate consideration for the reallocation of 12 per cent. of the share in favour of the incoming partner. In our view, the contribution of Rs. 25,000 towards the capital together with the obligations undertaken of sincerely and faithfully carrying on the business for the common advantage of the firm was adequate, consideration for reallocating the share of the profits and giving 12 per cent. of the share in favour of the incoming partner, M. U. Indira. That C. K. jinan was the managing partner and C. N. Purushuthaman was the administrative head, did not take away the obligations of the other partners including those of M. U. Indira which arose generally under the Partnership Act, as well as under the partnership deed dated October 1, 1982. We are of the view that even assuming that there was a transfer of 12 per cent. of the share of profit/loss in favour of the incomin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % 30% -15% Chandrika Trust) 6. M. G. Narayanan 5% 1% - 4% 7. P. I. Janardhanan 5% 1% - 4% 8. P. R. Rajappan 5% 1% - 4% 9. N. K. Kumaran 5% 1% - 4% 10. M. U. Indira - 12% +12% -------------------------------------------------------------------------------------------- Clauses 9, 10 and 11 of the said partnership deed provide that all the partners had a right to carry on the business of the firm for the common advantage of the firm, though C. K. Jinan (partner No. 3) was to be the managing partner and in overall charge of the affairs of the firm and C. N. Purushuthaman (partner No. 1) was to be the administrative partner and in charge of the day-to-day affairs of the firm and allowed a salary of Rs. 1,000 per month until otherwise decided by other partners. The bank accounts of the firm were to be operated by the managing partner, C. K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, it would normally be necessary to remand the matter, but since the assessee was liable to succeed on another contention there was no need to remand the matter to the Assessing Officer. The Tribunal took note of the fact that the incoming partner, Smt. M. U. Indira, had contributed Rs. 25,000 as her share of the capital ; the usefulness of her service to the firm had not been disputed by the Revenue. Though the Revenue was of the view that the incoming partner had been given her share only on account of the reduction of the share of the appellant, it was only partly true. The Tribunal pointed out that it was not a case of mere reduction of the share of the appellant, the difference being allotted to the incoming partner, but it was a case of complete realignment of the shares of all the partners consequent upon reconstitution of the firm and that unless and until interest of the concerned partner is ascertained and quantified it could not be said that the consideration for transfer was adequate or not. Relying upon the judgment of this court in Sunil Siddharth bhai v. CIT [1985] 156 ITR 509, the Tribunal held that even though there was a transfer by the assessee in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dharth bhai's case [1985] 156 ITR 509 is distinguishable as applicable only to a situation falling under section 45 read with section 48 of the Income-tax Act, 1961, and in any event by the judgment of this court in CGT v. Chhotalal Mohanlal [1987] 166 ITR 124, this court has found that even in such a situation the readjustment of the shares of the profit/loss amounts to a taxable gift. In Sunil Siddharth bhai's case [1985] 156 ITR 509 (SC), the assessee was a partner of a firm and he made over to the firm certain shares in a company which were held by him. These were credited to the partner's capital account in the books of the firm. The question was whether there was any capital gain which resulted from the transfer of the shares held by the partner to the firm as his capital contribution and whether there was any transfer, within the meaning of section 2(47) of the Income-tax Act, 1961, of the shares contributed by the partner as capital to the firm. This court opined that when a partner brings in his personal assets into the partnership firm as his contribution to the capital he reduces his exclusive rights to the assets with the other partners of the firm. Although he may n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as the minors are concerned, the transaction would amount to a taxable gift under the Gift-tax Act. The judgment of this court in B. T. Patil and Sons v. CGT [2001] 247 ITR 588 is also pressed into service by learned counsel for the Revenue. This was a case where the assessee-firm transferred certain items of machinery to each of its five partners and debited their accounts with the consideration charged therefor. The consideration was on the basis of the written down value of the machinery in the books of account. Within a short time the partners floated another partnership and brought in the said machinery as their capital contribution thereto at a value which was almost three times the written down value. The newly floated partnership sold the machinery to another concern for a still higher price. The Gift-tax Officer held that the assessee-firm had made a gift of the machinery to each of its five partners for inadequate consideration and, therefore, the transaction was assessable of gift-tax. This court distinguished the judgment in Sunil Siddharth bhai's case [1985] 156 ITR 509 (SC) and held that when there is a dissolution of partnership or a partner retires and obtai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer by way of reallocation of shares. The judgment in D. C. Shah's case [1982] 134 ITR 492 (Karn) came to be appealed to this court at the instance of the Revenue. The appeal came to be disposed of by this court by a judgment in Civil Appeals Nos. 4551-56 of 1984 on September 25, 1996, wherein it was held : "That the share of one partner is decreased and that of another partner correspondingly increased does not lead to the inference that the former had gifted the difference to the latter. The profit sharing ratio in a firm can vary for a number of reasons, among them the ability of the partners to devote time to the business of the firm. The gift of a part of a partner's share to another partner has to be established by relevant evidence. The onus of doing so is on the Revenue. It has not been discharged in the present case". The facts found in the present case are that the incoming partner (M. U. Indira) had contributed Rs. 25,000 towards her share of the capital. The value of her services or usefulness to the firm as partner has not been disputed by the Revenue authorities. As pointed out by this court in D. C. Sitah's case [2001] 249 ITR 518, the mere fact that upon rec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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