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TMI Blog2003 (4) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... w partner, who contributed a sum of Rs. 25,000 towards the capital, the shares of the profit/loss of all the partners were reshuffled, being increased in the case of some and reduced in the case of the others. The share of profit/loss of each partner prior to October 11, 1982, and thereafter is as under : -------------------------------------------------------------------------------------------- Prior to 11-10-1982 From 11-10-1982 Difference -------------------------------------------------------------------------------------------- 1. C. N. Purushuthaman 10% 4% - 6% 2. Mrs. P. Karthiayani Amma &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly canvas the question of goodwill and the issue was held against the appellant-assessee. The Tribunal took the view that the question, whether there had been a gift of a share by the assessee in the goodwill of the firm, would depend on whether the value of the assets of the firm exceeded its total liabilities. Since there was no material on this aspect of the matter, 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 recons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the existing partners, it does not result in a taxable gift since it was obligatory on all the partners to participate in the business and do the work of the firm which, taken together with the contribution made by the incoming partner, was adequate consideration. Learned counsel for the Revenue, however, contends that the judgment of this court in Sunil Siddharth 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership without any consideration amounted to a gift by the said partner in favour of the minors. The reason was that the goodwill of the firm is the property of the firm and, upon admission of the two minors to the benefits of the partnership, the right to the money value of the capital stands transferred. Since this transfer is without consideration, in so 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of the business, albeit for administrative convenience or overall guidance one of them might have been nominated as a managing partner, but that does not mean that the service to be rendered by other partners was either negligible or in any way diminished or could be left out of account. Hence, it was held that there was adequate consideration for the 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". ..... X X X X Extracts X X X X X X X X Extracts X X X X
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