COMMISSIONER OF GIFT TAX GUJARAT Vs. CHHOTALAL MOHANLAL

JUDGEMENT

(1.) This appeal is by certificate. Under a Deed of Partnership dated 12-11-1958, a Firm by name M/s. Chhotalal Vedilal came into existence with three partners, Chhotalal Mohanlal (the assessee), Gunvantilal Chhotalal and Pravinchandra Vedilal. These three partners had 7 annas, 4 annas and 5 annas share respectively in the firm. This position continued until on 9-11-1961 relevant to assessment year 1963-64 with which this appeal is concerned, a change took place in the constitution of the firm. Under the new deed, Pravinchandra Vedilal Retired; no change took place in respect of Gunvantilal Chhotalal; one Ramniklal Chhotalal became a partner with 4 annas share. The share of the assessee Chhotalal Mohanlal was reduced to 4 annas; for the remaining 4 annas two minor sons of Chhotalal being Kiritkumar and Deepak Kumar were admitted to the benefits only of the firm - Kiritkumar having 12 per cent and Deepak Kumar having 13 per cent. No alteration was, however, made regarding the share capital standing in the name of the assessee.

(2.) The Gift Tax Officer came to the conclusion that the assessee had deprived himself of 19 per cent share in the profits and had gifted away 19 per cent share in the goodwill of the firm in favour of his two minor sons. He valued the goodwill and treated 19 per cent thereof as taxable gift. The Appellate Assistant Commissioner before whom the assessee appealed adopted a different stand. According to him., the gift was not of a share of the goodwill but in respect of the right to receive future profits. He valued that right and since the amount was higher than what the Income-tax Officer had estimated, following the requirements of law he enhanced the quantum. In further appeal by the assessee the Tribunal held that in the circumstances of the case there could be no gift of goodwill. As appears from the statement of the case, the Revenue did not seek to support the order of the Income-tax Officer but pleaded for sustaining the order of the Appellate Assistant Commissioner. The Tribunal further found that the right to receive future profits could not be subject-matter of a gift as the transfer did not relate to existing property. According to it, the situation did not give rise to any gift which could be made liable to tax under the Act. The following question relevant for the purpose of the appeal was referred to the High Court for its opinion at the instance of the Revenue:-

(3.) In spite of service of notice of appeal the respondent has not appeared. Counsel appearing in support of the appeal has contended that the order of the Gift Tax Officer was right and the Appellate Assistant Commissioner, the Tribunal and the High Court had gone wrong in holding that the arrangement under the deed of 9-11-1961 did not give rise to a taxable event under the Act, so far as the assessee was concerned.