COMMISSIONER OF INCOME TAX Vs. S ANAND

JUDGEMENT

(1.) This ITR is at the instance of the Revenue and it arises under the Gift Tax Act. The assessee in this case is M/s. S. Anand and Others One K.N. Sreedhara Shenoy was the proprietor of a Jewellery shop. On first April, 1984 he converted the business into a partnership Firm. In the new partnership Firm, his three children were inducted. It is stated that the new partners have contributed capital to the Firm. The profits are to be shared equally by the partners. The Gift Tax Officer took the view the transfer to the children represented gift made by the assessee and determined the value of the gift at Rs. 3,48,860/- and the gift tax payable was determined as Rs. 69,465/-.

(2.) The assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Appellate Authority relied on the decision of the Karnataka High Court in C. G. T. v. C. S. Patil, (1989) 78 C. T. R. (Karnataka) 194 and held that since there has been contribution to the capital by the new partners, there was no gift. Against that, the matter was taken before the Tribunal by the Revenue. The Tribunal also relied on the decision of the Karnataka High Court and dismissed the appeal. It is thereafter that this reference is made on the following questions of law:

(3.) Learned counsel for the Revenue Shri. P. K. Ravindranatha Menon argued that even though capital has been contributed that may be only with regard to the share of the profit. But there was goodwill of the shop and for the goodwill, there is no consideration and hence, there is a gift. Learned counsel also relied on Lord Lindley on Partnership, Sixteenth Edition, Chap.17 to bring to the notice of this Court the distinction between the capital and assets. Learned counsel also relied on the decision of this Bench in I.T.R. No. 256 of 1997.