K GOVINDAN Vs. COMMISSIONER OF GIFT TAX COCHIN

JUDGEMENT

(1.) THE above case has been referred to us by the Income Tax appellate Tribunal, Cochin Bench on a reference by the assessee. THE assessee is a partner in the Firm of M/s. Hindustan Engg. Co., Calicut. A reconstitution deed of the partnership was executed on 25th May, 198

(2.) THAT deed shows that there are three partners, K. Govindan, K. P. Prabhakaran and K. G. Krishnakumar. It is further seen that K. G. Manojkumar was a minor and he was admitted to the benefit of the partnership. Capital of the Firm was Rs. 25,000/- provided by the three partners and the minor in proportion of Rs. 10,000/-, Rs. 5,000/- and rs. 5,000/- respectively. Clause 7 of the deed says that the first partner will be entitled to a profit of 50% and a liability to the extent of 62. 5%, second partner is entitled to a profit of 25% and a liability of 25%, third partner is entitled to a profit of 12. 5% and a liability of 12. 5% and the minor K. G. Manojkumar is entitled to a profit of 12. 5 %.2. By agreement dated 1st April, 1984 , clause (7) of the partnership deed was altered. By the alteration, the assessee first partner's profit was reduced from 50% to 30%. The profit of the second partner K. P. Prabhakaran was reduced from 25% to 10%. The profit of the third partner and the minor was increased to 30%. The Assessing Officer took the view that on the basis of the reconstitution of the Firm, the assessee surrendered 20% of the share in the firm in favour of the two partners, which included the minor. It was also found that there was gift by the assessee and that was held to be a gift assessable under the Gift Tax Act. The matter was taken in appeal by the assessee. The appellate Authority rejected the contentions. An appeal was filed before the tribunal. The Tribunal also held that there was a transfer and it was a gift under the Gift Tax Act. It is thereafter that the following questions of law have been referred to us. The questions of law referred to us are as follows: " (1) Whether on facts and in the circumstances of the case the Appellate Tribunal was justified in holding that the applicant was liable to gift-tax on surrender of his share on a reconstitution of the firm? (2) Whether there were materials for the Tribunal to come to the conclusion that the alleged gift made by the applicant was without consideration in money or money's worth within the meaning of the Gift Tax Act?

(3.) LEARNED counsel for the Revenue submitted that in so far as the decision in Sree Narayana Chandrika Trust v. Commissioner of gift-Tax - 261 I. T. R. 279 is concerned, the Supreme Court has taken into consideration the fact that an amount of Rs. 25,000/- was contributed by the incoming partner. He tried to distinguish the present case on the ground that there has been no fresh contribution. On the other hand, learned counsel for the assessee submitted that it is not necessary for the new partner to contribute. According to him, the present case falls within the decision of the supreme Court in Commissioner of Gift Tax v. D. C. Shah and others 249 I. T. R. 518.