COMMISSIONER OF GIFT TAX Vs. C K NIRMALA

JUDGEMENT

(1.) THE Tribunal, Cochin Bench has referred to this Court under S. 26(1) of the GT Act, 1958, the following question : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in finding that the transfer in question has not resulted in any gift assessable to gift-tax in the view that the capital brought in by the incoming partners can be taken as consideration for the transfer of 65% of the assessee's interest in the business ?"

(2.) THE assessee converted proprietary business into a partnership on 1st Feb., 1979. The partners were the assessee, her two major daughters and husband of the assessee in his capacity as a trustee of a trust called Krishnadev Trust. The beneficiaries of the trust were three minor daughters of the assessee and two minor children of the two major married daughters. Profit-sharing proportions are specified in the partnership deed. While the assessee retained 35% of the share in the partnership, the two major daughters were allotted 15% each and the trust 35%. A sum of Rs. 10,000 each was brought in by the other 3 partners which were treated as their respective shares of capital.

(3.) THE question whether amounts brought in by the incoming partners to the share capital of the firm would be consideration for the surrender of a portion of the proprietary business by another partner has been the subject-matter of two conflicting decisions of this Court. In CGT vs. Ganapathy Moothan (supra), a Division Bench of this Court held that the contribution of the partners to capital of the firm was only for the purpose of working the partnership and it will not be consideration for transferring the goodwill of the business to the firm by the other partner who was carrying on the business as a proprietor. Whereas in CGT vs. K.A. Abdul Razack & Ors. (1991) 97 CTR (Ker) 223 : (1992) 196 ITR 578 (Ker), another Division Bench of this Court took the view that the capital contributed by the incoming partners should be treated as consideration for the surrender of a portion of the goodwill by another partner to the firm. The earlier decision taking a contra view is not seen referred in the later decision, even though number of other High Court's decisions have been referred and followed. In the light of the above, we feel that the matter has to be heard by a larger Bench. Records of this case will be placed before the Honourable the Acting Chief Justice for appropriate orders.