COMMISSIONER OF INCOME TAX Vs. PORINCHU T M

JUDGEMENT

(1.) AT the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following question of law for the decision of this court:

(2.) THE respondent is an assessee to gift-tax. THE matter relates to the assessment year 1974-75. THE respondent/assessee was a partner in the firm, Standard Agencies. He had 1/4th share in the profits of the firm. By a resolution dated March 25, 1974, it was resolved by the partners of the firm that the respondent would retire from the partnership and in his place his wife and daughter-in-law would be admitted as partners taking 1/8th share each. THE respondent/assessee retired from the firm on March 31, 1974. THE wife and daughter-in-law were taken as partners on April 1, 1974. THE Gift-tax Officer held that the respondent relinquished his V4th share in the right to share the profits of the firm to his wife and daughter-in-law and this resulted in a gift. THE plea of the assessee that there was no gift and even if there was that it was exempt under Section 5(1)(xiv) of the Act was rejected. THE goodwill of the firm was computed at three years' purchase of the average of five years' assessed income of the firm and the value of the gift was determined at Rs. 91,800. THE Gift-tax Officer proceeded on the basis that the relinquishment was made by the respondent in favour of the other partners. In appeal, the Appellate Assistant Commissioner took the view that the gift was made in favour of the wife and daughter-in-law. On this basis, and by giving relief in the quantum, the value of the taxable gift was assessed at Rs. 44,278. In second appeal, the Appellate Tribunal held that there was no relinquishment by the respondent, either to the other three partners or to his wife and daughter-in-law, attracting tax under the Gift-tax Act. In this view, the Appellate Tribunal held that the respondent incurred no liability to gift-tax on his retirement from the firm. THE Revenue moved the Appellate Tribunal for referring certain questions of law which, according to it, arose out of the appellate order of the Tribunal dated April 3, 1981. In pursuance of the said application, the Appellate Tribunal has referred the question of law, extracted herein-above, for the decision of this court.

(3.) OUR answer to the question referred to this court is in the affirmative, against the Revenue and in favour of the assessee.