COMMISSIONER OF GIFT TAX Vs. ARUNBHAI HARGOVANDAS PATEL

JUDGEMENT

(1.) This is a reference made by the Income-tax Appellate Tribunal under Section 26 of the Gift Tax Act, 1958. At the instance of the revenue, the following question is referred for the opinion of this Court in respect of assessment year 1975-76:-

(2.) We have heard Mr. B.B. Naik learned counsel for the revenue and Mr. M.J. Shah learned counsel for the respondent-assessee.

(3.) The assessee along with five others including assessee's brother was carrying on business in the name and style of M/s. Abadi & Co. under partnership deed dated 10-4-1971. The assessee had 22% share in the said firm while his brother had 15% share. As the assessee wanted to be a qualified Chartered Accountant, he retired from the said firm on 26-10-1973 i.e. at the end of S.Y. 2029 after withdrawing his capital from the firm. A new deed of partnership was executed on 16-11-1973 to carry on business w.e.f. 27-10-1973 i.e. the first day of S.Y. 2030. In the new firm, the assessee's mother became a partner with 17% share while the share of the assessee's brother was increased from 15% to 20%. On the aforesaid facts, the Gift Tax Officer asked the assessee to file his gift tax return. Along with nil return, the assessee sent a covering letter dated 23-1-1979 pointing out that he had withdrawn his capital from the firm and also contending that the assessee had to retire from the firm, as a practising Chartered Accountant cannot do any business. The Gift Tax Officer, however, held that the assessee had made a taxable gift of Rs.63,200.00 in favour of his mother and brother and the amount was worked out on the basis of the value of the goodwill of the firm. The assessee carried the matter in appeal where the Commissioner of Gift Tax (Appeals) accepted the assessee's contention in view of the decision of this Court in Chhotalal Mohanlal 97 ITR 393 and other decisions following the said decision in Chhotalal Mohanlal (supra). The Tribunal dismissed the appeal filed by the revenue. Hence, this reference at the instance of the revenue.