RAMNIKLAL CHHOTALAL Vs. COMMISSIONER OF GIFT TAX

JUDGEMENT

(1.) ASSESSEE , Ramniklal Chhotalal, was a partner in the firm of M/s Chhotalal Vadilal, Ahmedabad, and he had 25 per cent share in the profit and loss of the business of the said firm. According to the partnership agreement, the goodwill of the partnership belonged to Shri Chhotalal Mohanlal who was one of the partners in the said firm having 25 per cent share in the profit of the business.There was a thired partner in the said firm, Viz., Gunvantlal Mohanlal, who had 25 per cent share in the profit of the Business and there were two minors, namely, (1) Dipakkumar and (2) Kiritkumar, who were admitted to the benefits of the partnership and had respectively 13 per cent and 12 per cent shares in the profits thereof. It appears that the assessee retired on 23rd September, 1968, and with the consent of the other partners the assessee's minor son, Ashishkumar, was admitted to the benefits of the partnership and he was given 25 per cent share in the profits of the business. When this Ashishkumar was admitted to the benefits of the partnership, the firm was reconstituted with changes in the respective shares of the partners under a new deed of partnership of 23rd September, 1968. According to the reconstituted partnership, Chhotalal Mohanlal reduced his share from 25 per cent to 15 per cent; Gunvantlal Mohanlal's share remained the same, i.e., 25 per cent ; minor Dipakkumar's share was reduced from 13 per cent to 10 per cent, while Kiritkumar's share was increased from 12 per cent to 25 per cent. The share of the retiring partner, Ramniklal Chhotalal, which was 25 per cent, was given to the minor, Ashishkumar, in the reconstituted partnership.

(2.) IN response to the notice under S. 16(1) of the GT Act, the assessee, Ramniklal, filed "nil" return and by his letters of October 13, 1970, and November 17, 1970, contended that by retiring from the partnership no gift had been made to his minor son, Ashishkumar, and that the goodwill of the partnership belonged to Shri Chhotalal Mohanlal, one of the partners. It was, therefore, submitted that gift -tax was not attracted according to the decision of this Court in CGT vs. Karnaji Lumbaji (1969) 74 ITR 343 (Guj). The GTO rejected all these contentions and preferred to follow the decision of the Madras High Court in CGT vs. V. A. M. Ayya Nadar (1969) 73 ITR 761 (Mad) and held that the partners' right to share of profits of the firm was a valuable right capable of being valued either on the actuarial basis or any other reasonable basis. The GTO further stated that the retirement of the assessee before him from the partnership in favour of his minor son was only a family arrangement. The GTO did not find any materials to hold that the assessee retired in favour of his minor son, Ashishkumar, in the interest of commercial expediency. He, therefore, carved out the assessee's 25 per cent share and after giving the statutory exemption, levied a gift -tax on Rs. 39,282 by his order dated January 14, 1971.

(3.) THE assessee carried the matter in appeal to the AAC of Gift - tax who following the decision of the Tribunal in the case of Chhotalal Mohanlal Doshi in GTA No. 15 (Ahd.) of 1968 -69 [which has been confirmed by now by this Court in CGT vs. Chhotalal Mohanlal (1974) 91 ITR 393 (Guj) on other grounds] held that if minors were given right to share profits only, then there should be no question of subjecting any future rights to profits to gift -tax since that right could not have been said to be existing property. The AAC of Gift -tax, therefore, allowed the appeal of the assessee by his order of August 12, 1971. The Revenue, therefore, carried the matter in appeal before the Tribunal which set aside the order of the AAC of Gift -tax and restored the order of the GTO as, in its opinion, the act of retirement of the assessee and admission of his minor son to partnership were simultaneous and by his retirement and arranged admission of his minor son to the benefits of partnership, the assessee did make the gift to his minor son of the right to share future profits in the firm and such right being valuable, was correctly made the subject -matter of gift -tax by the GTO. In that view of the matter, therefore, the Tribunal allowed the appeal of the Revenue. The assessee, therefore, sought the reference and the following question has been referred to us :