COMMISSIONER OF GIFT TAX Vs. PUNJABHAI KALABHAI

JUDGEMENT

(1.) THE Tribunal, Ahmedabad, Bench 'A', at the instance of CGT, Rajkot, has referred following question of law arising out of its order dt. 12th Jan., 1984, in Gift Tax Appeal No. 26/Ahd/1983 for asst. year 1975 76:

(2.) THE assessee was a partner in a firm M/s Dipak Solvent Extraction Industries, Manavadar, having share of 9 per cent therein. He retired from the firm on 26th Oct., 1973, at the close of previous year ending S.Y. 2029. The firm inducted 6 new partners w.e.f. 27th Oct., 1973, which included 3 sons of the assessee. The ITO was of the view that the assessee retired from the firm without taking his share of goodwill from the above firm which amounted to relinquishing his right in the goodwill of firm in favour of incoming partners. By holding that right to share the profits of a firm is a valuable right which is capable of transfer, unless the transfer is made for full consideration in money or money's worth, the transfer would be liable to gift tax on the value of diminution of his share in the firm under S. 4 of the GT Act. He, therefore, computed the value of goodwill of the firm and determined the 9 per cent share therein as the share of the assessee which became subject matter of gift amounting to Rs. 1,67,650. On appeal, the AAC held that the moment the assessee has retired, the right to share in the future profit of the firm came to an end and there is no question of giving up any right to share in the future profit. On this ground the order of assessment was set aside. The Tribunal, on appeal filed by the Revenue, affirmed the order of AAC.

(3.) THERE is no doubt that goodwill is an asset of a firm and like any other asset of the firm is capable of being transferred. At the same time, it is equally true that retirement of a person from a firm and taking accounts at that time does not involve any transfer of property as such. It is a matter of settling accounts while parting company. What consideration prevailed for determining a sum payable to the outgoing partner is a matter of settlement between them and a question of fact.