P VENKATESAN Vs. ADDITIONAL COMMISSINER OF GIFT TAX

JUDGEMENT

(1.) IN this reference, the following question has been referred :

(2.) WE are concerned in this case with an assessee by name P. Venkatesan, who was one of the partners of the firm known as 'S.R.P. Ponnuswamy Chetttiar', carrying on business in cloth in Coimbatore. There was a partnership constituted under a deed dt. 4th Nov., 1957. The partnership consisted of S.R.P. Ponnuswamy Chettiar and his four sons, Jagadeesan Marugesan, Venkatesan and Sivanandam. Another son of Ponnuswamy Chettiar by name P. Krishnamurthy was a minor in 1957. He was admitted to the benefits of the partnership. When he attained majority, a fresh deed of partnership was drawn up between S.R.P. Ponnuswamy Chettiar and his sons on 28th Nov., 1960. The following table will give an idea of the capital contribution of the respective partners and their share of profits : Venkatesan, mentioned above, is the present assessee. On 17th April, 1964, the other sons of Ponnuswamy Chettiar, except the assessee, retired from the firm, leaving the father Ponnuswamy Chettiar and the assessee alone in the partnership. The continuing partners decided to take the respective wives of Jagadeesan and Murugesan as partners in the firm. Two other minor sons of Ponnuswamy Chettiar by name Vijaykumar and Varadarajan were admitted to the benefits of the partnership. As a result of this arrangement there were consequential changes in the capital contribution and also in the profit-sharing ratio as follows : As far as Ponnuswamy Chettiar concerned, while under the deed dt. 28th Nov., 1960 his share of profits was 30 per cent, his share of profits came to be reduced to 20 per cent in the new arrangement. It may, however, be noted that he took upon himself to bear the loss to the extent of 35 per cent as the two minors who were admitted to the partnership could not be saddled with the losses. Similarly, the assessee who had originally contributed Rs. 16,250 and had 16 ï¿ 1/2 per cent share in the profits of firm, had reduced his contribution of Rs. 5,000 and his share of profits also come down to 5 per cent. His share in the losses was increased to 7 per cent as against 5 per cent in profits, as that was necessary, consequent on the minor not being saddled with the losses.

(3.) THE assessee appealed to the AAC, who held that having regard to the decision of the Supreme Court in CGT vs. P. Gheevarghese 1972 CTR (SC) 286 : (1972) 83 ITR 403 (SC) goodwill could not be subject to gift tax. The GTO appealed to the Tribunal. The Tribunal, relying on a decision of this Court in CGT vs. V.A.M. Ayya Nadar (1969) 73 ITR 761 (Mad), held that as a result of the reduction of the assessee's share from 16 ï¿ 1/2 per cent to 5 per cent in the firm, there was a gift chargeable to gift-tax. So far as the valuation was concerned, the Tribunal was of the view that the reduction in the contribution of capital should also be taken into account. The matter was, therefore, remanded to the GTO with a direction to re-do the assessment after evaluating the subject-matter of gift in accordance with law. As against this order of the Tribunal, at the instance of the assessee, the question already extracted above has been referred to this Court.