M K KUPPURAJ Vs. COMMISSIONER OF GIFT TAX

JUDGEMENT

(1.) THE assessment year is 1977-78. THE question referred to us at the instance of the assessee is :

(2.) A firm which consisted of three partners was reconstituted on September 6, 1976, by admitting a company as the fourth partner and in which company the other three partners held substantial shares. The firm owned a running business as also valuable fixed assets in the form of buildings. The shares in the firm prior to its reconstitution among the three partners, who are the applicants, were 38 per cent.; 31 per cent. ; 31 per cent. After the reconstitution, the shares of each one of these three partners was reduced by 6 per cent. and the newly admitted partner, viz., the company, was given an eighteen per cent. share in the profit and loss of the firm and its capital contribution was fixed at eighteen per cent. of the firm's capital of Rs. 1 lakh. It was however provided that in case of dissolution the company would receive twenty five per cent. of the net assets of the firm. In the subsequent assessment year, the firm was dissolved and the company was given the building and the business of the firm.

(3.) IN the case of CGT v. Chhotalal Mohanlal , the court was concerned with a case wherein the minor was admitted to the benefits of partnership, the right of the other partners to a share in the profits was reduced and the benefit of the share relinquished by the other partners given to the minor. The court in that case referred with approval to the decision of the Calcutta High Court in CGT v. Nani Gopal Mondal [1984] 150 ITR 469 and to the case of M.K. Kuppuraj v. CGT [1985] 153 ITR 481 (Mad), which case incidentally concerned one of the assessees here. IN the case of M.K. Kuppuraj [1985] 153 ITR 481 (Mad), relinquishment by the partners of a portion of their shares in favour of the minor admitted to the benefits of the partnership without consideration was held to constitute a gift.