COMMISSIONER OF GIFT-TAX Vs. S. ASHOK

JUDGEMENT

(1.) THIS reference is under the Gift -tax Act which has since been repealed.

(2.) A partnership firm, which originally consisted of five partners, was reconstituted on October 1, 1982, by admitting the company as a partner and allotting to it a 60 per cent. share in the profits and losses after it brought in fresh capital of Rs. 30,000/ -. The shares of the original five partners were at the time of reconstitution reduced from 20 per cent. to 8 per cent. each. Subsequently, on December 31, 1982, the original five partners retired, and received at the time of retirement their capital as shown in the books of account of the firm. The genuineness of the firm was not questioned by the Revenue.

(3.) ON appeal, the Commissioner held, and held rightly, that where the reduction in the value of the share of a partner is accompanied by the newly admitted partner to whom a share corresponding to the reduction had been allotted, bringing in fresh capital equal to the amount by which the capital of other partners was reduced, there was no gift. The Commissioner recorded a finding that the company which was admitted as a partner on October 1, 1982, had brought in capital to the extent of Rs. 30,000/ -, the exact amount by which the capital contribution of the original five partners was reduced after the admission of the company as a partner. He held, therefore, that the admission of the company as a partner was for a consideration and there was no gift or deemed gift as on October 1, 1982.