COMMISSIONER OF GIFT TAX Vs. PALANIAPPA MUDALIAR N

JUDGEMENT

(1.) UNDER Section 26(1) of the Gift-tax Act, 1958, the following questions of law have been referred to this court:

(2.) THE assessees in these two references were partners in a partnership engaged in plying lorries for hire and also in dealing in cotton, etc. THE share of the respective assessees was 7 annas and 9 annas in the rupee. THE partnership was reconstituted on April 22, 1964, by which the four sons of one and the brother and the two sons of the other were taken in as partners. As a result, of the reconstitution of the firm, the share of Palani-appa Mudaliar concerned in T.C. No. 427 of 1971 was reduced from 44 per cent. to 20 per cent. Similarly, the share of Swaminatha Mudaliar concerned in T.C. No. 3 of 1972 was reduced from 56 per cent. to 25 per cent. THE Gift-tax Officer considered that the reduction in the share of the respective assessees was liable to be taxed under the Gift-tax Aet and, therefore, he estimated that a sum of Rs. 34,535 was the taxable gift in one case and Rs. 46,067 was the taxable gift in the other. On appeal before the Appellate Assistant Commissioner, it was contended that the reduction in the respective shares was a transfer for consideration and hence there was no gift attracting liability under the Gift-tax Act. THE Appellate Assistant Commissioner held that the admission of the new partners was to effectively supervise and control the business of the firm which had a number of branches in various places and that considering the expansion of the business, the introduction of the new partners was solely for the purpose of the business. He, therefore, allowed the appeals considering the respective transactions to be exempt under Section 5(1)(xiv) of the Gift-tax Act. THE department appealed to the Tribunal in each of these cases. THE Tribunal held that there was no clement of gift involved in the reduction of the respective assessee's share as a result of the admission of the other persons. THE Tribunal has recorded a finding which runs as follows: