COMMISSIONER OF GIFT TAX Vs. NAGJI DULLABHJI

JUDGEMENT

(1.) THIS is a reference at the instance of the CGT made by the Income -tax Appellate Tribunal under s. 26(1) of the G.T. Act, 1958. By the said reference, the following question has been referred to us :

(2.) A few facts may be stated. In this reference, we are concerned with assessment year 1960 -61, the corresponding accounting period being Samvat year 2015 (12th November, 1958, to 31st October, 1959). One Nagji Dullabhji was carrying on the business of purchasing and selling cloth in the name and style of M/s. Vasantrai Nagji which was his sole proprietary concern. The main business of this concern was to purchase cloth from textile mills or credit and selling it thereafter. Nagji Dullabhji did not possess any quota rights or rights under agreements with purchaser textile mills. Because of his advanced age and failing health, Nagji Dullabhji decided to take his son, Girishchandra, as a partner to carry on this business. Girishchandra was already a creditor of the sole proprietary concern, and the amount due to Girishchandra in the books of the business was a little over Rs. 26,000. With effect from 12th November, 1958, a partnership was formed between the father and the son. The terms of this partnership were recorded in a deed of partnership dated 12th November, 1958. A copy of the said deed of partnership is annexed to the statement of case as annex.'A'. Under this partnership deed, the business was, after the 12th of November, 1958, to be carried on by the firm consisting of Nagji Dullabhji and Girishchandra, the share of the father being 60 nP. and that of the son 40 nP. It has been found that the son also brought in fresh capital of Rs. 25,000 which was credited to his account on 12th November, 1958, i.e., with the further amount brought in as capital, the amount earlier lent to the sole proprietary business of the father was retained in the business of partnership.

(3.) THE matter was carried in appeal to the AAC before whom the same contentions as to sustainability under the G.T. Act as were originally raised before the GTO were repeated. The AAC held that the admission of Girishchandra as a partner in the firm of M/s. Vasantrai Nagji was without any consideration or without adequate consideration and a right and interest in the property and assets of the firm had been gifted, which was assessable to gift -tax. As regards the quantum, he reduced the value of gift to Rs. 94,658 from which amount the statutory exemption available under s. 5 was allowed. Gift -tax, accordingly, was sought to be levied on Rs. 84,658.