COMMISSIONER OF GIFT TAX Vs. MARSHALL J N

JUDGEMENT

(1.) J . N. Marshall, the assessee, was originally the proprietor of two businesses, viz., (1) J. N. Marshall and Co. (Engineering) and (2) J. N. Marshall and Co. (Spirax and Steel Department). The former business was converted into a partnership business with effect from February 1, 1946, by taking M. N. Marshall as a partner. It was provided in the instrument of partnership that on dissolution of the firm the stock -in -trade, goodwill and other assets would belong to the assessee alone. The second business was also converted into a partnership business with effect from February 1, 1956, by taking the assessee's son, S. J. Marshall, as a partner. In the partnership deed relating to the second business, it was expressly provided that on the termination of the partnership for any cause whatsoever the stock -in -trade, goodwill and assets of the partnership business shall belong to Jeejeebhoy (assessee) alone and Shiamak, the other partner, would be entitled to the amount, if any, actually invested or other moneys brought in by him and standing to his credit as appearing from the books of account of the partnership and he would be entitled to his share of profits remaining to be paid at the date of the termination of the partnership and the amount standing to the credit of his capital account.

(2.) ON February 1, 1959, new partners were admitted into both the firms. The reconstituted firms consisted of the following partners having shares mentioned against their individual names : Engineering Department Rs.1. Shiamak J. Marshall 0 -4 -02. Jeejeebhoy N. Marshall 0 -3 -03. Maneckji N. Marshall 0 -3 -04. Shehernaz Hoshang Dalal 0 -3 -05. Maharookh Darius Forbes 0 -3 -0 - - - - - - - -1 -0 -0 - - - - - - - -Spirax and Steel DepartmentRs.1. Shiamak J. Marshall 0 -4 -02. Jeejeebhoy N. Marshall 0 -4 -03. Maneckji N. Marshall 0 -2 -04. Shehernaz Hoshang Dalal 0 -3 -05. Maharookh Darius Forbes 0 -3 -0 - - - - - - - - -1 -0 -0 - - - - - - - - - Both the deeds of partnership as regards the goodwill contain the following provision : 'The goodwill of the firm shall belong to Shiamak J. Marshall, Shehernaz H. Dalal and Maharookh D. Forbes.'

(3.) IN an appeal preferred by the assessee before the AAC, the validity of the initiation of the proceedings was not challenged. The only contention that was urged on behalf of the assessee was that there was no gift of good will and alternatively the valuation adopted by the GTO was excessive. The first contention urged on behalf of the assessee was rejected by the AAC, but on going through the accounts of the two business for the past years, he held that the engineering firm had no goodwill since the average result of the running of the business in the preceding five years was a loss. In the case of the second firm, viz, Spirax and Steel Department, he computed the value of the goodwill at Rs. 3,02,835 and directed that taxable gift should be computed by substituting Rs. 3,02,835 in the place of Rs. 6,30,735 adopted by the GTO.