(1.) THIS is a reference under Section 26(1) of the Gift-tax Act, 1958 (for short, the "Act"), at the instance of the Revenue. The Tribunal has referred the following question of law for the opinion of this court:
(2.) THE non-applicants, Vinod Kumar AGRAWAL and Ramlal AGRAWAL, were partners in M/s. Vinod Traders, Dhamtari, having 40% and 60% shares, respectively, in the profits and losses of the firm. During the previous year relevant to the assessment year 1979-80, two new partners, viz., Shri Sharad and Shri Ashok, were taken into the partnership and were given a share of 20% each in the profits and losses of the firm. As a result of this, the shares of Vinod Kumar AGRAWAL and Ramlal AGRAWAL were respectively reduced from 40% to 20% and from 60% to 40% in the profits and losses of the firm. THE Gift-tax Officer was of the view that the reduction of the shares of the assessee, Vinod Kumar Agarwal and Ramlal Agarwal, amounted to a gift from the assessees to the new partners. Accordingly, gift-tax was imposed on them. THE appeal preferred by the assessees was allowed by the Appellate Assistant Commissioner of Gift-tax by holding that the reducing of the sharing ratios of the assessees did not constitute a gift, on the basis of two decisions of the Bombay and Karnataka High Courts respectively in CGT v. J.N. Marshall [1979] 120 ITR 613 and D.C. Shah v. CGT [1982] 134 ITR 492. THE second appeal preferred by the Revenue was dismissed by the Tribunal by preferring the aforesaid two decisions of the Bombay and Karnataka High Courts to that of the Madras High Court in the case of CGT v. K.P.S.V. Duraiswamy Nadar [1973] 91 ITR 473. Being aggrieved, the Revenue applied for a reference and, accordingly, the aforesaid question of law has been referred to us by the Tribunal.
(3.) IN the present case, transfer of 20% share to each of the two new partners cannot be said to be transfer of property made voluntarily and without consideration. As pointed out earlier, the consideration paid by Ashok was his contribution towards the partnership capital and that by Sharad was his agreement to work for the partnership business as a working partner. For all these reasons, the aforesaid question of law deserves to be decided in favour of the assessee and against the Department.