SHARADKUMAR SHRIKRISHNA Vs. COMMISSIONER OF GIFT TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Indore Bench, Indore, at the instance of the assessee, has made this reference under Section 26(1) of the Gift-tax Act, 1958, for the opinion of this court on the following question of law relating to the assessment year 1971-72 of the assessee ;

(2.) THE facts giving rise to this reference as per the statement of the case received may be stated, in brief, thus : THE assessee is an individual. THE assessment year involved is 1971-72 for which the previous year ended on October 30, 1970. THE assessee was a partner in the firm styled as M/s. Shrikrishna Nandlal & Co., Barwaha, which carried on the business of purchasing cotton from farmers and selling it to others after getting it processed, having 25 per cent. share during the assessment year under consideration. He retired from the partnership on November 9, 1969. THE date of valuation is October 30, 1970. Prior to his retirement, the firm consisted of the following partners : (1) Shri Sharadkumar--25 per cent., (2) Shri Krishna--25 per cent., (3) Shri Kaluram--25 per cent. and (4) Shri Poolchand--25 per cent. After the retirement of the assessee from the partnership, the firm was reconstituted with effect from November 10, 1969, and the partnership consisted of the following partners: (1) Shri Narayanji--25 per cent., (2) Shri Krishna--25 per cent., (3) Shri Kaluram --25 per cent. and (4) Shri Poolchand--25 per cent.

(3.) THE learned counsel for the assessee contended that the firm in which the assessee was a partner was dealing in cotton and had no property and, therefore, was having no goodwill. He further contended that at the time of the retirement of the assessee, the nature of the business of the firm was only to purchase cotton from the farmers and get it processed for others. He also contended that the liability was huge and there was no occasion for the goodwill to have any value. He, therefore, placed reliance on the decision in Addl. CGT v. P. Krishnamoorthy [1977] 110 ITR 212 (Mad) and also on the decision of this court in Manaklal Motilal Agrawal v. CGT [1984] 147 ITR 670, as well as on the decision of the Supreme Court in CGT v. P. Gheevarghese [1972] 83 ITR 403, and contended that on the basis of the material on record, only the profits of the firm have been taken into consideration by ignoring the debts and liabilities of the said concern. He further submitted that, in fact, he retired on November 9, 1969, and the new partnership immediately came into existence on the next day, i.e., November 10, 1969, and, therefore, there was no question of fastening liability of the tax upon the assessee by treating it to be a deemed gift.