COMMISSIONER OF GIFT TAX Vs. LAXMINARAYAN MAHAWAR

JUDGEMENT

(1.) THE following question of law has been referred to this court by the Appellate Tribunal at the instance of the Revenue under Section 26(1) of the Gift-tax act, 1958 :

(2.) THE assessee is a partner in a firm. Initially, he had a 20 paise share in the firm. In the assessment year in question, there was a change in the constitution of the firm and new partners who introduced share capital were admitted. Consequent on the change in the constitution of the firm, the assessee's share in the property of the firm was reduced from 20 to 10 per cent. THE Gift-tax Officer held that the assessee had surrendered a moiety of his share in favour of the incoming partners and this constituted gift. He valued the gift at Rs. 44,650 and completed the assessment. THE Appellate Assistant Commissioner, on an appeal filed by the assessee, allowed the appeal and held that there was no gift involved. Further appeal to the Tribunal by the Revenue was dismissed. THEse facts led to the reference.

(3.) IN D.C. Shah's case [1982] 134 ITR 492 (Kar), on two occasions, new partners joined the firm leading to reallocation of shares and reduction of shares of the pre-existing partners. The new partners introduced share capital and were obliged to participate in the business and work of the firm. The Karnataka High Court held that the contributions in the share capital and participation in the business of the firm constitute adequate consideration and, therefore, there is no taxable gift.