COMMISSIONER OF GIFT TAX Vs. KAMLA DEVI BHANOT

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Jabalpur Bench, Jabalpur, has referred the following question to this court for its opinion under Section 26(1) of the Gift-tax Act, 1958 (hereinafter referred to as "the Act "):

(2.) THE necessary facts which emerge from a perusal of the record are that the predecessor-in-interest of the present non-applicants, namely, Banar-sidas Bhanot, who shall hereinafter be referred to as the assessee, was a partner in the firm, M/s. Banarsidas Bhanot and Sons, Jabalpur, having 60% share. THE remaining 40% share was held by Dharam Pal Sharma. It further appears that there was another partnership firm in the name of M/s. Pandit Brothers in which three major sons of the assessee were partners. Subsequently, a new partnership in the same name of M/s. Banarsidas Bhanot and Sons was constituted . with effect from April 1, 1966. In the new partnership, the share of the assessee was reduced from 60% to 20%. THE share of Dharma Pal Sharma was also reduced from 40% to 171/2%. THE remainder of the share was allotted to the three major sons of the assessee who were partners in M/s. Pandit Brothers and two of his minor sons all of whom were inducted as partners in the newly constituted firm. THE three major sons of the asses-see were given 171/2% share each and the two minor sons were admitted to the benefits of the partnership to the extent of 5% share each. THE assessment proceedings for the relevant year were reopened and a question arose as to whether the surrender of his 40% share by the assessee in favour of his sons amounted to a gift within the meaning of the Act, liable to tax. THE case of the assessee was that the surrender of the said 40% share was made for consideration and consequently it could not be treated as a gift. According to him, his three major sons who were carrying on business in the name of M/s. Pandit Brothers had expertise also in the business which was being carried on by the firm, M/s. Banarsidas Bhanot and Sons, and on reconstitution of the firm, the benefit of their expertise was available to the reconstituted firm and this constituted consideration for the surrender of the assessee's 40% share. His case further was that all his five sons had also made a contribution in the sum of Rs. 3,70,000 odd as capital investment in the newly constituted firm and that too formed a consideration for the surrender of his 40% share. THE plea raised by the assessee, however, did not find favour with the Gift-tax Officer and the Commissioner of Gift-tax (Appeals), with the result that the surrender of his 40% share by the assessee was taken to be a gift for the purposes of the Act. On a second appeal being tiled by the assessee, the Income-tax Appellate Tribunal reversed the orders of the authorities below and held that the surrender of 40% share by the assessee was for consideration. At the instance of the Commissioner of Gift-tax, however, the Tribunal referred the aforesaid question to this court for its opinion.

(3.) WITH regard to the finding of the Commissioner of Gift-tax that the contribution of the capital asset was made by the sons of the assessee after 39 months and that they appeared to have been carrying on their business in the name of M/s. Pandit Brothers, the Tribunal has recorded a finding that the observation of the Commissioner of Income-tax (Appeals) no doubt indicates that the sons were continuing their old business but as a matter of fact it is not true. In fact, these sons were carrying on the contract business only technically as, for a contractor, it is difficult to abruptly close down his business as he has to clear his unfinished work and has to receive back the securities deposited with the Government and it is not denied by the Revenue that they did not take up any new contract during these three years. According to the Tribunal, that being the position, the authorities below could not be said to be justified in holding that the surrender of 40% share in favour of the incoming partners was without consideration.