COMMISSIONER OF GIFT TAX Vs. MANNALAL SURANA

JUDGEMENT

(1.) THIS is a reference application under Section 26(3) of the Gift-tax Act for referring the following questions of law for the opinion of this court:

(2.) UP to the assessment year 1970-71, the assessee, Mannalal Surana, was the proprietor of M/s. Hazarimal Milap Chand, Jaipur (hereinafter referred to as the "assessee "). He was assessed in the status of an individual. He observed the Diwali year as his accounting year. On Diwali, 1970, i.e., November 9, 1970, he converted his personal business run in the name and style of M/s. Hazarimal Milap Chand into a partnership concern by taking his major son, Nirmal Kumar, as working partner and admitting his two minor sons, Vimal Kumar and Narendra Kumar, to the benefits of the partnership. The share of profit of the partners were agreed to be as under, as per the partnership deed dated November 11, 1970 : <FRM>JUDGEMENT_688_ITR162_1986Html1.htm</FRM>

(3.) WE have heard learned counsel for the Revenue as well as for the assessee and also perused the records of the case. The Income-tax Appellate Tribunal after closely scrutinising the documents produced by the parties came to the conclusion that the assessee was being assessed as an individual, being the proprietor of M/s. Hazarimal Milap Chand, up to the assessment year 1970-71. On November 9, 1970, the assessee converted his personal business into a partnership concern by virtue of a partnership deed dated November 11, 1970, by which he took his three sons into the partnership. According to the new partnership deed, the assessee was to share profits at 10%, his major son, Nirmal Kumar, at 30% and his two minor sons, Vimal Kumar and Narendra Kumar, at 30% each. This change from proprietorship business into partnership was necessitated because the assessee was not keeping good health and he wanted to expand his business activities and, therefore, Nirmal Kumar was inducted as a working partner who also contributed (later) capital to the said partnership and was liable to share profits as well as losses. The two minor sons were admitted to the benefits of the partnership. The Tribunal came to the conclusion that there could be no gift in the eye of law, so far as Nirmal Kumar, major son, is concerned, as the alleged transfer was not gratuitous but for consideration, relying on CGT v. Ali Hussain M. Jeevanji [1980] 123 ITR 420 (Mad), CGT v. P. Gheevarghese, Travancore Timbers & Products Ltd. [1972] 83 ITR 403 (SC) and CGT v. Smt. Lalita B. Shah [1979] 118 ITR 794 (Bom). So far as Vimal Kumar and Narendra Kumar, minor sons, are concerned, their position was different from that of Nirmal Kumar. According to the partnership, they have not contributed any capital and also did not render any service and they were not required to bear the losses and relying on Addl. CGT v. A.A. Annamalai Nadar [1978] 113 ITR 574 (Mad), the Tribunal came to the conclusion that there is no transfer of asset as such in favour of the minor sons. Therefore, it remanded the case to the Gift-tax Officer to decide about the alleged relinquishment of 60% share in favour of the two minor sons in accordance with law after giving an opportunity to the parties to lead any further evidence if they wanted.