COMMISSIONER OF GIFT TAX Vs. KISHAN CHAND

JUDGEMENT

(1.) THIS reference has been made by the Income-tax Appellate Tribunal, Jaipur (hereinafter referred to as "the Tribunal") under Section 26(1) of the Gift-tax Act, 1958 (hereinafter referred to as "the Act"), at the instance of the Revenue. It relates to the assessment year 1973-74. The question which has been referred for consideration of this court is as under :

(2.) THE facts, briefly stated, are that the assessee, Kishan Chand Agarwal, was a partner in the firm Shri Hari Industries, Bharatpur, as a karta of the Hindu undivided family. He had 50% share in the profits of the said firm. In the previous year relevant to the assessment year 1973-74, there was a change in the constitution of the said firm and Serva Shri Sushil Kumar, Anil Kumar, Ravinder Kumar, minor sons of the assessee's brother, were admitted to the benefits of the partnership and they were given 14%, 13% and 13% shares, respectively. Each of the said minors also contributed Rs. 4,000 towards the capital in the said firm, As a result of the admission of these minors to the partnership, the share of the assessee was reduced from 50% to 30%. THE Gift-tax Officer held that the reduction of the share of the assessee from 50% to 30% constituted a gift under Section 2(xii) of the Act and taking into consideration the income of the firm, the Gift-tax Officer held that the value of the gift of the future profits of the partnership by the assessee to the minors was Rs. 28,936 and he assessed gift-tax on the said amount. THE Appellate Assistant Commissioner, on appeal, reduced the value of the gift to Rs. 15,470, On further appeal, the Tribunal held that it cannot be said that when a firm is reconstituted and as a result of its reconstitution, the shares of some partners who have continued after the reconstitution have been diminished, and the new partners who joined have been given some shares by the adjustment of the shares amongst the old partners this is a transfer of property within the meaning of Section 2(xxiv) of the Act and, therefore, it cannot be held to be a gift under Section 2(xii) of the Act, In taking the aforesaid view, the Tribunal has placed reliance on the decision of the Gujarat High Court in CGT v. Chhotalal Mohanlal, 1974 97 ITR 393. With regard to the contribution of Rs. 4,000 made by each of the minors towards the capital of the partnership firm, the Tribunal has observed that the Appellate Assistant Commissioner had decided the matter merely on the ground that there was no consideration and he did not decide the issue on the ground that there was inadequate consideration when a capital of Rs. 4,000 each was contributed by the minors. THE Tribunal has, however, not dealt with this aspect of the matter.

(3.) THE reference is, therefore, allowed and the question referred by the Tribunal is answered as indicated below.