Subhash Dhanraj Choudhari and Others Vs. Commissioner of Gift-tax - Court Judgment

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direct taxation - gift - sections 2, 5 and 26 of gift tax act, 1958 - son included as working partner in partnership firm - father renunciate part of shares in favour of son - whether that can be treated as gift and subject to tax under act - renunciation made by execution of document - incoming partner is major and sharing both profit and losses - under circumstances renunciation cannot be treated as gift. - t.d. sugla, j.1. in this reference at the instance of the assessee relating to the assessment year 1969-70, the tribunal has referred to this court the following questions of law under section 26(1) of the gift-tax act, 1958 : '1. whether, on the facts and in the circumstances of the case, the admission of shri subhash as a partner of m/s. d. t. choudhari resulted in any gift made by the assessee in his favour for the purpose of the gift-tax act 2. whether, on the facts and in the circumstances of the case, the tribunal has erred in law in holding that shri subhash's agreeing to join as a working partner and his promise to work in future in the firm of m/s. d. t. choudhari did not amount to a consideration within the meaning of section 2(xii) of the gift-tax act, 1958 3. if the answer to question no. 1 is in the affirmative, whether, on the facts and in the circumstances of the case, the gift is exempt under section 5(i)(xiv) of the gift-tax act, 1958 ?' 2. briefly stated, the relevant facts are that up to the commencement of the previous year relevant for the assessment year 1969-70, there were two partners in the assessee-firm with 10 annas and 6 annas share, respectively. on and from the first day of the previous year, a son of one of the partners was taken as a working partner, with the result that the share of that partner got reduced from 10 annas to 6 annas and the son who joined the partnership as a working partner became entitled to 4 annas share. it is on record that the incoming partner was a b. com. at the time he was taken as a partner. the age of his father, the assessee herein, at the relevant time, was 65 years. he was stated to be suffering from asthma and it appears that he died some time in february, 1972, that is, after the tribunal passed its appellate order, and the filing of the reference application. 3. the question arose whether, on these facts, the assessee could be said to have made a gift of his 4 annas share in the partnership firm to his son, the incoming partner. 4. following the madras high court decision in the case of cgt v. v.a. m. ayya nadar : [1969]73itr761(mad) , the gift-tax officer came to the conclusion that there was a gift made by the assessee, the father, in favour of his son within the meaning of the relevant provisions of the gift-tax act. he computed the share of future profits surrendered by the assessee at rs. 87,185 to which some other amounts were added with which we are not concerned in this reference. the appellate assistant commissioner confirmed the order of the gift-tax officer in this behalf. 5. before the tribunal, it was contended that there was no gift by the father to the son in the facts and the circumstances of the case, and assuming there was a gift, the gift was exempt under section 5(1)(xiv). reliance in this behalf was placed on the supreme court decision in the case of cgt v. p. gheevarghese, travancore timbers and products : [1972]83itr403(sc) . for the reasons given in the impugned order, the tribunal held that the supreme court decision was not applicable and that the departmental authorities had rightly treated the assessee's giving up his 4 annas share in the partnership as a gift to his son. 6. shri inamdar, learned counsel for the assessee, and shri deodhar, learned counsel for the revenue, have been heard at length. they have referred to and relied upon a number of decisions. in our opinion, however, it is not necessary to refer to each and every case they have referred to and relied upon, as the question before us can be answered following our court's decision in the cases of cgt v. smt. lalita b. shah : [1979]118itr794(bom) and cgt v. j. n. marshall : [1979]120itr613(bom) . the facts in those cases, it must be conceded, were not identical. they could not be. in fact, the facts in every case are bound to differ to some extent. the principle laid down in those cases which emerges from the observations at page 626 in j. n. marshall's case : [1979]120itr613(bom) is that, by an agreement of partnership, there is a conferment of mutual rights and the undertaking of reciprocal obligations which would constitute for each of the parties the respective consideration for his share in the profit and assets. it would be impermissible in this view of the matter to consider the transmission or transfer of the goodwill do hors the formation of the partnership. it is to be considered as part and parcel of the same transaction and, considered as such, it would be impossible to come to the conclusion that the formation of a partnership, particularly a professional partnership, as arose in that case was one without any consideration. the cases relied upon by shri deodhar, it may be stated, broadly fell in two categories. in one category of cases, the giving up of a share by a major partner was in favour of the minors who were admitted to the benefits of the partnerships. in the other category of cases, the facts were that there was a renunciation by one partner of a part of his share in favour of other partners by execution of a document. these cases, therefore, have no bearing on the question before us. the facts in the case before us, as we have already pointed out, are that the incoming partner is a major; he shares both profits and losses; he was a graduate; his father was 65 and suffering from asthma, and eventually died. in the circumstances, we consider it quite reasonable to infer that he was taken as a partner for consideration particularly in the light of the observations of our court in the two cases referred to above. 7. accordingly, we answer the first question in the negative and in favour of the assessee. the second question is consequential and is also answered in the affirmative and in favour of the assessee. in view of our answers to questions nos. 1 and 2, it is not necessary to answer question no. 3. 8. no order as to costs.