M.R. SIKKA, VICE PRESIDENT ORDER These two appeals filed by Department involve common contentions. They are, therefore, disposed of by common order. 2. Smt. G. Saraswathi Ammal and Shri A.M.S. Guruswamy Nadar were partners of firm, known as 'Arasan Match Industries, Sivakasi'. They had equal shares in profits and losses of firm. 3 . On 3rd March, 1976, Shri G. Parthasarathy s/o Shri A.M. Guruswamy Nadar, was taken as partner and Shri Jayakannan, minor son of Smt. G. Saraswathi Ammal, was also admitted to benefits of partnership. new partnership came into existence under partnership deed dt. 4th April, 1976 in order to 'instil young blood in business'. According to this partnership deed, new partners were also to contribute capital to firm. shares of partners in profits and losses of firm were as follows : Ratio Sl. Name Ratio from 3rd No. of partner up to March, 1976 2nd . . March, Profit Loss 1976 Smt. G. 50 30 50 (i) Saraswathi per cent per cent per cent Ammal Shri G. Jayakannan 20 (ii) [minor son of per cent (i)) Shri 50 30 30 (iii) A.M.S. per cent per cent per cent Guruswamy Guruswamy Shri G. 20 20 (iv) Parthasarathy per cent per cent [son of (iii)) 4. In course of assessment proceedings for asst. yr. 1976-77, GTO observed that Shri C. Jayakannan was minor and so, he could not possibly render any services to firm. Similarly, according to him, Shri G. Parthasarathy did not have any experience and skill in line of business carried on by firm and so his admission to partnership was of no consequence. GTO was, therefore, of view that Smt. G. Saraswathi Ammal and Shri A.M.S. Guruswamy Nadar have relinquished 20 per cent of their share in goodwill of firm in favour of their sons without any consideration and so transactions tantamounted to taxable gifts. GTO worked out value of taxable gift at Rs. 1,39,707 in each of these cases and brought same to tax under GT Act, 1958 ('the Act'). 5. AAC did not agree with GTO. In case of Smt. G. Saraswathi Ammal (supra), he observed as under : "3. decision of ITAT, Madras Bench in case of GTO vs. A.M.S. Ganesan GT Appeal No. 37 (Mad) of 198 3 dt. 15th March, 198 3 is very much relevant to issue at hand. preamble to partnership deed dt. 4th April, 1976 clearly indicates that reconstitution was effected to instil young blood in business. minor who was admitted to benefits of partnership has also brought in capital on 3rd Aug., 1976 by transfer entry from Majestic Match Industries. It has been held by various High Courts that rendering of services and sharing of future liabilities would be sufficient consideration in admission of new partner. In present case it is true that new partner being minor has no right to share losses. But he is young and dynamic person whose services to firm in future cannot be ignored. Admittedly existing partners were getting old and they wanted young blood for promotion of business. Shri Jayakannan being member of family and conversant with trade practices was best suited for future expansion of business. Therefore, one of main conditions, namely, rendering of services to firm is very much in evidence in his admission. Shri Jayakannan had sufficient credit balance in Majestic Match Industries in form of his capital. As per account copy furnished there is time lag between date of admission and introduction of capital. ITAT, Madras Bench in decision cited above has observed that introduction of capital even though slightly late cannot be ignored while considering adequacy of consideration. xx xx xx In case of Shri Jayakannan, capital was brought in much before close of accounting year even though it was later than date of admission. Considering ruling of Madras High Court in case of Annamalai Nadar and decision of ITAT, Madras Bench cited above, minor has been admitted to benefits of partnership with due consideration." Similarly, in case of Shri A.M.S. Guruswamy Nadar AAC accepted contention of assessee and observed as under : "3. identical issue has been decided by ITAT, Madras Bench in GTO, Virudhunagar vs. A.M.S. Ganesan, Sivakasi in GT Appeal No. 37 (Mad) of 198 3 dt. 15th March, 198 3. In circumstances similar to present case ITAT has held that there is no transfer attracting gift in above case. perusal of partnership deed on strength of which reconstitution was effected indicates that principal intention was to instil young blood in business. Shri Parthasarathy, in whose favour appellant has surrendered 20 per cent share, had already credit balance with firm, Arasan Match Industries. On 31st March, 1977 above credit balance along with funds brought in by partner has been treated as his capital of Rs. 35,000. account copy of Shri Parthasarathy reveals that he has brought in capital in view of his admission as partner in firm. It has been held by various High Courts that contribution of labour and share in future losses would be ample consideration for admission of new partner. In instant case there is no dispute regarding appellant's right to share future losses. His induction in partnership was made with view to admitting new blood which presupposes contribution of labour and skill by incoming partner for future growth of business. On this issue appellant's case finds much support in case of Addl. CGT vs. A.A. Annamalai Nadar (1978) 113 ITR 574 (Mad). It is also to credit of new partner that he has brought in capital. It may be argued that capital was brought in only towards close of accounting year. But Tribunal, Madras Bench, in decision cited above has endorsed above act as sufficient consideration." 6 . Aggrieved by orders of AAC, Department has filed present appeals. 7 . Before us, learned representative of Department reiterated arguments of GTO. He submitted that Shri C. Jayakannan was minor and so he could not render any services to firm. He further submitted that Shri G. Parthasarathy had also no experience in line of business carried on by firm and so his admission to partnership was meaningless. He, therefore, urged that Smt. G. Saraswathi Ammal and Shri A.M.S. Guruswamy Nadar had relinquished their shares in goodwill of firm in favour of their sons without any consideration and so cases attracted levy of gift-tax. In support of his arguments, he referred to CGT vs. S. Rukmani Ammal (1973) 87 ITR 549 (Mad). This authority lays down that when father converts his sole proprietary business into partnership business by taking in his major sons as partners and admitting his minor son to benefits of partnership, there is gift which is not exempt under s. 5(1)(xiv) of Act. learned representative of Department also referred to decision of Madras High Court in CGT vs. V.A.M. Ayya Nadar (1969) 73 ITR 761 and that of Kerala High Court in CGT vs. Ganapathy Moothan (1972) 84 ITR 758. According to him, therefore, orders of GTO deserved to be restored. 8 . learned representative of assessee, on other hand, submitted that both Shri C. Jayakannan and Shri G. Parthasarathy were to contribute capital in firm, that Shri G. Parthasarathy was also to render services to firm and bear losses of business and that these factors constituted valid consideration for admitting them into partnership. According to him, therefore, there was no taxable gift and AAC was justified in cancelling orders of GTO. In support of his arguments he relied upon decisions of Madras High Court in case of Addl. CGT vs. A.A. Annamalai Nadar (supra) and CGT vs. N. Palaniappa Mudaliar (1978) 113 ITR 440 (Mad). He also referred to decision of Madras High Court in case of CGT vs. Ali Hussain M. Jeevaji ( 198 ) 123 ITR 420 (Mad). In addition, he brought to our notice decision of Tribunal in similar case of GTO vs. A.M.S. Ganesan [GT Appeal No. 37 (Mad) of 198 2, dt. 15th March, 198 3], wherein similar claim of assessee in that case was accepted. learned representative of assessee, accordingly, pleaded that orders of AAC were unassailable. 9. After going through record and hearing learned representatives of parties, we are of opinion that impugned orders of AAC are sound and call for no interference. It is not disputed that Shri C. Jayakannan and Shri G. Parthasarathy contributed capital for becoming partners of firm. It is not case of Department that contribution of capital was illusory. Again, it is also not in dispute that Shri G. Parthasarathy had to bear losses of business. In such situation, it cannot be said that existing partners, namely, Smt. G. Saraswathi Ammal and Shri A.M.S. Guruswamy Nadar, relinquished their shares in goodwill of business in favour of Shri C. Jayakannan and Shri G. Parthsarathy without any consideration. It has been held by Madras High Court in case of A.A. Annamalai Nadar (supra) that contribution of capital, rendering of services and sharing in future liabilities and losses would all constitute consideration for admission of new partners into firm and there would be no question of any gift liable to tax where major and minor sons of partner are admitted into partnership in lieu of capital contributed by them and services rendered by major partners. This authority further lays down that so far as minor partners are concerned, there is no transfer of any assets as such to them so that there could be no gift of any goodwill in their favour. This view has been endorsed by Madras High Court in another case of Ali Hussain M. Jeevaji (supra). It is true that contrary view has been taken by Madras High Court in case of S. Rukmani Ammal (supra), but we would, with respect, follow decision of Madras High Court in A.A. Annamalai Nadar's case (supra) as same has been approved by same High Court in Ali Hussain M. Jeevaji's case (supra). 10 . In light of two authorities of Madras High Court, i.e., A.A. Annamalai Nadar's case (supra) and Ali Hussain M. Jeevaji's case (supra) which squarely cover point at issue before us and which are binding on us, it is not necessary to discuss other authorities cited by learned representative for Department, i.e., Ganapathy Moothan's case (supra) and CGT vs. K.P.S.V. Duraiswami Nadar (1973) 91 ITR 473 (Mad). 1 1 . In view of above discussion, we hold that since both new partners contributed capital and Shri G. Parthasarathy also agreed to bear losses of business, AAC has rightly held that relinquishment of their shares by Smt. G. Saraswathi Ammal and Shri A.M.S. Guruswamy Nadar in favour of their sons did not constitute gifts liable to tax under Act. We, therefore, confirm impugned orders of AAC. 12. In result, appeals are dismissed. *** SECOND GIFT-TAX OFFICER v. SMT. G. SARASWATHI AMMAL