Radhey Lal Agrawal v. Gift-tax Officer
[Citation -1984-LL-1001-1]

Citation 1984-LL-1001-1
Appellant Name Radhey Lal Agrawal
Respondent Name Gift-tax Officer
Court ITAT-Delhi
Relevant Act Gift-tax
Date of Order 01/10/1984
Judgment View Judgment
Keyword Tags new partnership deed • profit-sharing ratio • deemed gift • legal heir • gift-tax
Bot Summary: Witheffect from 16-8-1974, the constitution of the partnership underwent a changeand the firm stood constituted by as many as eight partners as per theparticulars below: 1. According to the GTO, there resulted deemed gifts on the part of Radhey Lal and Pooranmal, whentheir erstwhile shares, held to the extent of 25 per cent each, were reduced tofive per cent and ten per cent only. In order to determine the value of the deemed gift on the part of thedonors, the GTO worked out the goodwill of the firm named ChhedilalPhoolchand at Rs. 3,76,420. In the case of Shri Radhey Lal, the valueof the deemed gift was determined at Rs. 78,225 and subjected to gift-tax bythe GTO. The assessees felt dissatisfied by the orders of the GTO in theirrespective cases and appeals had been preferred before the AAC. Thelatter concurred with the orders of the GTO and upheld the leviabilityof the gift-tax as well as the quantum of gift determined in the two cases. In any case, it is the case of the appellants that since nogoodwill of the firm belonged to either Radhey Lal orto late Pooranmal, there was no question of theirbeing deemed gifts on surrender of goodwills by theabove-named two partners when their shares in re- constituted firm were partlydiminished on account of the admission of their sons to the partnership. On the other hand the learneddepartmental representative has taken us through the orders of the GTO and theAAC and contended that there in fact had resulted deemed gifts in accordancewith the provisions of section 4 of the Act, when RadheyLal and Pooranmal had parted their shares of goodwillin the firm in favour of their sons on the re-constitution of the firm madewith effect from 16-8-1974. Similarly once again the new deed dated 31-8-1974 clearlyprovides in clause 9 that the goodwill of the firm was to belong to only Smt.Rami Bai and Madan Lal tothe exclusion of the firm, did not belong either to RadheyLal or to late Pooranmal, there was no question ofholding that there had been surrender of goodwill on their part when theyagreed to reduction of their profit-sharing ratio on admission of their sonsinto partnership.


DELHI D BENCH RADHEY LAL v. GIFT-TAX OFFICER AGRAWAL October 1, 1984 JUDGMENT PerGupta - captioned appeals, under Gift-tax Act, 1958 ('the Act')filed by above named two assessees, namely, Shri RadheyLal Agrawal and Smt. DhapooBai, raised identical contention and, therefore,these may be conveniently consolidated and disposed of by common order. 2.Before adjudicating upon grounds raised, we maybriefly state relevant facts which are common to both appeals. firmnamed Chhedilal Phoolchand,Lashkar, Gwalior, came into existence on 6-9-1957consisting of four partners, namely, Madanlal, Rami Bai, Radhey Lal and Pooranmal, each holding 25 per cent share for carrying onthe agency business of Jiyajee Rao Cotton Mills. Witheffect from 16-8-1974, constitution of partnership underwent changeand firm stood constituted by as many as eight partners as per theparticulars below: 1. Radhey 5 per Lal cent 2. Nand 5 per s/o Radhey Lal Kishore cent 3. Ashok 15 s/o Radhey Lal Kumar per cent 4. Pooranmal 10 per cent 5. Giriraj 15 s/o Pooranmal Kishore per cent 6. Madan Lal 10 per cent 7. Bal 15 Krishan per cent 8. Smt. Rami 25 Bai per cent Thenew constitution of partnership was evidenced by partnership deed dated31-8-1974. According to GTO, there resulted deemed gifts on part of Radhey Lal and Pooranmal, whentheir erstwhile shares, held to extent of 25 per cent each, were reduced tofive per cent and ten per cent only. GTO was of view that when Radhey Lal parted with 20 per cent of his share in favourof his sons, Nand Kishore and Ashok Kumar, who were allotted five per cent and 15 per cent shares,respectively, there occurred deemed gift on part of RadheyLal. Similarly, according to GTO Poornmal alsobecame liable to gift-tax on account of deemed gift when he parted with 15 percent of his shares in favour of his son, GirirajKishore. In order to determine value of deemed gift on part of thedonors, GTO worked out goodwill of firm named ChhedilalPhoolchand at Rs. 3,76,420.On this basis quantum of gift, made by Shri Pooranmalbeing his share in goodwill of firm which had been surrendered by himin favour of his son Giriraj Kishore,was determined at Rs. 56,463. Since Pooranmal haddied by time gift-tax proceedings had been initiated, assessment of thegift of Rs. 56,463 had been made on Smt. Dhapoo Bai, legal heir of late Pooranmal.Similarly, in case of Shri Radhey Lal, valueof deemed gift was determined at Rs. 78,225 and subjected to gift-tax bythe GTO. assessees felt dissatisfied by orders of GTO in theirrespective cases and, therefore, appeals had been preferred before AAC. Thelatter concurred with orders of GTO and upheld leviabilityof gift-tax as well as quantum of gift determined in two cases. 3.It is in background of these facts that assessees are in appealcontending that there were no deemed gifts, when constitution of firmnamed Chhedilal Phoolchandunderwent change which was in course of business and for bettermentof business. In any case, it is case of appellants that since nogoodwill of firm belonged to either Radhey Lal orto late Pooranmal, there was no question of theirbeing deemed gifts on surrender of goodwills by theabove-named two partners when their shares in re- constituted firm were partlydiminished on account of admission of their sons to partnership. 4.It is also contended by learned advocate of appellant that when Nand Kishore and Ashok Kumar, sons of RadheyLal, and Giriraj Kishore, son of Pooranmal,were taken as partners, it was case of bona fide admission of newpartners in order to improve business which had received set back couple of years back when synthetic clothagency of Jiyajee Rao Cotton Cloth only. learnedcounsel also points out that fact that new partners had brought insubstantial capitals amounting to nearly Rs. 1,10,000also was indicative of bona fide arrangement which had been made bythe firm for improvement of its business. On other hand learneddepartmental representative has taken us through orders of GTO and theAAC and contended that there in fact had resulted deemed gifts in accordancewith provisions of section 4 of Act, when RadheyLal and Pooranmal had parted their shares of goodwillin firm in favour of their sons on re-constitution of firm madewith effect from 16-8-1974. 5.We have considered rival submissions. First of all we find, on perusal ofthe deeds of partnership dated 6-9-1957 and 31-8-1974, that property in theform of goodwill was to belong only to partners MadanLal and Smt. Rami Bai, whose HUF had initially set upthe business in name and style of Chhedilal Phoolchand, is clearly provided in clause 11 of deeddated 6-9-1957, that Radhey Lal and Smt. Rami Bai alone were owners of goodwill and that Radhey Lal and Pooranmal had norights therein. Similarly once again new deed dated 31-8-1974 clearlyprovides in clause 9 that goodwill of firm was to belong to only Smt.Rami Bai and Madan Lal tothe exclusion of firm, did not belong either to RadheyLal or to late Pooranmal, there was no question ofholding that there had been surrender of goodwill on their part when theyagreed to reduction of their profit-sharing ratio on admission of their sonsinto partnership. Secondly, we also find that it is provided in preamble ofthe new partnership deed dated 31-8-1974 that new partners were beingbrought in and constitution of firm was being changed in order toimprove business. fact that new partners had brought capital ofover Rs. 1 lakh also shows that constitution of firm was allowed achange only with view to carrying on of business in better manner.These circumstances clearly bring cases of two assessees within theexemption allowed under provisions of section 5(1)(xiv ) of Act. 6.For foregoing reasons, we hold that no gift-tax was chargeable from eitherof two appellants. Their appeals are, accordingly, allowed. *** Radhey Lal Agrawal v. Gift-tax Officer
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