GIFT-TAX OFFICER v. NARAIN DASS
[Citation -1985-LL-0121-6]

Citation 1985-LL-0121-6
Appellant Name GIFT-TAX OFFICER
Respondent Name NARAIN DASS
Court ITAT
Relevant Act Income-tax
Date of Order 21/01/1985
Assessment Year 1979-80
Judgment View Judgment
Keyword Tags adequate consideration • share in goodwill • deemed gift • gift-tax
Bot Summary: On 14th Dec., 1977, Gulab Chand died and Narain Dass retired from the partnership. Arvind Kumar, minor son of Shri Shrikishan was also admitted to the benefits of partnership. The GTO found that Narain Das did not realise his interest in the partnership and as such, the value of the his interest in the partnership business was deemed to be a gift made by him in favour of Smt. Suraj Mukhi and Km. Mamta. According to the GTO, the value of interest of Narain Das in the partnership was to the extent of his 1/4th share in the goodwill of the partnership business. On appeal by the assessee, it was contended before the AAC of GT that virtually Narain Das had no interest in the partnership since at the time of retirement there was a debit balance of Rs. 19,110 to his account and the new partners namely Smt. Suraj Mukhi had a balance of Rs. 30,232 and Km. Mamta had a balance of Rs. 15,133 to their credit in the partnership accounts. Thus, the case put up by the assessee, Narain Das before the AAC was that the new partners were admitted to the partnership for adequate consideration and there was no gift by the assessee in favour of these two partners. The Court observed that unless such questions are determined, it would not be possible to lay down as a general rule that rule that there has been a gift in respect of the goodwill whenever a firm is reconstituted as a result of which minors are admitted to the benefits of the partnership and the share in goodwill of the one of the partners is reduced and the same is pro rate given to the minors who are so admitted to the benefits of the partnership.


firm, M/s Mahadeo Prasad Narain Das originally consisted of four partners namely Narain Das, his son, Om Prakash, his brother, Gulab Chand and Gulab Chand s son, Uma Shanker. On 14th Dec., 1977, Gulab Chand died and Narain Dass retired from partnership. partnership was thereafter re- constituted on 15th Dec., 1977, which consisted of Om Prakash and Uma Shanker and two new partner Smt. Suraj Mukhi, wife of Laxmi Narain and Km. Mamta, daughter of Om Prakash. Arvind Kumar, minor son of Shri Shrikishan was also admitted to benefits of partnership. GTO found that Narain Das did not realise his interest in partnership and as such, value of his interest in partnership business was deemed to be gift made by him in favour of Smt. Suraj Mukhi and Km. Mamta. According to GTO, value of interest of Narain Das in partnership was to extent of his 1/4th share in goodwill of partnership business. Value of goodwill was determined by him and as such 25 per cent thereof was taxed. On appeal by assessee, it was contended before AAC of GT that virtually Narain Das had no interest in partnership since at time of retirement there was debit balance of Rs. 19,110 to his account and new partners namely Smt. Suraj Mukhi had balance of Rs. 30,232 and Km. Mamta had balance of Rs. 15,133 to their credit in partnership accounts. It was also contended that these two newly admitted partners had also brought fresh capital of Rs. 35,325 and Rs. 8,250 respectively in firm during that year. Thus, case put up by assessee, Narain Das before AAC was that new partners were admitted to partnership for adequate consideration and there was no gift by assessee in favour of these two partners. Alternatively, it was also contended that only interest of assessee in partnership was right to share future profits which could not be called property. On consideration of these submissions, AAC reached conclusion that there was no gift. gift-tax assessment was, therefore, cancelled. Hence Department is in appeal. ld. Departmental Representative placed reliance upon assessment order, whereas on other hand, ld. Representative for assessee reiterated contentions raised before AAC. issue involved in this appeal is squarely covered by judgment of t h e Hon ble Madhya Pradesh High Court in case of Manak Lal Motilal Agarwal vs. CGT (1984) 147 ITR 670 (MP) in which case laws referred to by parties before AAC and case of CGT vs. Premji Trikamji (1982) 133 ITR 317 (Bom) relied upon by Departmental Representative have been discussed is, therefore, not necessary to dilate arguments advanced by respective representatives of parties. Madhya Pradesh High Court, which referred to case of CGT vs. Premji Trikamji (supra) mentioned as under: "The Court observed that no ascertain whether there is gift by assessee of goodwill and assets of firm or not will depend upon determination of two questions viz. (i) whether value of assets of earlier firm including goodwill exceeds total liability of earlier firm and (ii) whether incoming partner or minor who has been admitted to benefit of firm has brought any capital. Court observed that unless such questions are determined, it would not be possible to lay down as general rule that rule that there has been gift in respect of goodwill whenever firm is reconstituted as result of which minors are admitted to benefits of partnership and share in goodwill of one of partners is reduced and same is pro rate given to minors who are so admitted to benefits of partnership." Hon ble High Court also observed that unless it was found that alleged abandonment of interest by assessee in assets of firm was higher in value than liabilities of firm, there could not be any gift or deemed gift within meaning of GT Act. Respectfully following observations of Hon ble High Court, we set aside order of AAC of GT and refer case back to GTO for enquiry into further facts, as noted above in observations of Hon ble Court of Madhya Pradesh. In result, appeal is allowed for statistical purposes. *** GIFT-TAX OFFICER v. NARAIN DASS
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