T. V.K. NATARAJA CHANDRAN, A. M.- In this appeal by assessee issue involved is whether or not AAC is justified in upholding order of GTO holding that assessee was liable of gift-tax on surrender of 27per cent of her share of profits in favour of other partners on account of reconstitution of firm. relevant facts in brief are that assessee, individual, is partner in firm of M/s Diesel Engineers. Madras, holding 67per cent share therein alongwith another partner Shri Mahendra R. Patal holding share of 33per cent This partnership is evidenced by deed partnership dt. 3rd Now., 1967. There was change in constitution of firm by which one Shri Rasiklal D Patel was admitted as third partner which is evidenced by deed of partnership dt. 1st April, 1974. As per this deed shares of assessee, Shri mahendra R. Patel and Rsaiklal D, Patel were 40per cent, 40per cent and 20per cent respectively. According to GTO surrender of shares of 27per cent in favour of other two partners should be deemed to be gift in terms of s. 4(c) of GT Act and he has determined value thereof at Rs. 70,000 roundly on basis of super profit earned in past five years after adjusting interest on capital and remuneration. This amount was brought to tax by GTO. On appeal AAC relying on decision of Madras High Court in case of CGT vs. Ayya Nadar (1969) 73 ITR 761 (mad) holding that reduction of share of profit in re-allignment between partners involved transfer of property amounting to gift chargeable to tax, upheld order of GTO and dismissed appeal. ld. Representative of assessee reiterated grounds taken in this case and submitted that AAC erred in his decision in upholding levy of gift-tax as there was adequate consideration for surrender of share made by assessee in favour of other two partners. In this connection he pointed out that partner Rasiklal Patel contributed capital of Rs. 20,000 when he was admitted into partnership. Similarly partner Mahendra Patel contributed capital of Rs. 40,000 Both these partners are working partners and in fact partner Rasiklal Patel is M. Sc. in Electronics and he could handle testing instruments such as Ammeter, Micrometer, Hardness Test Meter, etc. in order to ensure that products of assessee conformed to ISI standard. They also agreed to share losses of firm in same ratio of their respective share of profits. On facts and circumstances of case ld. Representative assessee submitted that there was sufficient consideration for surrender of share by assessee in favour of other two partners and thus facts of he case squarely fall within ratio of Madrs High Court decision in case of CGT vs. Ali Hussain M. Jivaji and Another (1980) 123 ITR 420 (Mad). Reliance was also placed on decision of Tribunal C-Bench, Madras in case of Second GTO vs. Smt. G Saraswathi Ammal (1984) 10 ITD 198 (Mad) wherein in similar circumstances, following decision of Madras High Court in CGT vs. Ayya Nadar (1969) 123 ITR 420 (Mad), Tribunal held that relinquishment of share in favour of new partners did not constitute gift liable to tax. ld. Departmental Representative refaced his submission stating that there could be no quarrel over proposition laid down by Madras High Court in case of Ali Hussain M. Jivaju and Another (1980) 123 ITR 420 (Mad) (supra) but according to him decision in each case spins on facts of that case. According to him case of assessee was distinguishable. His contention was that assesse relied on decision of Madras High Court in case of CIT vs. K. Rathnam Nadar (1969) 71 ITR 433 (Mad) before GTO and that case was not at all relevant to issue in this appeal inasmuch as that case was concerned with question of capital gains arising on transfer of good will of firm. Even before AAC assessee has taken same argument which was also not relevant further incoming partner Shri Rasiklal Patel was master in electronics which was different line altogether from line of diesel engines manufactured by assessee. Therefore his induction into partnership was only contrivance or device to reduce tax liability. deed of partnership also did not reveal any agreement to effect that partners were taken for purpose of increasing capital contribution or to acquire expertise in line of business and therefore motive for taking new partners was not borne out. In course of argument great stress was made by him on para 10 of he deed of partnership dt. 1st April, 1974 which reads as under: "10. Any partner may retire from partnership at any time by giving partner not less than one calendar month s notice in writing of his or her intention to do so. partner retiring as aforesaid shall be entitled to be paid by other partners within six months of his or her account in books of firm on date of retirement together with his or her share of profits if any till date but shall not be entitled to any share in assets or goodwill of he firm. According to him partner retiring from partnership was entitled to be paid not only his capital and his share of profit and this showed that agreement to share profits or loss of business by incoming partners was not bona fide and true. therefore agreement to share loss of partnership which was in nature of executor contract was not fulfilled when retiring partner walked away with his share of capital and share of profit. Therefore, he urged that gift-tax was property levied and accordingly supported order of AAC. In reply ld. counsel for assessee submitted that Madras High Court in case of Ali Hussain M. Jivaji (supra) at page 426 has clearly held that mere contribution of capital would be enough to take case out of category of gift unless facts established it that contribution of capital was illusory. We have duly considered rival contentions and facts of he case. At outset we have to observe that authorities have proceeded on basis that there was no consideration at all for he there was no consideration at all for he surrender of share of 27per cent by assessee in favour of he other two partners and they decided issue purely on basis of earlier decision of Madras High Court in case of CGT vs. Ayya Nadar (1969) 73 ITR 761 (Mad) wherein it has been held that redistribution of shares of profits between partners involved transfer of right which had effect of diminishing partners interest and corresponding increase in value of share held by other partners and amounted to gift chargeable to gift-tax. there is no quarredl over ruling laid down by Madras High Court in case of Ayya Nadar (supra). In leter decision of Madras High Court in case of M.K. Kuppuraj vs. CGT (1985) 153 ITR 481 (mad) same view has been reiterated and followed wherein partner has surrendered 8per cent of his share of profit in favour of four minor sons who were admitted to benefits of partnership and Court held that transaction amounted to gift, as there was no consideration at all, for admission of minors. As has been stated earlier, learned Departmental Representative prefaced his argument by conceding principles laid down by Madras High Court in case of Ali Hussain M. Jivaji cited supra. In that case two of partners relinquished 50per cent of their shares in favour of their sons but there was consideration therefor and hence there was no gift attracting liability to gift-tax. High Court held that contribution of capital, rendering of service, sharing future liabilities or losses of firm would all constitute consideration for admission of new partners into firm. Applying principles laid down by Madras High Court in case of Ali Hussain M. Jivaji to assessee s case. we are satisfied that tests have all been complied with. There is no dispute over fact that partners have contributed capital. They had agreed ot share losses of firm and also rendered services. madras High Court has duly noted its earlier decision in case of Ayya Nadar, cited supra, but held that there was no liability to gift- tax. Therefore, we are of view that AAC was not justified in sustaining levy of gift-tax made by GTO. We shall now refer to arguments of ld. Departmental Representative. In course of hearing, he admitted. despite his argument that admission of partners was nothing but contrivance or device, that firm is genuine or otherwise, question of subjecting assessee to gift-tax o n surrender of share would not arise. In face of this admission other arguments were of insignificance. perusal of Para 10 of deed of partner ship which has been relied upon by learned Departmental Representative shows that any partner can retire from partnership at any time as partnership is one at Will and atleast one calendar months notice in writing is required in this regard. As per this clause retiring partners is to be paid his capital and also his share of profits, if any. In our view words profits, if any are of significance which denotes that only if business results in profits, retiring partners would be entitled to it and not otherwise. Further amount was to be paid within six months of date of retirement. Therefore within period of six months whatever be profits or losses upto date of retirement were bound to be accounted for and adjusted before retiring partner was paid off. clause applies equally to assessee who was ex-propritrix and, therefore, provisions of this clause are genuine and meant to be applied for all he partners of firm therefore, there is no warrant for contention of learned Departmental Representative that retiring partner could walk away with his share of profit till date of retirement. Further clause 5 of deed of partnership narrates total capital of firm and actual amount contributed by partners and, therefore, there was no need for agreement to contribute capital as consideration for admission of new partners. Tribunal in case of Smt. G. Sarawathi Ammal (1984) 10 ITD 198 (Mad) cited supra in similar circumstances held likewise by relying on decision of Madras High Court in case of Ali Hussain M. Jivaji after duly noting earlier decision of he Madras High Court in case of Ayya Nadar, cited supra. Even decision of Madras High Court in case of M.K. Kuppuraj, cited supra is not applicable to assessee s case, as we have pointed out earlier there is not only consideration but also adequate consideration. In this view of matte we set aside order of AAC and GTO and direct that transaction in this case was not liable to gift-tax as there was not only consideration but also adequate consideration. In result appeal is allowed. *** SMT. LAXMIBEN PATEL v. GIFT TAX OFFICER