S. GOPALAKRISHNA PAI v. GIFT TAX OFFICER
[Citation -1985-LL-0807-3]

Citation 1985-LL-0807-3
Appellant Name S. GOPALAKRISHNA PAI
Respondent Name GIFT TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 07/08/1985
Judgment View Judgment
Keyword Tags contribution of capital • adequate consideration • capital contribution • working partner • gift-tax
Bot Summary: Counsel for the assessee kly urged that the assessee s son Sri Rameshkumar Pai had contributed capital and was also taken as a working partner. The assessee s son, namely Sri Rameshkumar Pai has contributed capital for taking him as a partner from 1st April 1979. Since the new partner had contributed capital and was also a working partner, there was adequate consideration for taking him as a partner. In TIR No. 269 of 1979 in the case of CGT vs. V. M. Philip, the Kerala High Court vide its judgment dt 1st Aug. 1984 held that contribution of capital by the incoming partner is adequate consideration and there is no gift. In D. C. Shah Others vs. CGT 134 ITR 492 the Karnataka High Court held that when there is capital contribution that would be adequate consideration for being inducted as a partner. 28th June, 1985 after referring to the entire case law held that the contribution of capital by the incoming partner was adequate consideration and no gift was involved. In our view, since the incoming partner Sri.Ramesh Kumar Pai was contributed capital and also is a working partner, there is adequate consideration and no gift is involved.


assessee was partner in firm of M/s. V. Krishna Prabhu having 50 per cent share. On reconstitution of firm w.e.f. 1st April 1979, his son Sri Rameshkumar Pai was admitted as partner with 20 per cent share. Thus assessee s share was reduced to 30 per cent as his son was given 20 per cent share. GTO held that assessee had foregone 20 per cent of his profit sharing rights without adequate consideration in favour of his son and this is reliable to be taxed under GT Act. He determined that value of gift at Rs. 54,977. On appeal AAC upheld same. ld. counsel for assessee kly urged that assessee s son Sri Rameshkumar Pai had contributed capital and was also taken as working partner. Hence, there was adequate consideration and no gift was involved. Thus gift-tax order should be cancelled. ld. Departmental Representative supported orders of lower authorities. We have considered rival submission. assessee s son, namely Sri Rameshkumar Pai has contributed capital for taking him as partner from 1st April 1979. He was also working partner attending to office work and general administration as seen from partnership deed. Since new partner had contributed capital and was also working partner, there was adequate consideration for taking him as partner. Thus, there was no gift involve. In TIR No. 269 of 1979 in case of CGT vs. V. M. Philip, Kerala High Court vide its judgment dt 1st Aug. 1984 held that contribution of capital by incoming partner is adequate consideration and there is no gift. In D. C. Shah & Others vs. CGT (1982) 134 ITR 492 (Kar) Karnataka High Court held that when there is capital contribution that would be adequate consideration for being inducted as partner. This Bench of Tribunal in GTA No. 11 (Coch)/1983 dt. 28th June, 1985 after referring to entire case law held that contribution of capital by incoming partner was adequate consideration and no gift was involved. Similar view has been taken by this Bench in GTA No. 24 (Coch)/1983 dt. 9th April, 1985. This decision of Kerala High Court in CGT vs. Ganapathu Moothan (1972) 84 ITR 758 (Ker) relied on by Departmental Representative is distinguishable as that is case relating tothe gift o goodwill and also claim of exemption under s. 5(1) (xiv) which is not position in instant case before us. decision in M. K. Kuppuraj vs. CGT (1984) 38 CTR (Mad) 314: (1985) 153 ITR (Mad) 481, relied on by Departmental Representative is clearly distinguishable as in that case father relinquished his right for future profits by 8% and conferring benefit in favour of minors to extent of 8 per cent who are were admitted to benefits of partnership. In that case there was no contribution of capital by minors who were admitted to benefit of partnership Hence that case is distinguishable. In our view, since incoming partner Sri.Ramesh Kumar Pai was contributed capital and also is working partner, there is adequate consideration and no gift is involved. We cancel gift tax assessment order. In result, appeal is allowed. *** S. GOPALAKRISHNA PAI v. GIFT TAX OFFICER
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