Law:

Section:

Section 4(1)(c) of the Gift-tax Act, 1958 - Deemed gift - Both assessees were partners in a firm in capacity of kartas of respective HUFs - On retirement of assessees, minor children of assessees were introduced as partners - Share of income earned by assessees prior to retirement was shown in books in accounting year after retirement - Whether relinquishment of respective shares by assessees was a gift within meaning of section 4(1)(c) - Held, yes FACTS The assessees were partners in a firm in the capacity of the kartas of respective HUFs. The assessees retired and the minor children of the assessees were introduced into the firm as minor partners. The sum earned by the firm during the period, when the assessees were in the firm as partners, was not shown in the books in the same accounting year. However, in the next accounting year, the sum was shown in the profit and loss account. The GTO was of the opinion that the retiring partners had rights over the said sum to the extent of their partnership share. According to the GTO, these two retiring partners relinquished their rights over the said sum of money and they passed on to the others. He held that the instant case was a case of gift; although, it was not a case of an ordinary direct gift with a donor and a donee ascertained, yet it was a case of deemed gift coming within the ambit of section 4(1)(c). On appeal, the Commissioner (Appeals) set aside the order of the GTO. On second appeal, the Tribunal confirmed the order of the Commissioner (Appeals). HELD The relinquishment of the rights of the two retiring partners in respect of their shares was certainly a gift within the meaning of section 4(1)(c ), since the said sum was not even entered into the books of account and it happened to droop in there in the next year. Had the sum been in the books of account, the case of gift would be undeniable. Because of the sums not being in the books on 31-3-1972, the position of the assessees could not improve, nor could they benefit from their own wrong. Had the sum been in the books, the giving up of sum without any consideration to the partners would be gift even in the direct sense of the term. The definitions of…

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