Law:

Section:

Section 2(xii) of the Gift-tax Act, 1958 – Gift – Assessee were partners in a firm – Partnership was reconstituted by which brother and sons of assessee were taken in as partners and consequently shares of assessee in partnership were reduced – In partnership deed it was stated that new partners were being taken for purpose of expansion of business and for purpose of getting fresh financial resources – Tribunal held that in circumstances, relinquishment or transfer of assessee's share in partnership in favour of new partners was not without consideration in money or money's worth and, therefore, there was no gift by assessee and hence there was no liability to gift-tax – Whether finding of Tribunal was borne out by materials and hence was justified – Held, yes FACTS The assessees were partners in a firm. The partnership was reconstituted by which the four sons of one and the brother and the two sons of the other were taken in as partners. As a result of the reconstruction of the firm, the share of original partners was reduced. The GTO considered that the reduction in the share of the respective assessees was liable to be taxed under the Act. He, therefore, estimated the gifts and assessed it to tax. On appeal, the AAC held that the admission of the new partners was to effectively supervise and control the business of the firm which had a number of branches in various places and that considering the expansion of the business, the introduction of the new partners was solely for the purpose of the business. He, therefore, allowed the appeals considering the respective transactions to be exempt under section 5(1)(xiv). On appeal by the revenue, the Tribunal held that after the reconstruction of the partnership, by admitting the assessee's sons as partners the number of branches had increased; that the sons of the assessee, who were newly admitted to the partnership, attended to the business of the firm and they shares in the liabilities of the firm and the future losses. The Tribunal held that in the circumstances, the relinquishment or transfer of the assessee's share in the partnership in favour of his sons was not without consideration in money or money's worth…

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