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Section 2(xii) of the gift-tax act, 1958-Gift-Assignment of part share of partner to his son as new partner on reconstitution of firm-Whether it entailed transfer of his right to his son resulting in gift liable to gift-tax-Held, on facts, no Facts A firm, consisting of four partners (G, A, H and F), was carrying on business in its head office and two branches. By a release deed dated 4-5-1959, two branches were taken over by two partners F and H who retired from the firm after relinquishing their rights and interest therein. Thereafter, the remaining two partners G and A took their two respective sons as partners and each partner was allotted one-fourth each. The partners G and A, in the reconstituted firm, filed their gift-tax returns admitting a sum of Rs. 11,520 each as the gift representing the value of the interest transferred to their respective sons. Later, both disputed the liability to gift-tax, contending that taking their sons as partners did not result in any gift. The GTO rejected their contentions and computed the value of the gift at Rs. 62,940 (being three times the average profit of five years) each. In appeal, the AAC sustained the assessment, holding (i ) that the right of a partner to share the firm's profits (like assets) was also a "property" capable of transfer at least as between partners by common consent; and (ii) that even redistribution of share by way of its realignment would effectuate diminution of the old partner's interest. In appeal, while the Tribunal did not accept the assessee's contention that there was no "transfer" of the share in favour of their sons, it concluded that the transfer was for consideration, inter alia, inasmuch as the sons had to attend to the firm's business and were liable to share future losses also. Hence, it held that there was no gift liable to gift-tax. On reference : Held 1. The partnership itself is a specie of contract and the arrangement between the partners could always be looked into to find out as to what is the result of the transaction and whether there was gratuitous admission of new partners. The consideration need not flow into the hands of the person whose share in the partnership gets…

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