Law:

Section:

Section 2 (xii)/(xxiv) of the Gift-tax Act, 1958 - Gift - Assessment year 1962-63 - Assessee was partner in a firm - Firm was reconstituted whereby third partner joined firm and assessee's minor sons were admitted to benefit of partnership - On such reconstitution assessee's share was reduced by 20 per cent to confer, inter alia, rights upon his minor sons - Further, reconstituted firm had taken over not only assets of erstwhile firm but also liabilities thereof - Whether in above circumstances, if value of assets except goodwill did not exceed liabilities of erstwhile firm, and if there was any capital contribution by or on behalf of minors admitted to benefits of partnership, there could be no gift in respect of goodwill - Held, yes - Whether if neither of those two ingredients was present, then so for as assessee was concerned, by reason of reconstitution there was a gift by assessee of 20 per cent share in goodwill in favour of his minor sons and value to be put on such 20 per cent of goodwill would depend upon facts of case which might be determined having regard to state of accounts of partnership - Held, yes FACTS On reconstitution of firm in which assessee was partner, another person joined as the third partner from 16-2-1961 and from same date minor sons of assessee were admitted to the benefits of the partnership upon the terms and conditions contained in the said instrument. On such reconstitution, assessee's share was reduced. For the relevant assessment year, the assessee filed his gift-tax return wherein he firstly showed a sum of Rs. 26,000 as a cash gift to his minor son and also included in his return a sum of Rs. 7,500 as the value of the goodwill he gifted to his minor sons, who were admitted to the benefits of the partnership. The GTO computed the quantum of the gift at Rs. 69,184. On appeal, the AAC, however, enhanced the value of the gift to Rs. 93,398. On further appeal by the assessee, the Tribunal took the view that no gift was made by the assessee to his minor sons by admitting them to the benefits of the partnership. Firstly, it held that the admission of the minors was by a voluntary act of the three major partners and not by an…

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