Law:

Section:

Section 2(xxii) of the Gift-tax Act, 1958 - Gift - Assessee was partner in a firm and during relevant year one partner retired and another was taken in as well as two minor sons of assessee were admitted to benefits of partnership as a consequence of which assessee's share in firm was reduced - Whether there was gift by assessee in respect of goodwill - Held, yes Facts The assessee was partner in a firm along with two other partners with a 7 annas share. The remaining two partners G and P had 4 annas and 5 annas shares each. During the assessment year 1963-64, P retired and in his place one R became a partner with a 4 annas share. Though G's share in the firm remained the same, the assessee's share was reduce to 4 annas. For the remaining 4 annas two minor sons of the assessee K and D were admitted to the benefits of the firm-K having 12 per cent and D having 13 per cent. No alteration was, however, made regarding the share capital standing in the name of the assessee. The GTO came to the conclusion that the assessee had deprived himself - of 19 per cent share in the profits and had gifted away 19 per cent share in the goodwill of the firm in favour of this two minor sons. He valued the goodwill and treated 19 per cent thereof as taxable gift. The Tribunal held that the situation did not give rise to any gift which could be made liable to tax under the Act. The High Court upheld the Tribunal's view. On appeal: Held Once goodwill is taken to be property and with the admission of the two minors to the benefits of partnership in respect of a fixed share, the right to the money value of the goodwill stands transferred, the transaction does constitute a gift under the Act. Since there had been no dispute about valuation of the goodwill as made by the GTO with the conclusion that there had been a gift in respect of a part of the goodwill, it constituted a gift under the Act. Decision of the Gujarat High Court reversed. M.K. Kuppuraj v. CGT [1985] 153 ITR 481 (Mad.), Sirehmal Nawalkha v. CIT [1985] 156 ITR 714 (Raj.) and CGT v. Premji Trikamji Jobanputra [1982] 133 ITR 317 (Bom.) approved. Cases referred to Khushal Khemgar Shah v. Khorshed Banu Dadiba Boatwalla AIR…

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