Law:

Section:

Section 2(xii) of the Gift-tax Act, 1958 - Gift - Assessment year 1975-76 - Assessee gifted certain amounts to his minor sons which they invested in firm in which assessee was partner - Firm was reconstituted and assessee's share was reduced - Whether capital contributed by minors should be treated as consideration for gift of interest surrendered by assessee in their favour - Held, yes FACTS The assessee was partner in a firm. On 1-1-1974, he gifted Rs. 2,500 to each of his four minor sons. Prior to 1-1-1974, the assessee's share in the partnership firm was 25 per cent. On 1-1-1974, the four minor sons of the assessee were admitted to the benefits of the partnership by a deed. According to which the four minor sons were together allotted 20 per cent share in the profits of the firm while the assessee's share in the firm was reduced to 5 per cent. While completing the assessment, the GTO considered that the assessee had surrendered 20 per cent of his interest in the firm with effect from 1-1-1974, and such surrender amounted to a gift. He worked out the goodwill of the firm and 20 per cent of the same, was treated as the proportionate value of the goodwill transferred by the assessee in favour of his four minor sons. Adding this to the cash gift of Rs. 10,000 and allowing the deduction under section 5(2), the taxable gift was fixed. On appeal, the AAC reduced the value of the goodwill assessed by the GTO. On further, appeal, the Tribunal, considered the fact that the capital contribution of Rs. 10,000 made by the minors came as withdrawal from the capital account of the assessee in the firm and held that it was to be treated as consideration for the transfer and held that this amount should be adjusted against the value of the property transferred on admission of the minors to the benefits of the partnerships. On reference : HELD The finding of the Tribunal had not been challenged. There was a reconstitution of the firm on 1-1-1974, whereby two new partners in addition to four minor sons of the assessee were admitted. Before the reconstitution, the assessee was entitled to 25 per cent, in the partnership. It was reduced to 5 per cent, after the reconstitution.…

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