Law:

Section:

Section 2(xii) of the Gift-tax Act, 1958 - Gift - Assessment year 1975-76 - Assessee, a practicising chartered accountant, was carrying on business in partnership with his with brother - Assessee retired from firm after with drawing his capital from firm - Thereafter, a new deed of partnership was executed whereby assessee's mother became partner with certain share and share of assessee's brother was increased - GTO held that assessee had made taxable gift in favour of his mother and brother and worked out amount on basis of value of goodwill of firm - Whether there was no transfer of property from assessee to his mother and brother as goodwill of firm continued to remain that of firm notwithstanding change of partners - Held, yes - Whether, therefore, assessee was not liable to gift tax - Held, yes FACTS The assessee along with five others including the assessee's brother was carrying on business under a partnership. The assessee had a 22 per cent share in the said firm while his brother had a 15 per cent share. As the assessee wanted to be a qualified chartered accountant, he retired from the said firm withdrawing his capital from the firm. A new deed of partnership was executed to carry on business. In the new firm, the assessee's mother became a partner with a 17 per cent share while the share of the assessee brother was increased from 15 per cent to 20 per cent. The GTO held that the assessee had made a taxable gift in favour of his mother and brother and the amount was worked out on the basis of the value of the goodwill of the firm. On appeal, the Commissioner (Appeals) relying upon the decision of the Gujarat High Court in CGT v. Chotalal Mohanlal [1974] 97 ITR 393 , accepted the assessee's contention that he had with drawn his capital from the firm and also that he had to retire from the firm as a practising chartered accountant cannot do any business. The Tribunal dismissed the appeal filed by the revenue. On reference, the revenue submitted that the said decision of the Gujarat High Court had been reversed by the Supreme Court in CGT v.Chhotalal Mohanlal [1987] 166 ITR 124 and, therefore, it must be held that the assessee had made a gift of the…

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