Law:

Section:

Section 2(xii) of the Gift-tax Act, 1958 - Gifts - Assessee was a partner in a firm which was engaged in transporting goods for I.P. Ltd. - Pursuant to induction of a new partner and allotment of shares to him, assessee's share was reduced from 50 per cent to 20 per cent - Tribunal found that firm had not done any other business, nor had it transported goods for any other parties - By connection and reputation of firm, it was able to get work from I.P. Ltd. every year without any interruption starting from year of constitution of firm - Tribunal concluded that firm had goodwill and there was a gift exigible to tax to extent of reduction of share capital from 50 per cent to 20 per cent - Whether finding entered by Tribunal was essentially a finding of fact which could not be said to be perverse - Held, yes - Whether, therefore, surrender of share by assessee was liable to gift-tax - Held, yes FACTS The assessee was a partner in a firm with 50 per cent share of the profits therein. The said firm was reconstituted by which a new partner was admitted to the benefits of the partnership firm. As a result of the said reconstitution, the assessee's share in the firm got reduced from 50 per cent to 20 per cent. Pursuant to a notice under section 16, the assessee submitted that the firm was engaged in the transporting contract with I.P. Ltd. which was being renewed year after year in such a way that there was no certainty that the business would continue for the next year and, as such, there was no gift of goodwill involved in the transaction. The Assessing Officer rejected that contention and held that in every business there will be a goodwill, however small the volume of business, conducted by the assessee. On appeal, the first appellate authority accepted the assessee's contention that there was no goodwill in the case of a condi-tional contract. However, on department's appeal, the Tribunal observed that right from its constitution, the firm had not done any other business, nor had it transported goods for any other parties. The firm continued the business without interruption. I.P. Ltd. had entrusted with the transporting work with that firm only. There was nothing…

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