Law:

Section:

Section 4 of the Gift-tax Act, 1958 - Gift to include certain transfers - Assessee was a partner of a firm having one third share - By a deed of reconstitution of said firm assessee was allotted one ninth share out of his earlier one third share and remaining out of said one third shares was distributed between two other partners - GTO treated said distribution of two ninth share as gift by assessee - Order of GTO was reversed by both AAC and Tribunal - Whether when there was distribution of a quantum of share of profit as between its original holder and certain others who were all partners, it involved a transfer of right which had effect of diminishing assessee's interest and correspondingly increasing value of or quantum of shares earlier held by other two partners - Held, yes - Whether therefore distribution by way of re-alignment of one-third share of assessee did involve transfer of property amounting to a gift chargeable to tax - Held, yes FACTS The assessee was a partner of a firm. The firm had nine partners with four minors admitted to the benefit of the partnership. The assessee had a third share in the profits of the firm as well its liabilities. By a deed the firm was reconstituted. By that time, one of the minors having become a major, he was taken as a full-fledged partner and the remaining minors continued to have the benefits of the partnership and the assessee was allotted a one-ninth share out of the one-third share and the balance of two-ninths share was distributed as between two other partners. The Gift-tax Officer treated the distribution of the two-ninths share as a gift, and charged to gift-tax. The AAC did not share that view and held that there was no transfer of any existing right in movable or immovable property because the Gift-tax Officer had valued the distribution of two ninth shares as if it was a part of the goodwill which he could value only at a dissolution of the firm. The Tribunal upheld order of the AAC. On reference : HELD The definition of transfer of property gives a wider scope and content to that phraseology so as to include, inter alia, the grant of partnership or interest in property and also "any transaction…

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