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Commissioner of Gift-tax, Bombay City-ii Vs. Premji Trikamji Jobanputra - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberGift-tax Reference No. 1 of 1969
Judge
Reported in[1982]133ITR317(Bom)
ActsGift Tax Act, 1958 - Sections 2
AppellantCommissioner of Gift-tax, Bombay City-ii
RespondentPremji Trikamji Jobanputra
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateC.B. Mehta, Adv.
Excerpt:
direct taxation - goodwill - section 2 of gift tax act, 1958 - goodwill transferred by adult partner in favour of minor sons on their admission to benefits of partnership - in case value of assets except goodwill does not exceed liabilities of erstwhile firm then no case of gift in respect of goodwill - in case there is any capital contribution by or on behalf of minors then there can be no gift in respect of goodwill - where neither of these ingredients are present it can be said that no gift was made in respect of goodwill. - - (1) shri amritlal premchand sheth 0.20(2) shri premji trikumji jobanputra 0.30(3) shri manubhai amritlal sheth 0.10minors admitted to benefits of partnership :(4) manharlal premji jobanputra 0.15(5) arvind premji jobanputra 0.15(6) pankaj amritlal sheth.....kantawala, c.j.1. at the instance of the revenue, the following question has been referred to us for our determination : 'whether, on the facts and in the circumstances of the case, and particularly having regard to the fact that the assessee himself had estimated the value of the goodwill transferred at rs. 22,500, the tribunal had materials before it and was justified in holding in law that the assessee had, at no stage, the ownership of any particular portion of the goodwill which could be assigned to his minor sons and which would attract gift-tax in the material year ?' 2. premji trikamji jobanputra, the assessee, started business in cloth in the name of m/s. m. premji & co. in or about the year 1946 as a sole proprietor thereof. after commencement of the business from time to time.....
Judgment:

Kantawala, C.J.

1. At the instance of the revenue, the following question has been referred to us for our determination :

'Whether, on the facts and in the circumstances of the case, and particularly having regard to the fact that the assessee himself had estimated the value of the goodwill transferred at Rs. 22,500, the Tribunal had materials before it and was justified in holding in law that the assessee had, at no stage, the ownership of any particular portion of the goodwill which could be assigned to his minor sons and which would attract gift-tax in the material year ?'

2. Premji Trikamji Jobanputra, the assessee, started business in cloth in the name of M/s. M. Premji & Co. in or about the year 1946 as a sole proprietor thereof. After commencement of the business from time to time he took certain others as partners in the business. In the present case, we are concerned with only two of the partnership deeds dated July 15, 1960, and February 18, 1961. By the former deed of partnership, a partnership was formed between the assessee and one A. P. Sheth, with effect from the first day of Vaisakh, Samwat year 2006 (June 1, 1950). Under this deed of partnership, the two partners were to share the profits and losses in equal proportions. There was a change in the constitution of the firm with effect from February 15,1961, and the terms of the said change of the constitution were put into writing by a new instrument of partnership executed on February 18, 1961. The new instrument of partnership provided that the assessee and A. P. Sheth, who were the partners under the earlier deed, offered to admit Manubhai Amritlal Sheth as a partner of the firm on the terms and conditions contained in the said partnership deed and Manubhai Amritlal Sheth in his turn accepted the said offer and joined as a partner from February 16, 1961. It further provided that the assessee, A. P. Sheth, and M. A. Sheth agreed to admit three minors, Manharlal Premji Jobanputra, Arvind Premji Jobanputra and Pankaj Amritlal Sheth, to the benefits of the partnership from February 16, 1961, upon the terms and conditions contained in the said instrument. The provision about sharing the profits and losses was contained in clause 5 of the deed of the newly constituted partnership, the material part thereof is as under :

'That the profits of the partnership business shall be divided between the parties hereto in the following proportions :

Rs.(1) Shri Amritlal Premchand Sheth 0.20(2) Shri Premji Trikumji Jobanputra 0.30(3) Shri Manubhai Amritlal Sheth 0.10Minors admitted to benefits of partnership :(4) Manharlal Premji Jobanputra 0.15(5) Arvind Premji Jobanputra 0.15(6) Pankaj Amritlal Sheth 0.10--------1.00-------- 'Any they shall in like proportion bear all losses including loss of capital, if any, PROVIDED ALWAYS and it is hereby agreed between the parties hereto that the said minors, viz., Manharlal Premji Jobanputra, Arvind Premji Jobanputra and Pankaj Amritlal Sheth, shall be entitled to the benefits of the partnership ONLY and shall not be liable for any losses and obligations of the said firm but their share in the profits of the partnership firm ONLY shall be liable for any losses or obligations of the said firm and that pending the said minors attaining the age of majority their shares in the profits shall be accumulated to the credit of the said minors so as to be available to meet their share of loss, if any, incurred by the firm at any time during their minority......'

3. Clause 6 reads as under :

'That the reconstituted firm has taken over all the assets and liabilities of the old firm of 'M. Premji & Co.' and the reconstituted firm shall be entitled to the benefits of the firm name, goodwill and quota rights of the old partnership business.'

4. For the assessment year 1962-63, for which the previous year was the period between October 21, 1960, and November 8, 1961, the assessee filed a return under the G. T. Act, wherein he firstly showed a sum of Rs. 26,000 as a cash gift to his minor son, Manhar, and also included in his return a sum of Rs. 7,500 as the value of the goodwill he gifted to his minor sons, Manhar and Arvind, who were, inter alia, admitted to the benefits of the partnership. The GTO, while accepting that the value of the goodwill was to be assessed to the extent of 2/5ths of the total goodwill, computed the quantum of the gift at Rs. 69,184. In an appeal by the assessee before the AAC, the quantum of the goodwill was disputed by him, but the AAC, for the reasons given in his order, enhanced the value of the gift to Rs. 93,398.

5. In a further appeal by the assessee before the Tribunal, one of the contentions taken up by the assessee related to the valuation of the goodwill. However, the Tribunal did not decide this point as it took the view that no gift-tax attracted by the admission of the minors to the benefits of the partnership. Before the Tribunal, the main contention on behalf of the assessee was that in law no gift-tax could be charged since the goodwill solely belonged to the adult partners and to the minors who were admitted only to the benefits of the partnership. This contention on behalf of the assessee was not accepted by the Tribunal because under the Partnership Act a minor also would be entitled on the dissolution of a firm to a share of the surplus assets which would include the value of the goodwill. However, the Tribunal took the view that no gift was made by the assessee to his minor sons by admitting them to the benefits of the partnership. Firstly, it held that the admission of the minors was by a voluntary act of the three major partners and not by an individual act of bounty by the assessee who was one of the partners. Secondly, it pointed out that during the subsistence of a partnership, having regard to the partnership law, no partner has any particular right to any specific asset of the partnership business. It pointed out that during the subsistence of the partnership no partner can deal with any portion of the assets of the partnership as his own, nor can he assign his interest in any specific item of the partnership to anyone. His right is to obtain such profits, if any, as falling to his share from time to time and upon a dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities as provided by s. 48 of the Partnership Act. Accordingly, the Tribunal took the view that the assessee had at no stage the ownership of any particular portion of the goodwill, if any, of the firm, much less a right to assign any portion of it, to his minor son. In the accounting year all that the minors were entitled to was to participate in the profits. By their admission into the firm, there was no immediate gift of a portion of the goodwill to them, which would attract gift-tax in the material year. The Tribunal further held that there was no gift of goodwill in the accounting year and the value of the goodwill should be excluded entirely from the assessment. Necessary directions were issued to the GTO in accordance with the order. It is from this order of the Tribunal that the above question has been referred to us for our determination.

6. Mr. Joshi, on behalf of the revenue, submitted that the Tribunal was in error in taking the view that there was no gift to be subjected to tax when, inter alia, the two minor sons of the assessee were admitted to the benefits of the partnership under the partnership deed dated February 18, 1961. He urged that the Tribunal was in error in emphasising the rights and liabilities of the partners as also of the minors who are admitted to the benefits of the partnership after the business is carried on. He submitted that the question that has to be considered in the present case is whether there is a gift by the assessee to any of his two minor sons or to both of them at the time when, as a result of the deed of partnership, dated February 18, 1961, his two minor sons, Manharlal and Arvind, were admitted to the benefits of the partnership, with the share in profits as provided in the said deed. He submitted that there was a gift of 3/5ths share of the assessee in the goodwill in the earlier partnership. He pointed out that, as indicated by the AAC, the assessee had 50 per cent. share in the goodwill under the deed of partnership dated July 15, 1950, and upon the reconstitution of the firm, there was a gift of 3/5ths share in the goodwill by the assessee in favour of his two minor sons. He submitted that the matter has to be looked at the point of time when the reconstitution takes place and the Tribunal was in error in really emphasising the rights and liabilities of the partners as well as the minors after the reconstitution of the firm when it started functioning and doing business. In short, his submission is that the Tribunal was in error in taking the view that at no stage the ownership of any particular portion of the goodwill could be said to be assigned to the minor sons when they were admitted to the benefits of the partnership which would attract gift-tax in the material year. Mr. Mehta, on the other hand, on behalf of the assessee, submitted that the Tribunal was right in taking the view that when the three minors were admitted to the benefits of the partnership, that was done by a voluntary act of the major partners and there was no question of any gift being made by the assessee, who was one of the three major partners in the newly constituted firm. Even otherwise, he submitted that during the subsistence of the partnership no partner including the minors who were admitted to the benefits of partnership can say that he has a specific share in a particular asset belonging to the firm. During the subsistence of a partnership, a partner is entitled to his share of profits or is liable to bear losses, but so far as a minor, who is admitted to the benefits of the partnership is concerned, he cannot be held personally liable, but, if there are profits he is entitled to a proportionate share in the profits but if there are losses suffered by the firm, then his liability will be restricted only to the extent of the minor's interest in the assets of the firm. Upon the dissolution of a firm, he submitted, it is only after the liabilities of the firm are discharged that the partner including the minor who are admitted to the benefits of the partnership will be entitled to have a share in the surplus assets that any be left after the discharge of such liability. He, therefore, submitted that the Tribunal was right in holding that during the subsistence of a partnership no partner can say that he has a particular or definite share in the individual asset belonging to the partnership. In short, his submission was that the Tribunal was right in taking the view that upon the admission of the minors to the benefits of the partnership, there was no immediate gift of a portion of the goodwill to them which would attract liability to gift-tax.

7. Section 3 of the G. T. Act is the charging section. Under the said section, subject to the other provisions contained in the Act, there shall be charged for every assessment year commencing on and from the 1st day of April, 1958, a tax, referred to as gift-tax in respect of the gifts, if any, made by a person during the previous year. Under this section, the liability to payment of gift-tax can arise only if there is a gift as contemplated by the ACt. The word 'gift' is defined in s. 2(xii) of the Act, which provides that under the Act, unless the context otherwise requires, 'gift' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth. In order that a gift is made within the meaning of the Act, the following essentials are to be fulfilled :

(1) there must be transfer by one person to another;

(2) the transfer should be of any existing movable or immovable property;

(3) the transfer must be made voluntarily; and

(4) the transfer must be made without consideration in money or money's worth.

8. If all these essentials are fulfilled, then there will be a gift within the meaning of the Act as defined in clause (xii) of s. 2. As mentioned in clause (xxii) of s. 2, 'property' includes any interest in property-, and by this inclusive definition the goodwill of a partnership will be 'property'. The expression 'transfer of property' is defined in clause (xxiv) of s. 2 as under :

''Transfer of property' means any disposition, conveyance, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes -

(a) the creation of a trust in property;

(b) the grant or creation of any lease, mortgage, charge, easement, licence, power, partnership or interest in property;

(c) the exercise of a power of appointment of property vested in any person, not the owner of the property, to determine its disposition in favour of any person other than the donee of the power; and

(d) any transaction entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person.'

9. It is on a consideration of these statutory provisions that we have to consider whether, having regard to the facts and circumstances of the present case, there is a gift by the assessee in respect of his share in the goodwill when his two minor sons, Manharlal and Arvind, were admitted to the benefits of the partnership as a result of which the assessee who had prior to this transaction 50 per cent,. share in profits got it reduced to 30 per cent. and the two minor sons, Manharlal and Arvind, were each given 15 per cent. share. It cannot be gainsaid that under the partnership deed dated July 15, 1950, there were only two partners, viz., the assessee and A. P. Sheth. Each of them was entitled to eight annas share in the profits and losses and, accordingly, in all the assets of the firm including the goodwill of the business each of them had 50 per cent. share. What we have to consider in the present case is the effect of the new deed of partnership executed on February 18, 1961. By this deed with effect from February 16, 1961, the two earlier partners, viz., the assessee and A. P. Sheth, admitted a third partner, viz., Manubhai Sheth, as a partner therein. These three partners agreed to admit three minors to the benefits of the partnership. As a result of this reconstitution, the shares in profits and losses which under the earlier partnership deed were shared equally by the assessee and A. P. Sheth were altered. As a result of the new deed, the assessee's share in the profits was reduced from 50% to 30% A. P. Sheth's share in the profits was reduced from 50% to 20%, while Manubhai Amritlal Sheth was given 10 %share in the profits. :The remaining share in the profits was distributed amongst the three minors who were admitted to the benefits of the partnership. Out of the three minors, two are the sons of the assessee, viz., Manharlal and Arvind, and each one of them has been given 15 per cent. share while Pankaj, who is the son of the other partner, A. P. Sheth, has been given 10 per cent. share. What we have to consider is whether by such reconstitution of the firm in the manner indicated above was there any gift of the goodwill of the earlier firm by the assessee to his two minor sons, Manharlal and Arvind, who were admitted to the benefits of the partnership. It cannot be disputed that under the earlier deed of partnership, which consisted of only two partners, since the two partners had an equal share in the profits and losses including the assets of the firm, each one of them had 50 per cent. share even in the goodwill of the business. When the old firm was reconstituted in the manner indicated above, the share of the assessee was reduced from 50 per cent. to 30 per cent, while the share of the other partner, viz., A. P. Sheth, was reduced from 50 per cent. to 20 per cent. By the reconstitution of the firm two erstwhile partners decided to take a third partner, Manubhai Amritlal Sheth, and he was given 10 per cent. share. thereafter, the three major partners in their turn agreed to admit the minors to the benefits of the partnership. However, though apparently it may look that the shares are given to the minors on their admission to the benefits of the partnership as a result of the agreement between the three partners, it is quite evident tht the manner in which the quantum of the shares is readjusted will clearly go to indicate that it a share of the erstwhile partners which has been reduced with view to confer, inter alia, rights upon the minors who have been admitted to the benefits of the partnership.

10. If the real nature of the transaction that has been entered into as a result of the reconstitution of the firm shows that so far as the goodwill is concerned, the assessee, who is the father of the two minors, Manharlal and Arvind, has parted with 20 per cent. share in the goodwill in favour of his minor children in the circumstances do not show that there was any consideration for the same, then naturally such transfer of goodwill to the extent of 20 per cent. in favour of the two minor sons by the assessee, who is the father, would amount a gift in favour of the minors. It should not be overlooked that under the earlier firm the assessee had 50 per cent. share while under the reconstituted firm it has been reduced to 30 per cent. So far as the shares of the two minors, Manharlal and Arvind, who are, inter alia, admitted to the benefits of the partnership are concerned, they are 15 per cent. each. So, at least to the extent to which the 50 percent. share of the assessee under the earlier partnership has been reduced to 30 per cent., the balance of 20 per cent. is transferred to his minor children. Legally, it would be right to contend that when minors are admitted to the benefits of a partnership all the majors had agreed to the same. But the real nature of the transaction can vary if the facts of a particular case are properly scrutinized and the legitimate inference that can be permissible in law is drawn. However, it should not be overlooked in the present case that neither the GTO nor the AAC nor even the Tribunal has approached the problem from a proper point of view. In the present case, as a result of the constitution of the firm, one major person has been taken up as a partner. He appears to be the brother of one of the erstwhile partners while three minors are admitted to the benefits of the partnership with the consent of these three major partners. Out of three minors, two are the sons of the assessee while the third minor is the son of another partner. If regard be had to the provisions of the deed of partnership dated February 18, 1961, which was to have effect from February 16, 1961, it is quite clear that the newly constituted firm has taken over not only the assets of the old firm but also the liabilities thereof. When such is the position, whether the net result of the transaction will amount to a gift by any partner in favour of any other person will depend upon the facts and circumstances of each case. If the value of the assets including the goodwill of the earlier firm is less than the liability thereof, then there can be no question of gift upon a reconstitution of the firm because the liability exceeds the value of the assets. It is only when the value of the assets including the goodwill exceeds the total liabilities of the earlier firm, that the question or gift of the goodwill can arise. However, it will depend upon the facts and circumstances of each case whether there has been a gift in respect of the goodwill. If upon the reconstitution of a firm, an erstwhile partner or even minor who has been admitted to the benefits of a partnership has contributed any capital or a major partner has agreed to pay something, then it will not be possible to take the view that so far as the goodwill is concerned there has been a gift because in such a case there has been a consideration, if not in money at least in money's worth. Thus, the question whether there has been a gift of 29 per cent. share in the goodwill by the assessee to his minor sons will depend upon the determination of two specific questions, viz., (1) whether the value of the assets of the earlier firm including the goodwill exceeds the total liabilities of the earlier firm, and (2) whether the incoming partner or a minor who has been admitted to the benefits of the partnership has brought in any capital. So far as the incoming partner is concerned, a further question arises whether there is consideration, if not in money, at least in money's worth. Unless such questions are determined, it would not be possible to lay down as a general rule that there has been a gift in respect of the goodwill whenever a firm is reconstituted as a result of which, inter alia, minors are admitted to the benefits of partnership and the share in the goodwill of one of the partners is reduced and the same is pro rata given to the minors who are so admitted to the benefits of the partnership. One thing, however, is clear that so far as the Tribunal was concerned, its approach to the problem was entirely erroneous. A well recognized distinction which has been maintained as to the effect of a change in the constitution of a firm while, inter alia, minor is admitted to the benefits of the partnership and the ultimate result which may flow as a result of the working of the reconstituted firm has been overlooked. The general tenor of the order of the Tribunal proceeds on the footing that if the reconstituted firm carried on business after such reconstitution the alteration would be in respect of the rights and liabilities of the partners including the minors who are admitted to the benefits of the partnership. We are not concerned with a question of that type. The material and sole question that has to be considered is whether at the very point of reconstitution of the firm there has been a gift by one partner to the other and, if so, then what is the value of the gift. The view that has been taken by the Tribunal thus appears to be erroneous because the well-recognized distinction which has been pointed out earlier has been overlooked by it. The Tribunal was substantially carried away by the effect of a reconstituted firm carrying on business and thereafter sharing profits or losses or sharing their rights in the property upon the dissolution of a reconstituted firm.

11. Our attention was invited to the two decisions of the Gujarat High Court and a decision of the Madras High Court. On behalf of the assessee reliance was placed upon the decision of the Gujarat High Court in the case of CGT v. Chhotalal Mohanlal : [1974]97ITR393(Guj) . This was a case where the assessee and two other persons, G and P, were partners of a firm having seven annas, four annas and five annas shares, respectively. P retired from the partnership and a new partnership deed was executed on November 9, 1960, between the assessee, G, and the assessee's son, R, each of them having 26 per cent. share. The assessee's two minor sons, K and D, were admitted to the benefits of the partnership, their shares being 12 per cent. and 13 per cent., respectively, in the profits. In the assessment year 1963-64, the GTO held that there was a gift by the assessee of a share in the goodwill of the firm. On appeal, that decision was reversed by the AAC. However, he took the view that there was a gift of the profits in favour of the minors, K and D, and determined the value of the said gift. On further appeal, the appellate Tribunal held that the right to share future profits was a future property and, as the right to share the future profits was not an existing property, there was no gift. On a reference, the Gujarat High Court took the view that in the old partnership, the retiring partner, P, had a five annas share (31%). The benefits to which the minors, K and D, were admitted under the reconstituted firm were to the extent of 12% and 13%, respectively, in the profits. R, who joined the new partnership, was given a share of 25%. On those facts it could not be said that the share of 25% given jointly to the two minors was any relinquishment or abandonment by the assessee. Secondly, assuming that the right to a share in the profits of a partnership business is a property, even then, it could not be said that when the firm was reconstituted and the minor sons were admitted to the benefits of the partnership business, there was consequently a relinquishment or abandonment of any debt, contract or other actionable claim or any interest in the property of any person. It cannot be said that when a firm is reconstituted and as a result of its reconstitution, the shares of some partners who have continued after the reconstitution have been diminished, and the new partners who joined have been given some shares by the adjustment of the shares amongst the old partners, there is a transfer of property within the meaning of s. 2(xxiv) of the G. T. Act. It could not be said that when the minors were admitted to the benefits of the partnership, a transaction was entered into between the minors and the adult partners of the firm and s. 2(xxiv)(d) was not applicable. Therefore, there was no transfer of property and without transfer of property, s. 2(xii) of the Act was not attracted. The Gujarat High Court took the view that the benefits of the partnership given to the minors, K and D, was not a gift under the G. T. Act. With respect to the learned judge it is difficult to accept as an absolute proposition of law, that when a firm is reconstituted and as a result of its reconstitution shares of some of the erstwhile partners have been diminished and new partners after reconstitution have been given some shares, there can be no question of a transfer of property within the meaning of s. 2(xxiv) of the Act. It will depend upon the facts of each case whether there has been a transfer or not, and whether such a transfer amounts to a gift as defined in s. 2(xii) of the Act. It is also equally difficult to accept the proposition therein laid down that it cannot be said that when the minors are admitted to the benefits of the partnership, a transaction was entered into between the minors and the adult partners of the firm. The definition of the expression 'transfer of property' as defined in s. 2(xxiv) is wide enough to include within its scope, inter alia, any assignment or alienation of property. If upon a proper scrutiny of a particular transaction it appears that the share of a major erstwhile partner is reduced and the share so reduced has been given to his minor children who are admitted to the benefits of the partnership, there may result assignment or alienation of property. In such a case, a transfer of property takes place; if such transfer is effected voluntarily, and without consideration in money or in money's worth, then a gift as defined in s. 2(xii) of the Act will take place. What is required to be seen is whether such a transfer has been effected voluntarily and without consideration in money or money's worth and if that is so, then it will not be correct to take the view that a gift as defined in s. 2(xii) of the Act has not taken place.

12. Reference was also made on behalf of the assessee to another decision of the Gujarat High Court in the case of Ramniklal Chhotalal v. CGT [1977] 106 ITR 799. This was also a case of the reconstitution of a firm as a result of which one of the partners retired and the continuing partners admitted the retiring partner's minor son to the benefits of the partnership. The Gujarat High Court took the view that there was only a reconstitution of the firm and the admission of the minor son of R to the benefits of the partnership with the consent of the continuing partners could not amount to a gift by R in favour of his minor son. In this case also the question was whether R on his retirement from the partnership firm took away his share of profits and the assets of the firm or no If he has not taken away his share of profits in the assets of the firm on retirement, then one of the two alternative events is deemed to have taken place; either gifted his share in the profits and the assets to the continuing partners or he indirectly transferred the same to his minor son who was admitted to the benefits of the partnership by the continuing partners. In either of these two cases, it is not possible to take the view that a gift as defined in the Act does not come into play.

13. Reference was also made on behalf of the assessee to a decision of the Madras High Court in the case of Addl. CGT v. A. A. Annamlai Nadar [1978] 113 ITR 574. This case is clearly distinguishable on its own facts. When a sole proprietary concern was converted into a partnership by admitting one of the major sons of the erstwhile partners as a partner and admitting his two minor sons to the benefits of the partnership, the question arose whether there was a gift in respect of the goodwill in favour of the major and the two minor sons. Having regard to the facts, it is quite evident that this was a clear case where there was a consideration in money or money's worth. When the major son was made a partner and when the two minor sons were admitted to the benefits of the partnership there was a capital contribution by each one of them. Secondly, so far s the major son was concerned, he greed to render services as well as agreed to share the loss. In such a case, consideration in money or money's worth exists, the concept of a gift of the goodwill does not come into ply. Mr. Mehta, however, relied upon the observations at p. 577, where it is stated that as far as the minor sons are concerned, there was absolutely no transfer of any assets s such so that there could be no gift of any goodwill in their favour. This is merely a passing observation and is not the ratio of the case. As we have indicated earlier, since there was a capital contribution not only by the major son who was taken up as partner but also by the minors who were admitted to the partnership, there was consideration in money or money's worth and one of the essential ingredients to make the transfer, a gift, is lacking in the case. This case, in our opinion, is, therefore, of no assistance to Mr. Mehta. In our opinion, it is not possible to lay down a general rule in a case like this which will be applicable to all cases where there is a change in the constitution of the firm as a result of which a major partner has been introduced and some minors have been admitted to the benefits of the partnership. Whether in the case of such a transaction there would be a gift or not will depend upon the facts of each case. If, in the present case, when the two minors of the assessee were admitted to the benefits of the partnership as result of the partnership deed dated February 18, 1961, the question whether there was a gift in respect of the goodwill of the business to the extent of 20 per cent. by the assessee to his two minor sons, Manharlal and Arvind, will depend upon the determination of the following facts : (1) whether the value of the assets and goodwill of the earlier business was in excess of the total liabilities of the earlier business, and (2) whether on behalf of the minors, when they were admitted to the benefits of the partnership, there was any capital contribution. If the value of the assets except the goodwill does not exceed the liabilities of the erstwhile firm, then there can be no case of a gift in respect of the goodwill. Similarly, if there is any capital contribution by or on behalf of the minors who re admitted to the benefits of the partnership, there can be no gift in respect of the goodwill. If neither of these two ingredients is present, then on the facts of the present case, so far as the assessee wa concerned, by reason of the reconstitution of the firm there was a gift by the assessee of the 20% share in the goodwill in favour of his minor sons, Manharlal and Arvind, and the value to be put on such 20% of the goodwill will depend upon the facts of the case which may be determined having regard to the state of accounts of the partnership.

14. Accordingly, the question referred to us is answered in the negative, but the question whether there was gift or not will depend upon the determination of the facts as we have indicated earlier. Having regard to the state of law in respect of similar transactions, the fair order as to costs will be that each party will bear its own costs.


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