Jeevan Reddy, J.
1. The question referred for our opinion under 26(1) of the G. T. Act, 1958, is :
'Whether, on the facts and in the circumstances of the CA, the amount of Rs. 81,915, being the value of assessee's share of the goodwill is liable to gift-tax in the assessment year 1967-68?'
2. The facts relevant to the question are the following : The assessee, Shri Chalasani Subbayya, an individual, was a partner in a firm, M/s. Chalasani Subbayya and Sons, holding 54/100ths share. There were only two partners in the firm including the assessee. On April 9, 1967, the assessee relinquished his entire share in the firm with effect from March 31, 1967, allowing the other partner, Shri Chalasani Satyanarayana, to take over the entire business. The GTO was of the opinion that 'such surrender of share of profits amounted to increasing the value or quantum of the share held by the other partner to 100% and in accordingly liable to he treated as a gift within the meaning of s. 4 (a) and (c) of the G. T. Act, 1958. He observed that there was no consideration for the relinquishment by the petitioner and that, therefore, it was not bona fide. When share of interest in the firm' should not be treated as a gift, the assessee submitted an explanation denying the exigibility of the transaction to gift-tax under the ACt. He submitted that his retirement from the firm did not result in any material alternation in his financial position since he continued to receive interest on the balance standing to his credit in the new firm's books, i.e., the firm which was constituted later by the surviving partner with another person. The GTO did not agree with this explanation and held that the share of profits, which was hitherto derived by the assessee stopped person. The GTO did not agree with this expansion and held that the share of profits, which was hitherto derived by the assessee stopped the moment he retired from the partnership and that the non-recipe of share of prints was itself a material alteration in the income of the assessee. He accordingly completed the assessment holding that the assessee's retirement from the firm surrendering his 54/100ths share in favour of the other partner amounts to a gift, attracting gift-tax. He valued the interest relinquished at the average of the profits of the five previous years. The assessee appealed. The AAC understood the GTO's order as holding that inasmuch as the firm has established strong business links with others and has earned considerable goodwill and since the assessee parted with his share of goodwill in favour of the surviving partner, there was a transfer of goodwill. He held that as per the deed dated April 8, 1967, the assessee retired from the partnership with effect from March 31, 1967, enabling the sole surviving partner to take over the entire business and since the sole surviving partner was entitled to carry on the said business either by himself or in partnership with others, he must be held to have derived as advantage on account of the goodwill gathered by the erstwhile firm. On this reasoning he affirmed the GTO's order.
3. On further appeal, the Appellate Tribunal, following the decision of the Supreme Court in CGT v. P. Gheevargheses, Travanbacore Timbers and Products : 83ITR403(SC) of the Gujarat High Court in CGT v. Chhotalal Mohanlal : 97ITR393(Guj) held that no gift-tax was payable on the alleged relinquishment of a share in the goodwill of the firm. It refused to follow the decision of the Madras High Court in CGT v. V. A.M. Ayya Nadar : 73ITR761(Mad) . The Tribunal accordingly allowed the appeal, whereupon the revenue asked for and obtained this reference to this court.
4. For properly answering the question referred to us, it is necessary to clear the factual aspect, viz., what is it upon which the gift-tax was sought to be levied? On this aspect the taxing authorities are not uniform. The GTO did not use the expression 'goodwill' at any place in his order. He held that gift-tax was leviable on the 'surrender of share of profits. ' He was of the opinion that inasmuch as the income which the assessee derived from the partnership, the non-receipt of share of profits is itself a material alternation in the income of the assessee, attracting gift-tax. It must, however be emphasized that according to the GTO this is not a case of relinquishment of a share in the firm; according to him, it is a case of surrender or relinquishment of share of profits in the firm. The GTO also observed in his order that the retirement of the assessee form the firm did not result in any material alteration in his financial position since he continued to receive interest on the balance standing to his credit in the new firm's books (indeed, a similar observation is also to be found in the order of the Tribunal). What appears to have happened is that the share of the assessee in the firm was valued and that amount was treated as his investment in the new firm (constituted by the surviving partner with another person after the assessee, s retirement) and the assessee was being paid interest thereon. Probably, it is for this reason that the entire share relinquished by the petitioner was not valued by GTO for the purpose of gift-tax. In appeal, however, the basis of exigibility to tax came to be understood differently. The appellate order proceeds on the assumption that gift-tax was levied on the relinquishment of the assessee, s share in the goodwill of the firm. The appellate authority held that since the goodwill enables the surviving partner, either by himself or in partnership with others, to earn income, the relinquished share must be treated as gift and exigible to tax. The Tribunal too proceeded on the footing that the subject-matter of the gift was the shear of the assessee in the goodwill of the firm, which he was said to have relinquished under the deed dated April 9, 1967. On that basis, it held, following certain decisions, that it was not taxable. Now, it is significant to mention that neither of the two appellate authorities refer to the 'surrender of the share of profits', which was the expression used by the GTO. While the GTO does not refer to relinquishment of share in goodwill, that is the basis of the decision of both the appellate authorities. However, with a view to obviate further delay, we propose to deal with the case on both the footings.
5. It what is relinquished by the assessee is treated as a share in the future profits as assumed by the GTO, it must be held that the same cannot be taxed under any of the provisions of the G. T. ACt. Section 3 is the charging section. It says that subject to other provisions contained in the ACt, gift-tax shall be levied in respect of the gifts, if any, made by a person during the previous year at the rate or rates specified in the Schedule. The expressions 'gift' is defined in clause (xii) of s. 2 to mean 'the transfer by one person to another of any existing movable or immovable property, made voluntarily and without consider action in money or money's worth and includes the transfer or conversion of any property referred to in section 4 deemed to be a gift under that section.'
6. The expression 'transfer of property' is defined in clause (xxiv) of s. 2 in the following words :
'Transfer of property' means may 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 done 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.'
7. Another provision which must be noticed is s. 4. It says that for the purpose of this ACt certain transaction shall be treated as gifts. Clause (c) of s. 4(1) is relevant for the present purpose. It reads :
'Where there is a release, discharge, surrender, forfeiture or abandonment of any debt, contract or other actionable claim or of any interest in property by any person, the value of the release, discharge surrender, forfeiture or abandonment, to the extent to which it has not been found to the satisfaction of the Gift-tax Officer to have been bona fide, m shall be deemed to be a gift made by the person responsible for the release, discharge, m surrender, forfeiture or abandonment.'
8. The question is whether the surrender or relinquishment of future profits can be treated as a gift, i.e., as a transfer of movable or immovable property from one person to another within the meaning of s. 2(xxiv)? Or, can it be treated as transfer of property whereby, as a result of the transaction, the value of one's property whereby, as a result of the transaction, the value of one's property is diminished directly or another person, as contemplated by clause (xxiv)? It has also to be considered whether such a transaction falls within or attracts s. 4(1)(c). We are of the opinion that looked at from any angle, surrender of future profits cannot be treated as a gift'. Future profits is not property because once a person ceases to be a partner, there is no question of his receiving any profits thereafter. Similarly, by such alleged surrender, there is no diminution in the value of one's property nor is there any increase in the value of the property of the other person as contemplated by clause (xxiv). This is the view taken by the Madras High Court in Addl. CGT v. P. Krishnamoorthy : 110ITR212(Mad) . It has held that even if the right of a partner to share the future profits is considered to be 'property' there can be no question of a retiring partner having right to share future profits and that such a non-existent right cannot be 'property' as contemplated by the statute. It has observed that the moment a partner retires from a firm he will have no right to receive any future profits in the firm and, hence, there is no question of his giving up any such right. We are in respectful agreement with this view and according hold that if the subject-matter of gift is treated to be the surrender of the assessee's share in the profits of the firm, there is no gift of any property nor is there any transfer of property, within the meaning of clause (xxiv). On the same reasoning, s. 4 also must be said to be inapplicable.
9. Now, we shall examine the case form the standpoint of surrender of the assessee, s share in the goodwill of the firm. Goodwill is undoubtedly an asset of a partnership firm. The only question is, where a partner retires from the partnership firm taking the full value of his share, can it still be held that there is a gift or transfer of the share of the retiring partner in the goodwill of the firm. In CGT v. Karnaji Lumbaji : 74ITR343(Guj) the Gujarat High Court has an occasion to consider this question. That wa a case where the assessee and his four sons were doing business in partnership, the assessee having a four-annas share and each of the four sons having a three annas shares. Two other sons of the assessee were working as employees in the same firm. The partnership was reconstituted as from November 1, 1959, taking in the two other sons too as partners. Under this reconstituted partnership, the share of the assessee and one of his sons were reduced to 6 np and 13 np respectively, while the two new partner were given each 12 up share. The GTO held that there was a gift of 19 np share of the assessee in the goodwill of the firm to the newly inducted partners and that the assessee was liable to pay gift-tax thereon. The Appellate Tribunal held that the assessee did not have any specific interest in the goodwill of the firm and that there was no existing movable or immovable property which could be transferred by the assessee to his two newly inducted sons/partners. The Appellate Tribunal held further that even if there was a transfer of 19 np share in the goodwill of the firm to the newly inducted sons, it was not without consideration in money or money's worth and that even if it were assumed that the assessee discharged or surrendered or released his 19 np share, such release, discharge or surrender was not shown to be wanting in bona fides and could not, therefore, be deemed to be a gift within the meaning of s. 4(1)(c). When the matter came up before the High Court, Bhagwati C.J., speaking for the court, held that no partner can predicate during the continuance of the partnership that hew has a definite share in any particular movable or immovable property of the firm which he can transfer or relinquish and that his only right is to receive the profits during the continuance of the partnership that he has a definite share in any particular movable or immovable property of the firm which he can transfer or relinquish and that his only right is to receive the profits during the continuance of the partnership and on its dissolution to realise the assets after discharging liabilities and the surplus, if any, distributed in accordance with s. 46 of the Partnership Act. The learned judge held that the assessee cannot be cited to have held a specific share in the goodwill, which was only one of the assets of the firm., On this reasoning the very concept of relinquishment or transfer of a share in the goodwill by a partner was held to be misleading and untenable in law.
10. In Addanki Narayanappa v. Bhaskara Krishanappa, : 3SCR400 , the Supreme Court has on occasion to deal with the nature of a partner's interest in a partnership firm. It was held that during the subsistence of the partnership, no partner can deal with any portion of the property as his own. Nor can he assign hi interest in a specific item of the partnership property to anyone. It was observed that his right is to obtain such such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to share in the assets of the firm which remain after satisfying the liabilities set out in clause (a) and sub-cls. (i), (ii) and (iii) of clause (b) of s. 48. The court held further that while it was true that even during the subsistence of the partnership a partner may assign hi8s share to another, yet what the assignee obtained in such a case was only that which was permitted by s. 29(1), namely, the right to receive the share of profits of the assignor and accept the account of profits agreed to by the partners.
11. ON the basis of the reasoning of the said two decisions, Mr. Venkataramam Reddy contends that the theory of a retiring partner relinquishing his share in the goodwill, which is but only one of the assets of the partnership, is a misleading concept since no partner, at any given point of time, can predicate that he has a particular share in a particular assets of the partnership firm. Even where a partner relinquishes his share, what he relinquishes is his share as contemplated by s. 29(1) of the partnership ACt, namely, the right to receive the profits and on dissolution to realise the assets in accordance with the Partnership Act and not any particle shear in any particular asset or asserts of the partnership firm. The learned consuel furthe rcontends that it is impossible and unrealistic to separate one of the assets of the partnership, nemaley, the goodiwll, and to sya that a reirin partner has elinwished his share in that particular asset as such. We find sufficient force in this contention which appear to be supported not only by the aforesaid two decision but also by another decision of the Supreme Court in CGT v. P. Gheevarghese : 83ITR403(SC) . In this case, the assessee who was the sole proprietor of a business converted it into a partnership by a deed dated August 1, 1963. The partnership was to consists of the assessee and his two daughters. The capital of the partnership was to consist of the assessee and his two daughters. The capital of the partnership was Rs. 4 lakhs of which the assessee, s contribution was Rs. 3,50,000 and the contribution of each of the two daughters. The capital of the partnership was Rs. 4 lakhs of which the assessee's contribution was Rs. 3,50,000 and the contribution of each of the two daughters was Rs. 25,000. All the assets of the proprietary business were transferred to the partnership and in these assets the assessee and his daughters were entitled to shares in proportion to their share capital. The profits and losses of the partnership were, however, to be divided in equal shares between all the three partners. For the relevant assessment year, the assessee filed a return showing a gift of Rs. 50,000 in favour of his daughters, representing the share capital contributed buy them. The GTO however, held that in addition to the sum of Rs. 50,000, the assessee must be deemed to have gifted 1/3 share in the goodwill of the business to each of his daughters. The Tribunal held that there wa a gift of goodwill, but that it was exempt under s. 5(1)(xiv) of the G. T. ACt. When the matter came up before the Surpeme Court, it observed that, though accoring to the deed of partnership, goodwill was a part of the properties and assets of the business which the assesee has transferred to the partnership, the departmental authorities, for some incomprehensible reason, did not choose to treat all the assets and property of the assessee which were transferred to the partnership as the subject matter of gift, and that even before the Surpeme Court, it was not contended that the subject mater of the gift was the property and assets valued at Rs. 4 lakhs. The departmental authorities, the court pointed out, persisted in picking out only one of the assets of the assessee's proprietary business, vix., its goodwill,. and proposed to treat it as the subject-matter of gift. It held that no gift-tax was payable on the alleged gift of a she in the goodwill of the assessee's business. Indeed, in the facts of that case, the Surpeme Court thought it fit to reframe the question referred to it in the following manner :
'Whether, on the facts and in the circumstances, any gift-tax was payable on the goodwill of the assessee's business. If the answer be in the affirmative how mush share in the goodwill was liable to such tax?'
12. It answered the first part of the question in the negative and in that vie found it unnecessary to answer the second part. This case undoubtedly supports the contention of Mr Venkatarama Reddy.
13. The departmental authorities relied upon the decision of the Madras High Court in CGT v. V. A.M. Ayya Nadar  73 ITR 761. But, on a perusal of that judgment, we find that it does not deal with the gift or transfer of a share in the goodwill of a firm but only with a realignment of the shares of partners. As a result of reconstitution, the share of the assessee concerned therein was reduced from one-ninths share as a gift from the assessee to the newly inducted partners and it wa upheld by the Madras High Court. We are unable to see how this decision is of any assistance to the Department in this case.
14. We are, accordingly, of the opinion that is not open to the Department to pick out one of the assets of the firm, namely, the goodwill and levy gift-tax thereon. Such a course is not permissible, as pointed out by the Supreme Court in CGT v. P. Gheevarghese : 83ITR403(SC) . In the case of a transfer of the partner's interest, what is transferred is his interest in the partnership firm s elucidated in Narauyanappa's case, : 3SCR400 and not any particular share in any particular asset of the partnership firm. WE hold that even treating the subject-matter of gift as the relinquishment of the assessee's share in the goodwill of the firm, it is not exigible to tax under the G. T. Act.
15. For the above reasons, the question referred to us is answered in the negative i.e., in favour of the assessee and against the Department.
16. No costs.