1. We are disposing of these appeals and the cross-objections by a consolidated order because the issues emanate from common set of facts Before we crystallise the issues, we set out the facts.
2. There was a firm working under the name and style of Laxmi Chand Chuni Lal, having business in cloth. It had been assessed to tax in the status of a registered firm for the assessment years 1970-71 to 1974-75 on the total income shown against each assessment year in the following tabulated data : Though the above firm was in existence for a number of years, it is apparent from the deed of partnership made on 1-4-1973 that there were differences amongst the partners as a consequence of which the instrument dated 1-4-1973 had to be drawn. In this deed, the constitution of the said firm was as under :Shri Hiranand son of Laxmi Chand 26 per centShri Guranditta Ram son of Laxmi Chand 26 per centShri Chuni Lal son of Laxmi Chand 24 per centShri Om Parkash son of Laxmi Chand 24 per cent The business of the firm, however, continued to be that of purchase and sale of cloth on wholesale basis at Purani Mandi, Karnal. This instrument recorded that (he partnership will be at will. The assets and liabilities of the old firm as had existed on 1-4-1973 were considered as taken over by the newly constituted firm. Clause 12 of this instrument provided that the partners can add to, subtract from, or vary the terms and conditions laid down in the instrument by mutual consent.
3. On 1-4-1974, by an instrument of that date, it was agreed between S/Shri Guranditta Ram and Chuni Lal, both sons of Laxmi Chand, and Smt.
Raj Rani, wife of Shri Om Parkash, referred to in the instrument dated 1-4-1974 as parties of the first, second and third part, respectively, to run the business of cloth in the name and style of Laxmi Chand Chuni Lal. It was further agreed to admit Kumari Usha Rani, daughter of Shri Hira Nand, to the benefits of partnership. This deed also provided that though the business was done in the name and style of Laxmi Chand Chuni Lal yet the partners can change the name and style as and when so agreed to by them. It was further agreed that in addition to the business of purchase and sale of cloth of all types, any other such business or any other business as the partners may agree may be carried out. This partnership was at will and the profits sharing ratio was provided in Clause 7 as under :Guranditta Ram 40 per centChuni Lal 40 per centSmt. Raj Rani 12 per centMiss Usha Rani 8 per cent Since Miss Usha Rani was minor and admitted to the benefits of partnership only, the ratio for sharing the losses, if any, was as under:Guranditta Ram 43 per centChuni Lal 43 per centSmt. Raj Rani 14 per cent 4. While processing the assessment of the two assessees before us, the GTO held the opinion that "Shri Om Parkash (having 24 per cent share) retired surrendering his right in the firm in favour of others.
Similarly, Shri Hiranand (having 26 per cent share) retired surrendering his rights in the firm in favour of others without any consideration, which amounts to a gift by them to the others, namely, Shri Guranditta Ram, Chuni Lal, Smt. Raj Rani and Miss Usha Rani". He, therefore, proceeded on the presumption that there was gift of goodwill of the firm of Laxmi Chand Chuni Lal by the outgoing partners to the partners who continued and those who also joined with effect from 1-4-1974. Taking into consideration the profits of the five years prior to the assessment year 1974-75, he found the average profits of Rs. 90,450 and considered the goodwill to be three times of the average profit. This was determined at Rs. 2,71,350. Since in the case of Om Parkash his share in the firm was 24 per cent prior to 1-4-1974, he took 24 per cent of this figure which comes to Rs. 65,124 as the gift made by him. Similarly, in the case of Hira Nand, since his share of profit in the earlier firm was 20 per cent, the value of the portion of goodwill gifted by him was determined at Ks. 70,530. In both the cases, therefore, the GTO issued notices calling for returns of gifts.
5. In the case of Om Parkash, in response to the notice issued by the GTO, a return of gift declaring the value of gift at Rs. 2,500 was filed. This gift of Rs. 2,500 had been made by Shri Om Parkash to Shri Subhash Chand by withdrawing the amount from his personal account with the firm of Laxmi Chand Chuni Lal, Karnal. It was projected to the GTO that there was no gift insofar as the retirement from the firm was concerned because the firm in which the assessee was partner, was dissolved and thereafter, a new firm started with new business. It was also pointed out to the GTO that the dissolution of the firm in which the assessee was the partner was on account of differences amongst the partners and the partners who went out did not do so voluntarily and did not relinquish any right and there was no transfer of any property which could be termed as gift. It was also pointed out to the GTO that the retiring partners had started a business in the same line as of the firm, from which they retired, in the same market. In a nutshell, it was contended that besides the sum of Rs. 2,500 which the assessee had himself shown as gift to Subhash Ghand, there was no other gift liable to tax. In the case of Hiranand, in response to the notice issued by the GTO calling for a return, a return declaring gift of Rs. 4,000 was filed. This gift was given by Hiranand to Smt. Santosh Kumari by withdrawing this amount from his personal account with Laxmi Chand Chuni Lal, Karnal. With regard to the gift of goodwill on retirement from the firm, similar contentions were projected before the GTO as in the case of Om Parkash.
6. In both the cases, the GTO observed that he had considered the arguments put forth by the learned counsel for the assessee and he was of the opinion that since each one of them had retired from the firm of Laxmi Chand Chuni Lal, Karnal, on 31-3-1974, without receiving any consideration for relinquishing his right in the goodwill of the said firm, there was gift which was liable to gift-tax on the value of the right so surrendered, which he had estimated in each case as described supra. Accordingly in the case of Om Parkash he determined the gift made by him at Rs. 67,624 and in the case of Hiranand at Rs. 74,550.
These assessments were challenged in appeal before the AAC.7. The AAC made the impugned order disposing of the appeal in the case of Hiranand. On the facts of the case, it was held by the learned AAC that "the goodwill goes with the persons, especially in cloth business, and in this case two working partners left the business and two continued the same business" and the two outgoing partners "started the new business, produced better results in the new firm". According to her, there was no question of any goodwill gifted by the outgoing partners as they left because of certain differences and were able to show better results in their separate business which was indeed a rival to the existing business. The appeal of the assessee, therefore, with regard to the gift of goodwill worked out by the GTO was allowed. The decision in the case of Hiranand was followed in the case of Om Parkash. The orders of the AAC in both the cases are dated 21-3-1980.
8. The revenue filed appeals against the orders of the AAC. The assessees have filed the cross-objections. In the case of Hiranand, the cross-objection is belated by 20 days and in the case of Om Parkash, it is late by 16 days. Each assessee was required to show reasonable cause for the delay. However, no such cause has been shown and, therefore, before we proceed to dispose of the appeals of the revenue, we dismiss the cross- objections as time-barred in each case.
9. It was contended by the revenue that the relief given by the AAC in each case is unwarranted because goodwill cannot vanish because of differences between the partners, that the liabilities of the outgoing partners were not washed away, that there were progressive rise in the profits of the earlier firm and nobody would like to go out of such a firm and that taking into consideration the ratio of the judgment of the Supreme Court in the case of CIT v. B.C. Srinivasa Setty  128 ITR 294, the GTO was justified in bringing to tax the value of the surrendered goodwill by each of the partners. On the other hand, the learned counsel for the assessee submitted that the onus is on the revenue to show that a particular transfer is a gift and that it was without consideration. This proposition was supported by the authority of the Bombay High Court in the case of CGT v. J.N. Marshall  120 ITR 613. On the facts of the case, it was argued that the GTO nowhere established that the firm from which these two persons retired as partners had goodwill. It was contended that there was no mention of goodwill in the partnership deed which governed their Delations, nor was there any settlement about the goodwill when they left the partnership. Merely because a firm in existence earned substantial profits that per se does not establish existence of goodwill of that firm in the market, which would fetch value so as to bring it within the ambit of the Gift-tax Act. In the case before us, it was contended that there was neither any transfer of an asset in existence nor was it without any consideration. Since both these conditions were not fulfilled, there was no question of any gift-tax being levied upon the outgoing partners and, therefore, the AAC rightly allowed the appeals reversing the orders of the GTO in each of the cases.
10. The learned counsel for the assessee submitted that without concession and for the sake of argument if it were to be considered that there was surrender of the value of goodwill, it was not without consideration because they had left behind liabilities which were to be borne by the continuing partners and as such, the surrender, if any, was not without consideration.
11. We have given careful consideration to rival submissions and we are of the opinion that no case has been made out by the revenue for an interference in the orders of the AAC. It is now well settled in view of the Supreme Court judgment in the case of Srinmisan (supra) that goodwill denotes the benefit arising from connection and reputation. A variety of elements goes into its making, and its composition varies in different trades and in different businesses in the same trade and while one element may preponderate in one business another may dominate in another business. Its value may fluctuate from one moment to another depending on changes in the reputation of the business (Emphasis supplied). It is affected by everything relating to the business, the personality and business rectitude of the owners, the nature and character of the business, its name and reputation, its location, its impact on the contemporary market, the prevailing socioeconomic ecology, introduction to old customers and agreed absence of competition (Emphasis supplied). There can be no account in value of the factors producing it. It is also impossible to predicate the moment of its birth. No business commenced for the first time possesses goodwill from the start. It is generated as the business is carried on and may be augmented with the passage of time. From the above guidelines provided by the highest court of this land, we examine the facts of the case before us. From examination of the facts it becomes clear that the outgoing partners had internecine activities resulting into instrument dated 1-4-1973 to patch up their differences. The GTO has not indicated as to how with this background there still existed goodwill which had value because the firm was an ordinary dealer in cloth. The outgoing partners, namely, Om Parkash and Hira Nand, had shares of 24 per cent and 26 per cent whereas the incoming partners had been given 12 per cent and 8 per cent shares in the profits of the firm and 14 per cent of losses were to be borne by Smt. Raj Rani and Usha Kumari was minor admitted to the benefits of partnership. There is no reason shown by the GTO why the outgoing partners should surrender their shares for the other two partners who were not their close kith and kin. In any case, there is nothing to show that there existed goodwill taking into consideration the various factors that we have described above The GTO merely proceeded on the basis of the profits earned in the earlier years and jumped to the assumption that the profits indicated existence of goodwill. This was contrary to what has been laid down by the Supreme Court indicating various factors that come into play for making goodwill. The GTO did not show them to exist in this case.
12. The differences between the partners show that there was hardly anything by way of reputation that could go into the goodwill on the existing circumstances of the case. It has also been accepted that the retiring partners started a competitive business and, therefore, the old business was affected. In our opinion, the AAC came to a correct decision that no gift was involved in these transactions. We, therefore, dismiss the appeals of the revenue.