1. These cross-appeals by the assessee and the revenue are directed against the order of the AAC dated 4-4-1981 relating to the assessment year 1971-72. In order to appreciate the grievances of the parties projected in their respective appeals, the facts from which these arise are required to be brought into focus. These facts are as under: 2. S/Shri Brij Mohan Lal, Om Parkash and Satya Nand sons of Shri Bahadur Chand, along with Shri Vijay Kumar son of Shri Daya Nand, carried on the business of manufacture of cycle chains and hubs, etc., in partnership under the name and style of Rockman Cycle Industries, Ludhiana, as evidenced by partnership deed dated 23-10-1968. With effect from 1-7-1969, S/Shri Yogesh Chander and Raman Kant, respectively, sons of S/Shri Satya Nand and Brij Mohan Lal, were taken in as partners by mutual consent. This firm continued with this constitution doing the same business up to 31-3-1970. The partnership deed dated 1-7-1969 evidenced that Shri Om Parkash was partner as karta but, Shri Brij Mohan Lal and Shri Raman Kant were partners in their individual capacity, being father and son respectively.
3. On 31-3-1970, Shri Brij Mohan Lal and Raman Kant were, respectively, having 14 per cent and 10 per cent shares in the profits and losses of the firm. On that date, both of them left the firm. Shri Brij Mohan Lal, the assessee, had an amount of Rs. 68,365.85 in his capital account after taking into account Rs. 51,184 being profit for the period ending 31-3-1970. Shri Brij Mohan Lal was also partner in the firm of Hero Cycle Industries, Ludhiana. On 31-3-1970, by book entries, the sum of Rs. 68,365.85 was transferred from the firm of Rockman Cycle Industries to the account of Shri Brij Mohan Lal (personal account) with Hero Cycle Industries.
4. As evidenced by the instrument dated 31-5-1970, the firm was reconstituted with effect from 1-4-1970. The reconstituted firm had the following partners as shown in Clause 6 of the instrument: 6. (A) That the profits of the business shall be divided between the partners as under: (B) That losses of the business shall be borne by the partners as under:- This instrument shows that Shri Brij Mohan Lal became partner on behalf of his HUF as karta. The HUF of Shri Brij Mohan Lal at the material time consisted of himself, his wife, four sons including Shri Raman Kant and one unmarried daughter Miss Gita.
5. According to the GTO, the following partners of the firm, as constituted by the instrument dated 1-7-1969, transferred their right to share the profits of the firm without consideration in money or money's worth to the extent shown against each:_____________________________________________________________Name of person Name of the person in Remarks/partner whose favour share has1. Sh. Brij Mohan i. Brij Mohan Lal 10 Entire share wasLal (individual) per cent (HUF) transferred with- ii. Suman Kant (son) out any narra-2. Sh. Om Parkash i. Pankaj s/o Om 14 per cent share Parkash 7 per cent transferred out3. Sh. Raman Kant i. Suman Kant 2 per 2 per cent share cent transferred out4. Sh. Satya Nand i. Umesh Kumar The entire share (son) 10 per cent was transferred.
The GTO held that the right of a partner to share the profits of a firm is as much property as a right of a partner to share the assets of the firm. This right was capable of being transferred between the partners by common consent and redistribution of share of profits. For this proposition, he placed reliance upon the Madras High Court judgment in the case of CGT v. V.A.M. Ayya Nadar  73 ITR 761. He applied the provisions of Rule 10(3) of the Gift-tax Rules, 1958 and in the case of Shri Brij Mohan Lal, individual, worked out the value of taxable gift at Rs. 1,01,409. This was constituted of the following two amounts:at Rs. 2,36,173 33,064ii) Capital transferred to Hero Cycle Industries 68,365 He raised the assessment on 27-3-1969 taking this amount of Rs. 1,01,410 in round figures as the taxable gift. This was challenged in appeal.
6. The AAC held the view that the reconstitution of the firm of Rockman Cycle Industries with effect from 1-4-1970, which resulted in the reallocation of the shares amongst the continuing partners, did not by itself result in a gift. According to him, the facts of the case in the Madras High Court judgment relied upon by the GTO were entirely different. On the other hand, he relied on the judgments respectively in the cases of Addl. CGT v. P. Krishnamoorthy  110 ITR 212 (Mad.) and CGT v. Ali Hussain M. Jeevaji  123 ITR 420 (Mad.), cited before him on behalf of the assessee, to support his observations. However, the AAC held that when the assessee withdrew from the firm, he did not insist upon taking away the full value of the interest in the partnership. According to him, the assessee could claim his share in the development rebate reserve amounting to Rs. 2,36,173 which had been determined by the GTO at Rs. 33,064. This was a taxable gift, according to him. He, therefore, gave the assessee relief to the extent of Rs. 68,365. Now the assessee is aggrieved with that portion of his judgment which sustains the taxable gift at Rs. 33,065 and the revenue is aggrieved with the relief of Rs. 68,365. The revenue in its appeal has also made a grievance of the various observations made by the AAC that go against its interest, such as the reallocation of shares amongst the continuing partners did not in itself result in a gift by the assessee of his 14 per cent share in the firm before reconstitution.
7. The parties before us argued that the facts of this case and that of the case of Raman Kant [GT Appeal Nos. 23 and 29 (Chd.) of 1981] are, mutatis mutandis, in pari materia and a common set of agruments will be made in this case which will govern the other appeals as well.
8. The learned counsel for the assessee arguing his own appeal contended that the assessee had come out of the fold of the partnership with effect from 31-3-1970 when he took away his capital by mutual consent of the then existing partners. It was contended that as an individual, Shri Brij Mohan Lal, who was karta of his HUF, had been acting in individual capacity. But in the reconstituted firm evidenced by the instrument dated 31-5-1970, he entered as a partner as karta of his HUF by contribu tion of capital of Rs. 1,00,000 from the account of the HUF from Munjal Sales Corporation, Ludhiana, where the HUF was a partner. On these facts it was contended that there was no gift, whatsoever, made by him to anyone when he left the firm on 31-3-1970.
9. Without prejudice to the above contention it was submitted that without concession and for the sake of argument if there was a gift when the assessee went out of the fold of the partnership, the point of time would be 31-3-1970. That date is not relevant for the purpose of gift-tax for the assessment year under appeal and there could not be any amount on which gift-tax could be charged in the assessment year 1971-72 from the assessee. He further argued that even if the gifted amount is to be worked out without prejudice to his above submissions, the quantum of it arrived at is erroneous because the gift was not of the entire amount of his share of profit in the firm in which he was a partner. It was contended that, however, the argument made by him that there was no gift may be accepted because the newly constituted firm as evidenced by the instrument dated 31-5-1970 has been granted registration by the GTO for the assessment year 1971-72. This, according to him, indicates that the assessee went out of the fold of partnership on 31-3-1970 because with effect from 1-4-1970, the newly constituted firm is granted registration. Since the authorities below had considered that minors had been admitted to the benefits of partnership, it is to be noted that insofar as Shri Brij Mohan Lal is concerned, his minor son, namely, Shri Suman Kant, had brought in capital of Rs. 40,000. There was no gift-tax leviable on any amount.
The AAC, therefore, erred in sustaining the amount as done by him for the purpose of gift-tax.
10. The revenue, on the other hand, submitted that the gift-tax amount as worked out by the GTO is less because as per Rule 10(3), the gift-tax workable should be more. It was also contended that the AAC erred both in law and on facts in holding that reconstitution of the firm of Rockman Cycle Industries with effect from 1-4-1970 which resulted in the reallocation of the shares amongst the continuing partners, did not by itself result in a gift by the assessee of his 14 per cent share in that firm before the recon-stitution, to his HUF and/or his minor son who had interest in the reconstituted firm. It was contended that the AAC was wrong in holding that transfer of the assessee's right in partnership concern did not amount to a gift and that could not be charged to gift-tax.
11. We have given very careful consideration to the rival submissions and we are of the opinion that the appeal of the assessee has to be allowed and that of the revenue dismissed for the reasons assigned herein below : 12. There is no dispute about the fact that as on 31-3-1970, Shri Brij Mohan Lal, who was partner in the firm in his individual capacity, went out of its fold by mutual consent of the then existing partners. To his credit, in the capital account, stood an amount of Rs. 68,365 which was transferred to his personal account with Hero Cycle Industries, Ludhiana, in which also he was a partner. Thus, as on 31-3-1970, Shri Brij Mohan Lal severed his connections with the firm and by mutual consent was satisfied to take away only the capital standing to his credit. It is to be noted that the rights of the partners inter se are determinate according. to the partnership instrument and their mutual consent. Therefore, if on 31-3-1970 Shri Brij Mohan Lal was satisfied with the withdrawal of Rs. 68,365 to go out of the partnership fold, there cannot be any other condition that he must ask for particular share in any other asset of the firm because it is now settled law that no partner can predicate as to what is his share in a particular asset of the firm. However, when the partner goes out, he has to ask for his interest and that interest he himself determined at Rs. 68,365 with the consent of others. Therefore, the authorities below were apparently in error in the computation of taxable gift by including therein the sum of Rs. 33,065. The question, however, remains whether the capital amount of Rs. 68,365 which was transferred and which the GTO has taken into account while working out the taxable gift under Rule 10(3), is rightly held by the authorities below as an amount liable to gift-tax.
13. The judgment that was relied upon by the GTO to bring to tax the disputed amount was considered by the Madras High Court in a later case of P. Krishnamoorthy (supra) and it was distinguished. The Hon'ble Court in this later judgment has held that in the case of V.A.M. Ayya Nadar (supra) relied upon by the GTO, the assessee's share capital remained as it was prior to reconstitution. Thereafter, the Hon'ble Court has observed that : We are clearly of the opinion that that case has no bearing whatever on the present case. (p. 216) Now, the present case referred to by the Hon'ble Court is the case of P. Krishnamoorthy (supra) wherein the Hon'ble Court has held that even if the right of a partner to share the profits of the firm is considered to be 'property', there is no question of a retiring partner having a right to share future profits and such a non-existent right cannot be 'property' as contemplated by the statute. The moment a partner retires from a firm, he will have no right to receive any future profits in the said firm and, hence, there is no question of his giving up any such right.
14. In the present case we find that the individual partner went out of the partnership fold. This exit from the partnership fold was accepted by the GTO. The fact that he took away his capital representing his interest in the firm as he understood on the date of his retirement, is accepted. The HUF, when it became a partner, has contributed capital of Rs. 1,00,000, The minor who has been admitted to the benefits of partnership has also contributed capital. Therefore, there cannot be any question of the individual transferring any right, title and interest in the firm to either the HUF or any of its members. The whole proceedings were without any basis. These are cancelled.
15 Since we have held that there was no gift at all, we do not consider it necessary to go into the other aspects of the case pleaded before us.
16. In the result. the appeal of the assessee is allowed and that of the revenue dismissed.