1. These two appeals filed by the department involve common contentions. They are, therefore, disposed of by common order.
2. Smt. G. Saraswathi Ammal and Shri A.M.S. Guruswamy Nadar were the partners of the firm, known as 'Arasan Match Industries, Sivakasi'.
They had equal shares in the profits and losses of the firm.
3. On 3-3-1976, Shri G. Parthasarathy s/o Shri A.M. Guruswamy Nadar, was taken as a partner and Shri Jayakannan, minor son of Smt. G.Saraswathi Ammal, was also admitted to the benefits of the partnership.
The new partnership came into existence under the partnership deed dated 4-4-1976 in order to 'instil young blood in the business'.
According to this partnership deed, the new partners were also to contribute capital to the firm. The shares of the partners in the profits and losses of the firm were as follows :----------------------------------------------------------------------Sl.No. Name of the partner Ratio----------------------------------------------------------------------(i) Smt. G. Saraswathi Ammal 50 per cent 30 per cent 50 per cent(ii) Shri G. Jayakannan [minor -- 20 per cent -- son of (i)](iii) Shri A.M.S. Guruswamy 50 per cent 30 per cent 30 per cent(iv) Shri G. Parthasarathy -- 20 per cent 20 per cent [son of (iii)] 4. In the course of assessment proceedings for the assessment year 1976-77, the GTO observed that Shri C. Jayakannan was a minor and so, he could not possibly render any services to the firm. Similarly, according to him, Shri G. Parthasarathy did not have any experience and skill in the line of business carried on by the firm and so his admission to the partnership was of no consequence. The GTO was, therefore, of the view that Smt. G. Saraswathi Ammal and Shri A.M.S.Guruswamy Nadar have relinquished 20 per cent of their share in the goodwill of the firm in favour of their sons without any consideration and so the transactions tantamounted to taxable gifts. The GTO worked out the value of the taxable gift at Rs. 1,39,707 in each of these cases and brought the same to tax under the Gift-tax Act, 1958 ('the Act').
5. The AAC did not agree with the GTO. In the case of Smt. G.Saraswathi Ammal, he observed as under : 3. The decision of the ITAT, Madras Bench in the case of Gift-tax Officer v. A.M.S. Ganesan GT Appeal No. 37 (Mad.) of 1983 dated 15-3-1983 is very much relevant to the issue at hand. The preamble to the partnership deed dated 4-4-1976 clearly indicates that the reconstitution was effected to instil young blood in the business.
The minor who was admitted to the benefits of partnership has also brought in capital on 3-8-1976 by transfer entry from Majestic Match Industries. It has been held by various High Courts that rendering of services and sharing of future liabilities would be sufficient consideration in the admission of a new partner. In the present ease it is true that the new partner being a minor has no right to share losses. But he is a young and dynamic person whose services to the firm in future cannot be ignored. Admittedly the existing partners were getting old and they wanted young blood for the promotion of business. Shri Jayakannan being a member of the family and conversant with the trade practices was best suited for the future expansion of the business. Therefore, one of the main conditions, namely, rendering of services to the firm is very much in evidence in his admission. Shri Jayakannan had sufficient credit balance in Majestic Match Industries in the form of his capital. As per the account copy furnished there is a time lag between the date of admission and introduction of capital. The ITAT, Madras Bench in the decision cited above has observed that the introduction of capital even though slightly late cannot be ignored while considering the adequacy of consideration.
In the case of Shri Jayakannan, the capital was brought in much before the close of the accounting year even though it was later than the date of admission. Considering the ruling of the Madras High Court in the case of Annamalai Nadar and the decision of the ITAT, Madras Bench cited above, the minor has been admitted to the benefits of partnership with due consideration.
Similarly, in the case of Shri A.M.S. Guruswamy Nadar the AAC accepted the contention of the assessee and observed as under : 3. An identical issue has been decided by the ITAT, Madras Bench in Gift-tax Officer, Virudhunagar v. A.M.S. Ganesan, Sivakasi in GT Appeal No. 37 (Mad.) of 1983 dated 15-3-1983. In the circumstances similar to a present case the ITAT has held that there is no transfer attracting gift in the above case. A perusal of the partnership deed on the strength of which the reconstitution was effected indicates that the principal intention was to instil young blood in the business. Shri Parthasarathy, in whose favour the appellant has surrendered 20 per cent share, had already a credit balance with the firm, Arasan Match Industries. On 31-3-1977 the above credit balance along with funds brought in by the partner has been treated as his capital of Rs. 35,000. The account copy of Shri Parthasarathy reveals that he has brought in capital in view of his admission as a partner in the firm. It has been held by various High Courts that contribution of labour and share in future losses would be ample consideration for the admission of a new partner. In the instant case there is no dispute regarding the appellant's right to share future losses. His induction in the partnership was made with a view to admitting new blood which presupposes contribution of labour and skill by the incoming partner for the future growth of the business. On this issue the appellant's case finds much support in the case of Addl. CGT v. A.A. Annamalai Nadar  113 ITR 574 (Mad.). It is also to the credit of the new partner that he has brought in capital. It may be argued that the capital was brought in only towards the close of the accounting year. But the ITAT, Madras Bench, in the decision cited above has endorsed the above act as sufficient consideration.
6. Aggrieved by the orders of the AAC, the department has filed the present appeals.
7. Before us, the learned representative of the department reiterated the arguments of the GTO. He submitted that Shri C. Jayakannan was a minor and so he could not render any services to the firm. He further submitted that Shri G. Parthasarathy had also no experience in the line of business carried on by the firm and so his admission to the partnership was meaningless. He, therefore, urged that Smt. G.Saraswathi Ammal and Shri A.M.S. Guruswamy Nadar had relinquished their shares in the goodwill of the firm in favour of their sons without any consideration and so the cases attracted levy of gift-tax. In support of his agruments, he referred to CGT v. S. Rukmani Ammal  87 ITR 549 (Mad.). This authority lays down that when a father converts his sole proprietary business into a partnership business by taking in his major sons as partners and admitting his minor son to the benefits of the partnership, there is a gift which is not exempt under Section 5(1)(xiv) of the Act. The learned representative of the department also referred to the decision of the Madras High Court in CGT v. V.A.M. Ayya Nadar  73 ITR 761 and that of the Kerala High Court in CGT v.Ganapathy Moothan  84 ITR 758. According to him, therefore, the orders of the GTO deserved to be restored.
8. The learned representative of the assessee, on the other hand, submitted that both Shri C. Jayakannan and Shri G. Parthasarathy were to contribute capital in the firm, that Shri G. Parthasarathy was also to render services to the firm and bear the losses of the business and that these factors constituted valid consideration for admitting them into the partnership. According to him, therefore, there was no taxable gift and the AAC was justified in cancelling the orders of the GTO. In support of bis arguments he relied upon the decisions of the Madras High Court in the case of Addl. CGT v. A.A. Annamalai Nadar  113 ITR 574 and CGT v. N. Palaniappa Mudaliar  113 ITR 440. He also referred to the decision of the Madras High Court in the case of CGT v.Ali Hussain M. Jeevaji  123 ITR 420. In addition, he brought to our notice a decision of the Tribunal in a similar case of GTO v.A.M.S. Ganesan [GT Appeal No. 37 (Mad.) of 1982, dated 15-3-1983], wherein similar claim of the assessee in that case was accepted. The learned representative of the assessee, accordingly, pleaded that the orders of the AAC were unassailable.
9. After going through the record and hearing the learned representatives of the parties, we are of the opinion that the impugned orders of the AAC are sound and call for no interference. It is not disputed that Shri C. Jayakannan and Shri G. Parthasarathy contributed capital for becoming partners of the firm. It is not the case of the department that the contribution of capital was illusory. Again, it is also not in dispute that Shri G. Parthasarathy had to bear the losses of the business. In such a situation, it cannot be said that the existing partners, namely, Smt. G. Saraswathi Ammal and Shri A.M.S.Guruswamy Nadar, relinquished their shares in the goodwill of the business in favour of Shri C. Jayakannan and Shri G. Parthsarathy without any consideration. It has been held by the Madras High Court in the case of A.A. Annamalai Nadar (supra) that contribution of capital, rendering of services and sharing in future liabilities and losses would all constitute consideration for the admission of new partners into the firm and there would be no question of any gift liable to tax where the major and minor sons of a partner are admitted into the partnership in lieu of capital contributed by them and the services rendered by major partners. This authority further lags down that so far as the minor partners are concerned, there is no transfer of any assets as such to them so that there could be no gift of any goodwill in their favour. This view has been endorsed by the Madras High Court in another case of Ali Hussian M. Jeevaji (supra). It is true that a contrary view has been taken by the Madras High Court in the case of S.Rukmani Ammal (supra), but we would, with respect, follow the decision of the Madras High Court in A.A. Annamalai Nadar's case (supra) as the same has been approved by the same High Court in Ali Hussain M.Jeevaji's case (supra).
10. In the light of the two authorities of the Madras High Court, i.e., A.A. Annamalai Nadar's case (supra) and Ali Hussain M. Jeevaji's case (supra) which squarely cover the point at issue before us and which are binding on us, it is not necessary to discuss the other authorities cited by the learned representative for the department, i.e., Ganapathy Moothan's case (supra) aad CGT v. K.P.S.V. Duraiswami Nadar  91 ITR 473 (Mad.).
11. In view of the above discussion, we hold that since both the new partners contributed capital and Shri G. Parthasarathy also agreed to bear the losses of the business, the AAC has rightly held that the relinquishment of their shares by Smt. G. Saraswathi Ammal and Shri A.M.S. Guruswamy Nadar in favour of their sons did not constitute gifts liable to tax under the Act. We, therefore, confirm the impugned orders of the AAC.