D.K. Kapur J.
1. The Income-tax Appellate Tribunal has made this reference under section 26(1) of the Gift-tax Act, 1958. It relates to the assessment year 1963-64 and is concerned with the question whether any gift has been made in favor of minor, Shri Virender Kumar Katyal, by reason of his being admitted to the benefits of partnership. The question referred is as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no transfer of goodwill by the assessed when his minor son, Virender Kumar, had been admitted to the benefits of partnership and that there could be no deemed gift as there had been no transfer of goodwill ?'
2. The facts of the case are that there is a partnership, M/s. Bhagwan Dass & Co., Kashmere Gate, Delhi, in which the partners were as per partnership deed dated April 1, 1959, Shri Bhagwan Dass Katyal and his son, Shri Harinder Katyal. According to this deed, the shares in the profits and losses in the firm were equal between the partners. By another partnership dated April 1, 1962, another son of Shri Bhagwan Dass, namely, Shri Virender Kumar Katyal, minor, was admitted to the benefits of the partnership. According to this deed, Shri Virender Kumar, minor, had been admitted to the benefits of the partnership to the extent of 40% in the profits only. The two partners to the deed, Shri Bhagwan Dass and Shri Harinder Katyal. had to receive 20% and 40% of the profits, respectively, but their share in the loss was 50% each.
3. The Gift-tax Officer held that Shri Bhagwan Dass had parted with his portion of the right to get profit to the extent of 30% in favor of his son, Virender Kumar Katyal, without adequate consideration and hence there was an implied gift in the accounting year relevant to the assessment year. The conclusion was that there was a gift within the meaning of section 2(xii) read with section 2(xxiv)(d) of the Act. The gift was computed as being a transfer of 30% of the goodwill. The value of this goodwill was computed at Rs. 68,995 which was treated as a taxable gift along with a cash gift for Rs. 50,000 made during the same accounting year.
4. On appeal to the Appellate Assistant Commissioner, it was held that there was a transfer of goodwill by Shri Bhagwan Dass which came within the mischief of section 2(xxiv)(d) of the Gift-tax Act and thus the appeal was dismissed.
5. In further appeal to the Tribunal, which heard together two appeals for 1960-61 and 1963-64, it was urged by counsel that M/s. Bhagwan Dass & Co. was a trading concern with no goodwill of its own and that goodwill in any case was not property within the meaning of section 5(1)(xiv) of the Act. The second point was objected to by counsel for the Revenue, but the ground was allowed to be raised as no fresh facts were involved. It was further urged that the quantum of gift had been wrongly determined.
6. After a detailed analysis of the nature of the goodwill and the various provisions of the Gift-tax Act involved, the Tribunal dealt with two separate questions. Firstly, it was held that there was a gift involved in the taking of Shri Harinder Kumar Katyal as a partner in the firm by means of the partnership deed dated April 1, 1959, in respect of the assessment year 1960-61. This is not the point involved in the present reference.
7. As regards assessment year 1963-64, it was held that though the minor had been admitted to the benefits of the partnership, no assets or liabilities of the partnership were transferred to him. Thus, the goodwill was not transferred as the minor had not become a partner. Instead, his right was confined to get a share in the profits in the partnership business. There was thus no transfer of goodwill and hence no gift-tax could be levied. The Tribunal did not deal with the cases cited before it regarding the quantification of the gifts in the two cases.
8. The present reference is limited to the goodwill said to have been transferred to Shri Virender Kumar Katyal, minor, and we have now to determine whether in fact goodwill was transferred to him.
9. Reliance was placed by counsel for the Department on the judgment of the Supreme Court in Khushal Khemgar Shah v. Khorshed Banu Dadiba Boatwalla, : 3SCR689 , to show that goodwill was part of the property of a firm. Reliance was also placed on the judgment of the Calcutta High Court reported as CGT v. Nani Gopal Mondal : 150ITR469(Cal) , wherein it was held that goodwill was an asset of the firm and hence when the assessed transferred his share or interest in the firm by a deed of gift to his three sons, it was a gift of the goodwill. It may be noted that the assessed had a one-third share in the firm which he transferred by a deed of gift to his three sons.
10. In CGT v. Premji Trikamji Jobanputra : 133ITR317(Bom) , the Bombay High Court held in a case where a minor son was admitted to the benefits of the partnership and the share was reduced, that whether the same amounted to a gift of goodwill or not depended on the facts of each case. The court laid down certain propositions to determine whether there was a gift or not. In a sense, this case supports the case of the Revenue before us. But, it may be noted that further facts had to be ascertained before it could actually be determined whether there was a gift or not.
11. In CGT v. A. M. Abdul Rahman Rowther : 89ITR219(Mad) , the assessed gifted Rs. 25,000 to a daughter and a son from the share capital account and then made them partners. It was held there was a gift by virtue of the transfer of the capital and the re-adjustment of the shares of the partnership.
12. In CGT v. Ganapathy Moothan : 84ITR758(Ker) , gifts of money were made by the sole proprietor of a business to his sons. The business was converted into a partnership with the sons and the question was whether the goodwill of the business had been transferred and any gift was involved. The court held that the goodwill of the firm was a property in itself which had a value apart from the assets of the business. The contribution of the partners to the capital of the firm was for working the partnership, but the assessed did not receive any consideration for the transfer and hence there was a gift of the goodwill.
13. In CGT v. P. Gheevarghese, Travancore Timbers and Products : 83ITR403(SC) , decided by the Supreme Court, the assessed formed a partnership with his daughters; the contribution of the daughters was made by transfer of capital from the assessed's account. It was held by the court that no gift-tax was payable on the goodwill of the assessed's business. But, the court held that the amount of Rs. 50,000 paid to the daughters to make a contribution to the share capital was a gift.
14. There is another judgment of the Madras High Court in Addl. CGT v. A. A. Annamalai Nadar  113 ITR 574, in which the assessed converted a proprietary business into a partnership. A major son became a partner and two minor sons were admitted to the benefits of the partnership, each being entitled to a 25 per cent. share in the profits. The Gift-tax Officer had held that by this transaction, the assessed had transferred 75 per cent. of the goodwill in the business, i.e., 25 per cent. to the major son and 50 per cent. to the minor sons.
15. On an interpretation of the agreement, it was held by the court that capital contribution had been made by the three sons and there was an agreement to render services and share losses by the major son and hence there was adequate consideration for the conversion of the proprietary business into a partnership business and so no gift was involved.
16. We have to reconcile these various views.
17. It must be pointed out immediately that there is no reference before us regarding the major son and we are only dealing with the minor sons. The position of a minor admitted to the benefits of the partnership is somewhat different from that of a person who becomes a partner. For this purpose, it is necessary to refer to some of the provisions of the Indian Partnership Act, 1932. Section 30 of this Act can be reproduced here with advantage. It reads :
'30. Minors admitted to the benefits of partnership. - (1) A person who is a minor according to the law to which he is subject may not be a partner in a firm, but, with the consent of all the partners for the time being, he may be admitted to the benefits of partnership.
(2) Such minor has a right to such share of the property and of the profits of the firm as may be agreed upon, and he may have access to and inspect and copy any of the accounts of the firm.
(3) Such minor's share is liable for the acts of the firm, but the minor is not personally liable for any such act.
(4) Such minor may not sue the partners for an account or payment of his share of the property or profits of the firm, save when severing his connection with the firm, and in such case the amount of his share shall be determined by a valuation made as far as possible in accordance with the rules contained in section 48 :
Provided that all the partners acting together or any partner entitled to dissolve the firm upon notice to other partners may elect in such suit to dissolve the firm, and thereupon the court shall proceed with the suit as one for dissolution and for settling accounts between the partners, and the amount of the share of the minor shall be determined along with the shares of the partners.
(5) At any time within six months of his attaining majority, or of his obtaining knowledge that he had been admitted to the benefits of partnership, whichever date is later, such person may give public notice that he has elected to become or that he has elected not to become a partner in the firm, and such notice shall determine his position as regards the firm :
Provided that, if he fails to give such notice, he shall become a partner in the firm on the expiry of the said six months.
(6) Where any person has been admitted as a minor to the benefits of partnership in a firm, the burden of proving the fact that such person had no knowledge of such admission until a particular date after the expiry of six months of his attaining majority shall lie on the persons asserting that fact.
(7) Where such person becomes a partner, -
(a) his rights and liabilities as a minor continue up to the date on which he becomes a partner, but he also becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of partnership, and
(b) his share in the property and profits of the firm shall be the share to which he was entitled as a minor.
(8) Where such person elects not to become a partner, -
(a) his rights and liabilities shall continue to be those of a minor under this section up to the date on which he gives public notice,
(b) his share shall not be liable for any acts of the firm done after the date of the notice, and
(c) he shall be entitled to sue the partners for his share of the property and profits in accordance with sub-section (4).
(9) Nothing in sub-sections (7) and (8) shall affect the provisions of section 28.'
18. This provision deals with what happens when a minor is admitted to the benefits of partnership. The first point to note is that the minor is not a partner in the firm. The second point to note is that the minor's share in the property and in the profits is that which has been agreed to. It is possible thus for the minor to be given a share in the property in the firm and at the same time, it is possible for the minor to be given only a share in the profits of the firm.
19. In the particular case before us, the relevant clause of the partnership deed regarding the minor is as follows :
'4. That Mr. Virender Kumar Katyal (minor) who has been admitted to the benefits of the partnership will receive 40% share out of the profits only.'
20. There is no question of the minor getting any share in the property of the firm. This case is, thereforee, quite different from some of the cases cited earlier in which there has been a gift by a father of his share in the partnership to his sons. We do not find any gift involved in the present case.
21. Now, the next question is whether a gift can be implied in the circumstances like the present because of the provisions of the Gift-tax Act. The first relevant provision is section 2(xii) which defines 'gift' to mean the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration. As seen above, this partnership by which the minor was admitted to the partnership does not include any transfer of movable or immovable property to that minor.
22. If we now turn to the definition of 'transfer of property' in section 2(xxiv), we find that the definition is as follows :
''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, license, power, partnership or interest in property;
(c) the exercise of a power of appointment, whether general, special or subject to any restrictions as to the persons in whose favor the appointment may be made of property vested in any person, not the owner of the property, to determine its disposition in favor 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.'
23. The relevant portion of this definition is to grant or create any partnership or interest in property. It could well be argued that by making a partnership deed, there has been a disposition, conveyance or assignment of an interest in the firm's property. As already analysed, a minor does not become a partner. He can become a partner after he attains majority under the provisions of section 30 of the Partnership Act. But, he may refuse to become a partner as he has an option. So, it cannot be said that any interest in the property of the firm has been transferred by his mere admission to the benefits of the partnership which are restricted in this case to the enjoyment of 40% of the profits. It would be quite another case if some benefit in the property of the firm had also been transferred to the minor under section 30(2) of the Act.
24. We note that in the case before the Bombay High Court in CGT v. Premji Trikamji Jobanputra : 133ITR317(Bom) , referred to earlier, the analysis has proceeded on the basis that the Tribunal had held that when a minor is admitted to the benefits of the partnership, he is also entitled on dissolution of the firm to a share in the surplus assets. But this is not actually a correct analysis of the Partnership Act. No reference was made to section 30 of the Partnership Act which leaves it to the partners of the firm to decide what is the actual benefit conveyed to the minor. No doubt, if a share in the profits is coupled with a transfer of share in the firm, then it might be a case for investigation, but that is not the case before us.
25. In the case before the Madras High Court in Addl. CGT v. A. A. Annamalai Nadar  113 ITR 574, referred to earlier, the Tribunal has held that there was no gift as the transfer of 75% shares was for adequate consideration, but an alternative point was also mentioned which was as follows (p. 576) :
'The Tribunal further held that there was goodwill which could exist in this type of business carried on by the assessed for the supply of sane leaves and pods which had been carried on for a continuous period of 14 years. On the alternative contention, the Tribunal held that the partnership deed did not provide for any share to the minors in the goodwill and that, in view of section 30(2) of the Partnership Act, the goodwill could only be shared by the assessed and his major son and if at all there was a gift, gift-tax could be levied on] y on 50 per cent. of the value of the goodwill of the business.'
26. The court held on this as follows (p. 577) :
'As far as the minor sons are concerned, there was absolutely no transfer of any assets as such so that there could be no gift of any goodwill in their favor.'
27. We agree with this view. We have to hold that on the facts of this case, there was no transfer of any assets in favor of the minor son and so the view of the Tribunal has to be upheld and the question referred to us has to be answered in the affirmative, in favor of the assessed and against the Department. We make no order as to costs as our answer has depended solely on a construction of the partnership agreement and the nature of the benefits given to the minor son.