B.K. Mehta, J.
1. A few facts need be stated to appreciate the question which has been referred to us by the Appellate Tribunal. The relevant assessment year in this case is 1963-64. The assessee was a partner in the firm carrying on business under the name and style of M/s. Chhotalal Vadilal. There were two other partners besides the respondent-assessee. A partnership deed of November 12, 1958, was executed between the partners in respect of the said partnership business. According to the said partnership deed, the respondent-assessee had seven annas interest whereas the other two partners, namely, Shri Gunvantlal Chhotalal and Shri Pravinchandra Vadilal, had four annas and five annas share, respectively, in the profit and los of the partnership business. It appears that this partnership continued till the assessment year 1962-63. However, from the beginning of S. Y. 2018, relevant to the assessment year 1963-64, with which we are concerned here, there was a change in the constitution of the firm. A new partnership deed was executed on November 1, 1961, between the respondent-assessee, Gunvantlal Chhotalal and Ramniklal Chhotalal. According to this new partnership deed the respondent-assessee's share was fixed at 25% in the profit and loss of the business. Gunvantlal Chhotalal continued to have 25% of share in the new partnership business. The original partners, Shri Pravinchandra Vadilal, retired and Ramniklal Chhotalal, the son of the respondent-assessee, joined the partnership business in his place. The two minor sons of the respondent-assessee, Kiritkumar and Deepakkumar, were admitted to the benefits of partnership having 12% and 13% shares, respectively, in the profits of the partnership business. Ramniklal Chhotalal was given 25% share in the profit and loss of the new partnership business. It appears that the Gift-tax Officer on the above facts held that the assessee by depriving himself of the 19% share of profit, gifted away 19% share in the goodwill of the firm. The value of the goodwill was determined at Rs. 2,22,021 and the respondent-assessee's share at 19% therein was determined at Rs. 42,184 which was treated as the amount liable to bear gift-tax. The respondent-assessee, therefore, went in appeal before the Appellate Assistant Commissioner, who, however, held, relying on the decision of the Gujarat High Court in Commissioner of Gift-tax v. Karnaji Lumbaji, that there was no gift of the goodwill by the respondent-assessee. It appears, however, that the learned Appellate Assistant Commissioner held that though there was no gift in respect of the share of the respondent-assessee in goodwill, there was gift of the right to receive future profits in favour of the minors, Kiritkumar and Deepakkumar. He, therefore, proceeded to value the said right and ultimately determined the value of gift at Rs. 1,44,247. The respondent-assessee, therefore, went in appeal before the Tribunal. The Tribunal confirmed the view of the Appellate Assistant Commissioner that there was no gift of the share of the respondent-assessee in the goodwill. It then proceeded to examine the definition of 'gift' under the Gift-tax Act and was of the opinion, having regard to the said definition, that in order to attract the liability under the Gift-tax Act, there should be transfer of existing movable or immovable property. In the opinion of the Tribunal, the right to share future profit was a future property and not existing property. As the right to share future profit was not considered to be existing property, the Tribunal held that there was no gift of any property and in that view of the matter, allowed the appeal of the respondent-assessee and set aside the order of the Appellate Assistant Commissioner. At the instance of the revenue, therefore, the Tribunal has referred the following two questions to us :
'(1) Whether, on the facts and in the circumstances of the case, the benefits of partnership given to minors, Kiritkumar Chhotalal and Deepakkumar Chhotalal, was a gift under the Gift-tax Act, 1958 ?'
(2) Whether, on the facts and in the circumstances of the case, there was a gift under the provisions of the Gift-tax Act, 1958, when Shri Ramniklal Chhotalal joined as a partner ?'
2. At the time of hearing of this reference, Mr. K. H. Kaji, the learned advocate appearing on behalf of the revenue, did not press question No. 2, in view of the decision of this court in Commissioner of Gift-tax v. Karnaji Lumbaji. As regards question No. 1, his contention is that in so far as there was reconstitution of the firm between the respondent-assessee, Gunvantlal Chhotalal and Pravinchandra Vadilal, whereby Pravinchandra Vadilal retired and Ramniklal Chhotalal joined the business of partnership in his place and the two minor sons of Chhotalal were admitted to the benefits of partnership, the result was that the share of Chhotalal, respondent-assessee herein, was reduced from 44 paise in the profits of the said old partnership business to 25 paise in the new partnership business and the value of his property was diminished. Consequently and to that extent, therefore, there was a transfer of property which would be included within the definition of the term 'gift' under section 2(xii) of the Gift-tax Act. In the submission of Mr. Kaji, therefore, the Tribunal was in error in holding that there was no transfer of any existing movable property and what was transferred was only the right to receive profits in future.
3. In order to appreciate this contention of Mr. Kaji, we refer to a few of the relevant provisions of the Gift-tax Act. Section 2(xii) of the Gift-tax Act defines what is a 'gift'. It reads as under :
'2. Definitions. - In this Act, unless the context otherwise requires, - (xii) 'gift' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer of any property deemed to be a gift under section 4.'
4. The term 'property' has been defined by clause (xxii) of section 2, which reads as under :
'(xxii) 'property' includes any interest in property, movable or immovable.'
5. The term 'transfer of property' is defined in clause (xxiv) of section 2. The said definition so far as it is relevant for the purposes of the contention of Mr. Kaji provides as under :
'(xxiv)' '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, - ......
(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.'
4. Section 4 provides for transfers which are included in the term 'gift' for the purposes of the said Act. The relevant clause on which reliance has been placed by Mr. Kaji for the purpose of this reference provides as under :
'4. Gifts to include certain transfers. - For the purposes of this Act, - .....
(d) where a person absolutely entitled to property causes or has caused the same to be vested in whatever manner in himself and any other person jointly without adequate consideration and such other person makes an appropriation from or out of the said property, the amount of the appropriation used for the benefit of the person making the appropriation or for the benefit of any other person shall be deemed to be a gift made in his favour by the person who causes or has caused the property to be a gift made in his favour by the person who causes or has caused the property to be so vested.'
5. It was, therefore, urged that if by the reconstitution of the firm, the respondent-assessee has reduced his share by accepting 25% instead of 44% (which is equivalent to seven annas in a rupee) he diminished to that extent the value of his own property and releases or abandons the same in favour of the minors and to that extent it is a transfer of property which comes within the mischief of the definition of the word 'gift', and, therefore, must bear the liability of gift-tax.
6. It is no doubt an ingenious contention which has been urged on behalf of the revenue. In the first instance, the benefits to which the minors, Kiritkumar and Deepakkumar, have been admitted under the reconstituted firm were to the extent of 12% and 13%, respectively, in the profit of the business of the new partnership firm. Under the old partnership, one Pravinchandra Vadilal was entitled to five annas share (which is equivalent to about 31%). The new partner, Ramniklal Chhotalal, who joined the new partnership business from November 9, 1961, was given a share of 25% in the profit and loss of the business. In those facts, it, therefore, cannot be said that the share of 25% which has been given jointly to the two minors was any relinquishment or abandonment by the respondent-assessee. In the second place, assuming that the right to share in the profits of a partnership business is a property, even then, it cannot be said that when the firm was reconstituted and the minor sons were admitted to the benefits of the partnership business, there was consequently a relinquishment or abandonment of any debt, contract or other actionable claim or any interest in the property of any person. We, therefore, cannot uphold the contention of Mr. Kaji that to the extent to which as a result of the reconstitution the share of the respondent-assessee was reduced, to that extent there was a relinquishment or abandonment of any interest in the property. The partnership has been defined under section 4 of the Partnership Act as the relation between persons who have agreed to share the profits of a business carried on by all any of them acting for all and the partners who have entered into partnership with one another are called individually 'partners' and collectively 'a firm'. It should be noted that the minors when they were admitted to the benefits of a partnership did not become by themselves the partners of the firm. They are admitted to the benefits of partnership with the consent of all the partners. It, therefore, cannot be said that when a firm is reconstituted and as a result of its reconstitution shares of some partners who have continued after the reconstitution have been diminished and the new partners who joined the partnership business after reconstitution have been given some shares by the adjustment of the shares amongst the old partners, there is a transfer of property within the meaning of section 2(xxiv) of the Gift-tax Act. Clause (d) of sub-section (xxiv) of section 2 on which reliance has been placed by Mr. Kaji postulates that a transaction should have been entered into between two persons with the intention thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person. It cannot be said that when the minors are admitted to the benefits of partnership a transaction was entered into between the minors and the adult partners of the firm. In our opinion, therefore, clause (d) does not take the case of the revenue any further with the result that there would be no transfer of property and without transfer of property section 2(xii) of the Act is not attracted.
7. The result, therefore, is that we answer question No. 1 in favour of the assessee that, on the facts and in the circumstances of the case, the benefits of partnership given to minors, Kiritkumar Chhotalal and Deepakkumar Chhotalal, was not a gift under the Gift-tax Act, 1958. The applicant will pay costs of this reference to the respondent.