SETHURAMAN J. - Under section 26(1) of the Gift-tax Act, 1958, the following questions of law have been referred to this court :
T.C. No. 427 of 1971
'Whether, on the facts and in the circumstances of the case, the Appellate tribunal was right in holding that the assessee was not liable to pay gift-tax when his share in the partnership-firm was reduced from 44 per cent. to 20 per cent. as a result of the reconstitution of the firm, by which the brother and the two sons of the assessee became partners ?'
T.C. No. 3 of 1972
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee was not liable to pay gift-tax when his share in the partnership-firm was reduced from 56 per cent. to 25 per cent. as a result of the reconstitution of the firm by which the brother and the two sons of the assessee became partners ?'
The assessees in these two references were partners in a partnership engaged in plying lorries for hire and also in dealing in cotton, etc. The share of the respective assessees was 7 annas and 0 annas in the rupees. The partnership was reconstituted on April 22, 1964, by which the four sons of one and the brother and the two sons of the other were; taken in as partners. As a result of the reconstitution of the firm, the share of Palaniappa Mudaliar concerned in T.C. No. 427 of 1971 was reduced from 44 per cent. to 20 per cent. Similarly, the share of Swaminatha Mudaliar concerned in T.C. No. 3 of 1972 was reduced from 56 per cent. to 25 per cent. The Gift-tax Officer considered that the reduction in the share of the respective assessees was liable to be taxed under the Gift-tax Act and, therefore, he estimated that a sum of Rs. 34,535 was the taxable gift; in one case and Rs. 46,067 was the taxable gift in the other. On appeal before the Appellate Assistant Commissioner, it was contended that the reduction in the respective shares was a transfer for consideration and hence there was no gift attracting liability under the Gift-tax Act. The Appellate Assistant Commissioner held that the admission of the new partners was to effectively supervise and control the business of the firm which had a number of branches in various places and that considering the expansion of the business, the introduction of the new partners was solely for the purpose of the business. He, therefore, allowed the appeals considering the respective transactions to be exempt under section 5(1)(xiv) of the Gift-tax Act. The department appealed to the Tribunal in each of these cases. The Tribunal held that there was no element of gift involved in the reduction of the respective assessees share as a result of the admission of the other persons. The Tribunal has recorded a finding which runs as follows :
'In the instant case (T.C. No. 427 of 1971), the five sons of the assessee have each made a capital contribution of Rs. 10,000 excepting one son, Swaminathan, who has made a capital contribution of Rs. 5,000. This capital contribution by the sons of the assessee is evidenced by the recitals in the partnership deed. The partnership deed further recites that the sons of the assessee have been taken as partners in the partnership-firm in order to secure financial facilities and other facilities for administration of the various branches and to further expand and develop the business. The partnership-firm was carrying on the business of plying lorries for hire with head office at Perundurai and with branches at various places. Before the reconstitution of the partnership, there were only 11 branches. After the reconstitution, by admitting the assessees sons as partners, the number of branches has increased from 11 to 35. The sons of the assessee, who were newly admitted to the partnership, attended to the business of the firm and they shared in the liabilities of the firm and the future losses. In the circumstances, the relinquishment or transfer of the assessees share of 24 np. in the partnership in favour of his sons is not without consideration in money; or moneys worth. Since the transfer is for consideration, there is no gift by the assessee to his sons and hence there is no liability to gift-tax.'
In the appellate order of the Tribunal in T.C. No. 3 of 1972, this conclusion which we have extracted above has been followed. Against these orders of the Tribunal, the Commissioner of Gift-tax has obtained reference of the questions set out already.
There is a clear finding of the tribunal which we have already extracted that the transfer in each of these cases is for consideration. Section 2(xii) of the Gift-tax Act defines 'gift' as meaning, 'the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or moneys worth.....'
In view of the fact that there is a finding of the existence of consideration in money or moneys worth it would follow that there is no gift. We have ourselves looked into the partnership deed in which it is clearly stated that the new partners were being taken for the purpose of expansion of business and for the purpose of getting fresh financial resources. The finding of the tribunal is, therefore, borne out by materials. In the circumstances, the questions referred to us are answered in the affirmative and against the revenue. The assessees will be entitled to their costs. Counsel fee Rs. 250 in each.