Retiring partner's waiver of investment allowance reserve share did not create a deemed gift under gift-tax law.

A retiring partner's non-claim of any share in the investment allowance reserve was not treated as a deemed gift under section 4(1)(c) of the Gift-tax Act. The reasoning was that the Revenue had not shown the reserve to be an asset or property capable of transfer, nor established the ingredients needed for a deemed gift. Applying the settled principle that a partner on retirement receives only the value of his share in the partnership assets, the Court extended the same approach to the investment allowance reserve and held that abandonment of that share did not attract gift-tax.

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Issues: Whether the assessee's abandonment of his share in the investment allowance reserve on retirement from the partnership firm constituted a deemed gift under section 4(1)(c) of the Gift-tax Act.

Analysis: The assessee, on retirement, received his share in the capital account but did not claim any share in the investment allowance reserve. The Tribunal had held that the Revenue failed to establish that the reserve was an asset or property capable of being transferred, or that the essential ingredients of section 4(1)(c) were satisfied. Following the settled principle that a retiring partner merely receives the value of his share in the partnership assets and that non-claim of a share in goodwill or similar reserve does not amount to a transfer attracting gift-tax, the Court applied the same reasoning to the investment allowance reserve.

Conclusion: The abandonment of the share in the investment allowance reserve did not constitute a deemed gift under section 4(1)(c) of the Gift-tax Act, and the question was answered in favour of the assessee.

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