Partnership interest transfer without adequate consideration can attract gift-tax even if consideration is hard to quantify on reconstitution.

Reduction of a partner-trust's profit share on reconstitution of a firm was treated as a transfer of partnership interest that can attract gift-tax when it is not supported by consideration in money or money's worth under section 2(xii) of the Gift-tax Act, 1958. The inability to precisely quantify consideration at the time of reconstitution did not, by itself, defeat gift-tax liability. The reasoning in Sunil Siddharthbhai was held inapplicable because it concerned capital-gains computation under the Income-tax Act, not whether a transfer without adequate consideration constituted a taxable gift. The assessee's reduced share was therefore held exigible to gift-tax.

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Issues: Whether reduction of a partner-trust's profit share on reconstitution of a firm amounted to a gift exigible to tax under the Gift-tax Act, and whether the transfer escaped gift-tax merely because the consideration could not be quantified during the subsistence of the partnership.

Analysis: The transfer of an interest in partnership assets, including goodwill where relevant, may constitute a gift if it is not supported by consideration in money or money's worth within the meaning of section 2(xii) of the Gift-tax Act, 1958. The fact that the consideration cannot be precisely valued at the time of reconstitution does not by itself negate the existence of a taxable gift. The reliance on the capital-gains reasoning in Sunil Siddharthbhai was held misplaced, because that decision turned on the computation scheme under the Income-tax Act, 1961 and not on whether a transfer without adequate consideration attracted gift-tax. The Tribunal's view that no gift arose merely because consideration could not be quantified was therefore unsustainable.

Conclusion: The reduction in the assessee's share was held to be exigible to gift-tax, and the Revenue's contention was accepted.

Ratio Decidendi: A transfer of partnership interest is liable to gift-tax where it is not supported by adequate consideration in money or money's worth, and inability to quantify consideration at the stage of subsisting partnership does not preclude assessment as a gift.

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