Gift-tax on partnership reconstitution requires proof of excess assets and insufficient capital before any taxable transfer is found.

Gift-tax liability on reconstitution of a partnership is not presumed merely because a partner's profit share is reduced or goodwill is said to have been transferred. Liability depends on the facts, including whether the firm's assets, with goodwill, exceeded its liabilities and whether incoming partners or minors contributed sufficient capital. Where no material shows such excess value or inadequate contribution, the settled criteria for treating the transaction as a taxable gift are not met, and no gift-tax is payable.

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Issues: Whether the assessee was liable to gift-tax on reconstitution of the partnership and reduction of her profit share, including any alleged transfer of goodwill.

Analysis: The Tribunal's view was based on the principle that a gift-tax liability on retirement or reconstitution of a firm cannot be presumed as a matter of general rule. It must be shown, on the facts, that the value of the firm's assets including goodwill exceeded its liabilities and that the incoming partners or minors had not brought sufficient capital. In the present case, there was no material showing that the earlier firm's assets, including goodwill, exceeded its liabilities, and the incoming partners, including the minor, had brought sufficient capital. The court found no reason to depart from the settled criteria already laid down in earlier decisions.

Conclusion: The assessee was not liable to pay gift-tax.

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