Partner retirement from a firm is only rights readjustment, not a taxable gift, so gift-tax did not apply.

Retirement of a partner from a firm was held to be only a readjustment of rights in the partnership assets between the retiring and continuing partners. Because there was no relinquishment or transfer of property, the retirement did not amount to a gift, and no gift-tax was chargeable. The Court also followed its earlier view that no goodwill capable of being gifted arose in such a transaction.

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Issues: Whether the retirement of a partner from a partnership firm gave rise to any gift so as to attract gift-tax.

Analysis: The Court applied the settled principle that on retirement of a partner there is only a readjustment of rights between the retiring partner and the continuing partners in the partnership assets. Such retirement does not involve relinquishment or transfer of property, and therefore does not amount to a gift. The Court followed its earlier view that no goodwill capable of being gifted arose in such a transaction.

Conclusion: The retirement of the assessee from the firm did not involve any gift exigible to tax, and gift-tax was not leviable.

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