Gift-tax on partnership reconstitution turns on whether reduced partner interests and minors' admission lacked adequate consideration.

On reconstitution of a partnership, a reduction in an existing partner's share coupled with admission of minors to the benefits of partnership may amount to a transfer of property under the Gift-tax Act if the transferred interest is not supported by adequate consideration. The earlier Gujarat view that no gift arose merely because partnership shares were adjusted could not be followed after the Supreme Court's later position on money value transferred without consideration. The Tribunal had not separately examined whether the minors' capital contribution of Rs. 4,000 each was adequate consideration for the rights conferred, so that issue required fresh factual consideration and valuation analysis. The matter was therefore sent back for reconsideration on consideration and adequacy of value.

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Issues: Whether the diminution of the assessee's share on reconstitution of the firm and admission of minors to the benefits of partnership constituted a gift under the Gift-tax Act, and whether the minors' contribution towards capital furnished adequate consideration.

Analysis: The earlier view that no gift arose merely because the partners' shares were adjusted on reconstitution could not stand after the Supreme Court held that where a partner's interest is diminished and a corresponding right is conferred on incoming minors, the money value of the transferred interest may amount to property transferred without consideration. The Tribunal had relied on the overruled Gujarat view and had not examined the separate question whether the minors' contribution of Rs. 4,000 each was adequate consideration for the shares allotted to them. That aspect required fresh consideration on the facts.

Conclusion: The Tribunal was not justified in holding that no gift was made solely on the basis of the earlier Gujarat decision. The matter had to be reconsidered, including the adequacy of the capital contribution as consideration.

Final Conclusion: The reference was answered against the assessee on the main legal issue, but the case was sent back for reconsideration of consideration and valuation aspects.

Ratio Decidendi: On reconstitution of a partnership, if a partner's interest is reduced and minors are admitted to the benefits of partnership without adequate consideration, the resulting transfer of the money value of that interest can constitute a gift.

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