Partnership share reallocation is not a taxable gift unless the Revenue proves inadequate consideration.

A reallocation of partnership shares, even with a corresponding increase for one partner, is not by itself a taxable gift under the Gift Tax Act. The decisive issue is whether the Revenue can prove, on relevant evidence, that the transfer was made for inadequate consideration. Where the incoming partner contributes additional capital, provides collateral security and offers a personal guarantee, those elements may constitute consideration for the revised profit-sharing arrangement. Arithmetical comparison of profit shares alone is insufficient to satisfy the Revenue's burden. On the stated facts, the transaction fell outside the charging provision for gift tax.

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Issues: Whether the reallocation of partnership shares, accompanied by additional capital contribution, collateral security and personal guarantee from the incoming partner, amounted to a gift exigible to tax under Section 4(1)(a) of the Gift Tax Act, 1958.

Analysis: A mere reduction in one partner's profit share and corresponding increase in another's share does not by itself establish a taxable gift. The decisive question is whether the Revenue has proved, on relevant evidence, that the transfer of share was for inadequate consideration. On the facts found, the partner in whose favour the shares were enhanced had contributed additional capital, furnished collateral security and offered personal guarantee for the firm's financial dealings. These factors had to be assessed together as the consideration for reallocation. The Revenue's reliance on arithmetical comparison of profits, without meeting the evidentiary burden to show inadequacy of consideration, was insufficient to bring the transaction within the charging provision.

Conclusion: The transaction did not constitute a gift under Section 4(1)(a) of the Gift Tax Act, 1958, and the finding was in favour of the assessee.

Final Conclusion: The assessment made by the Revenue could not be sustained, and the appeal was liable to be dismissed.

Ratio Decidendi: In a partnership reconstitution, reduction of one partner's share and corresponding increase in another's share is not, by itself, a taxable gift; the Revenue must prove by relevant evidence that the reallocation was without adequate consideration.

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