Partnership reconstitution with capital contribution and business obligations was full consideration, so no deemed gift arose for estate duty.

A reconstitution of a partnership that reduced the deceased partner's share was not treated as a gift for estate duty purposes because the incoming major son and minor son supplied full consideration in money or money's worth. The major son agreed to manage the business, shared losses, and contributed capital equally with the other partners, while the minor son also brought in capital. On those facts, the benefit received by the deceased was adequate consideration, so the deemed-passing provision did not apply and the amount was not includible in the principal value of the estate.

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Issues: Whether the reduction in the deceased's share in the reconstituted partnership, with admission of his major son as partner and minor son to the benefits of the partnership, amounted to a disposition treated as a gift and attracted estate duty under the deemed-passing provisions.

Analysis: The decisive question was whether the transaction fell within the exception to the deeming rule for dispositions in favour of relatives, namely whether full consideration in money or money's worth had been paid for the deceased's use or benefit. The incoming major son undertook to attend diligently to the management and conduct of the business, became liable to share losses, and contributed capital equally with the other partners. The minor son also contributed capital. On the facts, the benefit received by the deceased from these arrangements constituted adequate consideration. Since the transaction was supported by full consideration, it could not be treated as a gift, and the deemed-passing provision could not be invoked.

Conclusion: The arrangement did not amount to a gift, and the amount in question was not includible in the principal value of the deceased's estate.

Final Conclusion: The reference was answered against the revenue and in favour of the accountable person, and the addition made on account of goodwill was not sustained.

Ratio Decidendi: A reconstitution of a partnership in which incoming partners contribute capital, undertake business responsibilities, and share losses supplies full consideration in money or money's worth; therefore, a reduction in the outgoing partner's share does not constitute a gift or a deemed gift for estate duty purposes.

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