Partnership reconstitution with consideration in money or money's worth falls outside the definition of gift and avoids gift-tax.

A reduction in a partner's share on reconstitution of a partnership is not a gift if the incoming partners contribute capital, assume liabilities and future losses, and join for business expansion and administrative support. The operative test is whether the transfer is voluntary and without consideration in money or money's worth; where such consideration exists, the transaction falls outside the statutory definition of "gift". On the stated facts, the reduction in partnership shares did not attract gift-tax.

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Issues: Whether the reduction in a partner's share on reconstitution of a partnership, accompanied by admission of new partners who contributed capital and assisted in expansion and administration of the business, amounted to a gift liable to gift-tax.

Analysis: A transfer falls within the definition of "gift" only if it is made voluntarily and without consideration in money or money's worth. The Tribunal found that the newly admitted partners contributed capital, shared liabilities and future losses, and were taken in for expansion of the business and for obtaining fresh financial resources and administrative facilities. That finding was supported by the partnership deed and materials on record. Once consideration in money or money's worth existed, the transaction could not be treated as a gift.

Conclusion: The reduction in the assessees' partnership shares did not constitute a gift and was not liable to gift-tax.

Ratio Decidendi: Where a reduction in partnership share occurs pursuant to reconstitution of the firm in return for consideration in money or money's worth, the transaction is outside the statutory definition of "gift" and no gift-tax liability arises.

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