Retiring partner's no right to future profits means no transfer of property and no gift-tax liability.

A retiring partner who receives capital, accrued profits and settlement amounts on dissolution or retirement does not thereby transfer property in future profits under section 2(xxiv) of the Gift-tax Act, 1958. Once membership of the firm ends, the partner has no continuing right to future profits, so that alleged right cannot be treated as property capable of gift. The court rejected the argument that every retirement necessarily involves a surrender of future profit rights, and distinguished cases where a partner merely remained in the firm after reconstitution and his profit share was adjusted. Gift-tax was therefore not leviable, and the issue was answered in favour of the assessee.

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Issues: Whether a partner who retires from a firm and receives his share of capital, profits and assets thereby relinquishes a right to share in future profits so as to attract gift-tax under section 2(xxiv) of the Gift-tax Act, 1958.

Analysis: On retirement, the partners received what was due to them on settlement of accounts, including their capital and accrued profits. A retiring partner has no continuing right to future profits after cessation of membership of the firm, and a non-existent right cannot be treated as property capable of being gifted. The theory that every retirement necessarily involves a surrender of future profit rights was rejected as untenable. The earlier decision concerning a continuing partner whose profit share was reduced during reconstitution was distinguished because, there, the partner remained in the firm and his existing profit entitlement was realigned without a corresponding reduction in capital.

Conclusion: The retirement did not amount to a transfer of property falling within section 2(xxiv) of the Gift-tax Act, 1958, and no gift-tax was leviable; the answer was in favour of the assessee.

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