Retiring partner's settlement share is not a taxable gift under the Gift-tax Act when no transfer to continuing partners occurs.

On a partner's retirement from a firm, the amount received on settlement of his share is not treated as a transfer of property constituting a gift under the Gift-tax Act. A retiring partner is entitled only to the value of his share in the partnership assets after liabilities, and any shortfall from market value, including where goodwill is not separately valued, does not amount to a transfer by the retiring partner to the continuing partners. The word "settlement" in the statutory definition refers to a settlement upon trust, not a settlement of accounts. Accordingly, no gift arose on the facts, and gift-tax was not chargeable.

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Issues: Whether, on a partner's retirement from a firm, the amount received on settlement of his share can be treated as a transfer of property constituting a gift liable to gift-tax.

Analysis: The definition of gift under the Gift-tax Act requires a voluntary transfer of property without consideration in money or money's worth, and the expression transfer of property includes disposition, conveyance, assignment, settlement, delivery, payment, or other alienation. On retirement from a partnership, the firm continues and the retiring partner is entitled only to the value of his share in the partnership assets after liabilities. Even if the amount received is less than the market value because goodwill is not separately taken into account, the difference is not a transfer by the retiring partner to the continuing partners. The word settlement in the statutory definition refers to a settlement upon trust and not a settlement of accounts. The earlier decision concerning admission of minors to benefits of partnership was distinguishable because it involved a notional transfer of a share on reconstitution.

Conclusion: No gift arose on the facts of the case, and the assessee was not liable to gift-tax on his retirement from the firms.

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