Partnership profit share reduction was not a taxable gift where the incoming partner contributed capital and worked in the business.

Reduction in an assessee's profit share on admitting his son as a partner was not a taxable gift where the incoming partner contributed capital and was engaged as a working partner for office work and general administration under the partnership deed. The consideration was treated as adequate because the diminished profit share was supported by the son's capital contribution and participation in the business. Revenue authorities' reliance on other cases was distinguished on the basis that those decisions involved materially different facts, including absence of capital contribution by the incoming partner. Gift-tax was therefore not leviable.

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Issues: Whether the reduction in the assessee's profit share on admission of his son as a partner, in the circumstances of capital contribution and working participation by the incoming partner, constituted a taxable gift.

Analysis: The incoming partner contributed capital and was also shown as a working partner responsible for office work and general administration under the partnership deed. On these facts, the reduction in the assessee's share was supported by adequate consideration. The authorities relied on by the Revenue were distinguished on the footing that they involved materially different factual situations, including cases where there was no capital contribution by the incoming partner.

Conclusion: The arrangement did not amount to a gift and gift-tax was not leviable. The assessee succeeded.

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