1989 (12) TMI 97 - AT - Income Tax

Assessee's Share in Goodwill: Tribunal Deems Relinquishment a Gift Under Gift-tax Act

Assistant Commissioner Of Gift-Tax. Versus GD. Mahajan.

The Tribunal held that the relinquishment of the assessee's share in the goodwill of the firm constituted a gift under the Gift-tax Act. The value of the ... A Partner, Assessment Year, Partnership Deed, Share In Firm Issues Involved:1. Whether the relinquishment of the assessee's share in the goodwill of the firm constitutes a gift under the Gift-tax Act.2. Determination of the value of the assessee's share in the goodwill for the purpose of gift-tax assessment.Issue-wise Detailed Analysis:1. Whether the relinquishment of the assessee's share in the goodwill of the firm constitutes a gift under the Gift-tax Act:The primary issue was whether the relinquishment by Smt. Raj Devi of her share in the goodwill of the firm constituted a gift under the Gift-tax Act. The Gift-tax Officer initiated proceedings on the basis that Smt. Raj Devi, who had a 15% share in the firm M/s. Mahajan Overseas, surrendered her right in the goodwill in favor of the other partners, which was valued at Rs. 4,54,000. The Commissioner of Gift-tax (Appeals) held that the value of the assessee's share in the goodwill was Rs. 40,000 and that no gift-tax liability was attracted as the relinquishment did not constitute a gift.The Tribunal examined the definition of 'gift' under section 2(xii) of the Gift-tax Act, which includes the transfer of any property deemed to be a gift under section 4. The Tribunal noted that the Supreme Court in Khushal Khemgar Shah v. Khorshed Banu Dadiba Boatwalla held that goodwill of a firm is an asset, and its transfer would constitute a gift. Additionally, in CGT v. Chhotalal Mohanlal, the Supreme Court held that when minors are admitted to the benefits of a partnership, the reduction in the existing partner's share constitutes a gift.The Tribunal concluded that the assessee's relinquishment of her share in the goodwill amounted to a gift. It further held that the abandonment or relinquishment of her right in the goodwill of the firm on 18-9-1979 under section 4(1)(c) of the Gift-tax Act constituted a gift, as it was not demonstrated to be bona fide. The Tribunal emphasized that the partnership deed dated 1-1-1978 specifically mentioned that the goodwill belonged to all partners in proportion to their shares, and thus, the assessee was entitled to her share in the goodwill at the time of her retirement.2. Determination of the value of the assessee's share in the goodwill for the purpose of gift-tax assessment:The second issue was the determination of the value of the assessee's share in the goodwill for the purpose of gift-tax assessment. The Gift-tax Officer had adopted the value of Rs. 4,54,000 based on an earlier Estate Duty order, which was set aside by the Tribunal in 1985. The Commissioner of Gift-tax (Appeals) determined the value of the assessee's share in the goodwill to be Rs. 40,000.The Tribunal noted that the Revenue did not raise any specific objection to the valuation of Rs. 40,000. The Tribunal also reviewed the computation of the goodwill value provided by the assessee and found it to be proper and reasonable. Consequently, the Tribunal held that the value of the assessee's share in the goodwill was Rs. 40,000 and directed the Gift-tax Officer to compute the gift-tax liability accordingly.Conclusion:The Tribunal concluded that the relinquishment of the assessee's share in the goodwill of the firm constituted a gift under the Gift-tax Act and determined the value of the assessee's share in the goodwill to be Rs. 40,000. The Revenue's appeal was allowed to the extent of recognizing the transaction as a gift, but the valuation determined by the Commissioner of Gift-tax (Appeals) was upheld.