Deemed gift under gift-tax law fails where a retiring partner has no surviving right to future partnership profits.

A retiring partner who surrenders his interest in a firm while enabling the admission of his son as a partner was held not to make a deemed gift under section 4(1)(c) of the Gift-tax Act, 1958. The Tribunal reasoned that on retirement a partner ceases to have any enforceable right to future profits of the firm, so no subsisting property right remains capable of transfer. A non-existent future profit right cannot be treated as gifted property. On that basis, the Revenue's attempt to characterise the retirement as a transfer of future profit rights was rejected and the addition was not sustained.

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Issues: Whether a retiring partner, on surrendering his interest in a firm and facilitating the induction of his son as a partner, can be treated as having made a deemed gift under section 4(1)(c) of the Gift-tax Act, 1958.

Analysis: The decisive question was whether a retiring partner retained any enforceable right to receive future profits from the firm. The Tribunal accepted the view that on retirement the partner ceases to have any right to future share income in the partnership. If no such future right survives after retirement, there is nothing capable of being gifted. A non-existent right cannot constitute property for the purpose of the gift-tax provision. The Revenue's characterisation of the retirement as a transfer of future profit rights was therefore rejected.

Conclusion: The transaction did not amount to a deemed gift and the addition could not be sustained; the issue was decided in favour of the assessee.

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