Retiring partner's settlement of accounts did not create a gift or deemed gift where no subsisting right to goodwill remained.

Retirement of partners after settlement of capital and credit balances did not, on the facts, amount to a gift or deemed gift under the Gift-tax Act. The deciding point was that once the retiring partners received all amounts due to them, they had no subsisting right to future profits to relinquish, and the deeds did not confer any entitlement to goodwill. The firms were at will, and the record did not establish any taxable transfer of interest in goodwill or other property. Gift-tax was therefore not leviable.

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Issues: Whether the retirement of the partners from the dissolved firms and receipt of their capital and credit balances without any separate amount for goodwill amounted to a gift or deemed gift liable to gift-tax.

Analysis: The governing distinction is between a case of realignment of profit-sharing rights among continuing partners and a case where a partner retires after taking away all amounts due to him from the firm. In the latter situation, there is no relinquishment of a future right to share profits, because the retiring partner ceases to have any such right once his accounts are settled. Goodwill, where relevant, has to be valued on a super-profit basis after allowing reasonable remuneration to working partners and reasonable interest on capital. On the facts, the partnership deeds and dissolution deeds did not provide any entitlement to goodwill, the firms were at will, and the record did not establish any taxable transfer of an interest in goodwill or any other property.

Conclusion: The retirement transactions did not amount to a gift or deemed gift, and gift-tax was not leviable.

Ratio Decidendi: A partner who retires after receiving all amounts due on settlement of accounts does not transfer or relinquish any subsisting right to future profits or goodwill, and such retirement does not by itself constitute a gift or deemed gift under the Gift-tax Act.

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