Retiring partner's share in development rebate reserve cannot be added in reassessment absent proof of relinquishment.

A retiring partner's share in a firm's development rebate reserve could not be brought to tax in reassessment where the firm's net worth was valued under an agreement among all partners at retirement and the reserve had already been taken into account in the settlement. The record showed that the reserve was not treated as a liability to be deducted in computing net assets, the partner's share was properly ascertained and paid off, and there was no material to show a relinquishment of that share. The Department's additional ground also lacked any finding in the lower proceedings, so the proposed addition was not justified.

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Issues: Whether, on the retirement of a partner, the partner's share in the development rebate reserve could be treated as an item omitted from the original gift-tax assessment and brought to tax in reassessment.

Analysis: The net worth of the firm was worked out on the basis of an agreement among all the partners at the time of retirement. The appellate record showed that the development rebate reserve was not treated as a liability to be deducted while valuing the firm's net assets and that the partner's share had been properly ascertained and paid off. On that basis, the reserve had already been taken into account and there was no material to support the Revenue's claim that the retiring partner had relinquished that share. The new ground raised by the Department also had not been the subject of a finding below.

Conclusion: The addition of the sum representing the partner's share in the development rebate reserve was not justified and the assessee succeeded on the issue.

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