2003 (11) TMI 21

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....artners were at the time of reconstitution reduced from 20 per cent, to 8 per cent. each. Subsequently, on December 31, 1982, the original five partners retired, and received at the time of retirement their capital as shown in the books of account of the firm. The genuineness of the firm was not questioned by the Revenue. Four years later, in the year 1986, one of the properties which belonged to the firm the property being an immovable property in the State of Kerala was sold by the company which had become the owner of all the assets of the erstwhile firm, for a sum of Rs. 27 lakhs. The Assessing Officer taking note of that fact proceeded to make assessments under the Gift-tax Act against the five original partners by treating the diff....

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....g his order, he erroneously stated that the appeal was dismissed, while, in fact, the appeal should have been allowed in part. On further appeal by the assessee to the Tribunal, the Tribunal held that no gift-tax was payable either on account of the admission of the company as a partner or on account of the subsequent retirement of the original partners. The Tribunal took note of the fact that what was sold in the year 1986 was only one of the assets that had belonged to the firm, that no effort had been made to ascertain the net value of the assets of the firm as on the date the erstwhile partners retired, and more important that the firm had suffered losses continuously from the years 1979-80 to 1983-84 and, that the reason for admitti....

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....n to them to agree on the terms on which they will agree to relinquish their interest in case any one of them decides to do so. So long as the terms of the agreement are not incompatible with any statutory requirement, the terms agreed among the partners are the terms that bind them. It was open to the partners in this case to agree that in the event of a partner wanting G to retire, he would only be paid the amount standing to his capital amount in the books of the firm. In case of dissolution of a firm, when all the assets and liabilities are valued and the entitlement of each of the partners determined in proportion to his share in the firm and any of those partners relinquish a part of their entitlement under the partnership deed,....

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....suming that the retiring partner received less than what was due to him, that the difference was something that he had transferred to the continuing partners within the meaning of "transfer of property" for the purposes of the Gift-tax Act. Though in this case the firm did not continue, as all the partners except the one in whose favour the rights were relinquished had retired, the principle laid down in that decision governs the case on hand as well, as there has been no ascertainment of the net value of the firm after taking note of all the assets and liabilities. Merely taking note of the value of one property that had been owned by the firm and which was sold four years after the assessee had relinquished his rights in the firm does ....