2004 (1) TMI 30

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....tion of his share and the incoming partner brought in capital, the transaction did not amount to gift?" We have heard Mr. Manish R. Bhatt, learned standing counsel for the Revenue. Though served, none appears on behalf of the respondent-assessee. The brief facts are that the firm, M/s. Patel Brass Works, Rajkot was constituted with the following partners as per the partnership deed dated November 4, 1975: 1. Shri Ravjibhai Chhaganlal  45% 2. Shri Gandalal Bavalal 20% 3. Shri Rameshchandra Harjibhai 35% There was a change in the constitution when two trusts were taken into partnership as per the partnership deed dated November 25, 1977, and the shares of partners in the reconstituted firm were as unde....

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.... per the terms of partnership Shri Gandalal Bavalal was not entitled to any benefit in the goodwill and the position being so he could gift away anything to the third person. It was also claimed that the incoming partners thus either contributed capital or agreed to work actively for the firm and that would constitute adequate consideration for the benefits of partnership. Ultimately, in appeal, the Tribunal upheld the finding of the Commissioner of Gift-tax and held that both the trusts and Shri Maheshkumar contributed capital in the firm and they also agreed to share losses and this establishes the fact that the aforementioned three continuing partners relinquished right in share of benefits of the firm in consideration of capital cont....

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....nership deed in almost every case. Hence when the incoming partner makes contribution towards capital such capital together with such obligation of sincerely and faithfully carrying on the business for the common advantage of the firm is adequate consideration for reallocating of the shares of the profits of the firm. In view of the finding given by the Tribunal that the incoming partners brought in capital to the partnership, i.e., Parul Trust Rs. 40,000, Naresh Trust Rs. 40,000 and Maheshkumar Ravjibhai Rs. 1,25,000, and in view of the aforesaid obligations of the incoming partners of sincerely and faithfully carrying on the business for the common advantage of the firm, there was adequate consideration and therefore the Tribunal right....