TaxTMI 
TaxTMI 
1989 (1) TMI 146
X X X X Extracts X X X X
X X X X Extracts X X X X
....the said firm where he retired on and w.e.f. 1st Jan., 1973. 3. Under the provisions of several deeds of partnership of M/s Bhaishanker Kanga and Girdharlal as executed by and between the partners thereof from time to time, a former partner was entitled to receive a share in the profits of the said firm in respect of the work done during the time he was a partner. After his retirement from the said firm, the assessee, by a deed of settlement dt. 27th Dec., 1976, settled on trust his right to receive, recover and realise from the said firm his share according to the several deeds of partnership from the recoveries for the relevant period made after 31st Dec., 1975. In the said deed of settlement the assessee valued the trust property at Rs. 40,000. 4. On 29th June, 1977 the assessee filed a gift-tax return in respect of the property settled on trust by the above mentioned deed of settlement dt. 27th Dec., 1976. In the said return the assessee valued the property gifted at Rs. 40,000 and after deducting Rs. 5,000 exempt under sub-s.(2) of s. 5 of the Act valued the taxable gift at Rs. 35,000 5. When the GTO took up the assessment of the assessee he called upon the assessee to f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of assessee's right to receive, recover and realise from the said firm his share from the recoveries for the relevant period made after 31st Dec., 1975 in the manner as indicated in Annexure B to this order. 8. The GTO thus valued the assessee's share at Rs. 1,25,925 and, treating the same as the property gifted, charged gift-tax thereupon accordingly. 9. The assessee had further claimed credit for the Stamp Duty of Rs. 1,600 paid on the deed of settlement but the GTO gave credit for Rs. 1,000 only. 10. Aggrieved against the assessment as made by the GTO, the assessee carried the matter in appeal before the AAC. The learned AAC agreed with the GTO that the assessee had failed to furnish the necessary details of remuneration deducted by the assessee and also whether such type of remuneration was paid to the partners and any mention thereof was there in the partnership deeds. The AAC was, therefore, of the opinion that since the assessee could not produce any evidence to show that the partners in the firm had received any remuneration over and above the shares of profits received by them, the assessment as made by the GTO was not required to be disturbed. 11. Dissatisfied wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted in the computation of annual average income of the firm for the last five years, as submitted by the assessee, before the authorities below was quite justified and, therefore, the value of the right of the assessee to receive, recover and realise from the said firm his share from the recoveries for the relevant periods made after 31st Dec., 1975 and which came to Rs. 25,925 must have been accepted by the authorities below for the purposes of levy of gift-tax in the present matter. 12. Contrary to the above Mr. A.K. Hajela, the learned Departmental Representative, vehemently urged that despite repeated requests and demands made by the GTO the assessee had failed to explain as to how he had arrived at the figure of Rs. 3 lakhs representing the reasonable remuneration paid to the partners by the firm of M/s Bhaishanker Kanga & Girdharlal. Mr. Hajela further submitted that in the absence of necessary details of the particulars of remuneration paid by the firm to the partners the GTO was perfectly justified in totally ignoring the item of reasonable remuneration from his computation of the value of assessee's right to receive, recover and realise from the said firm his share from ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r a sum which, in the opinion of the GTO, is reasonable remuneration for the working partner/proprietor. A further deduction for a sum calculated at 12 per cent per annum shall be allowed on the capital as standing to the credit of the partner/proprietor as on the last date of the accounting year. (d) Non-recurring items (both debits and credits) and capital items will be excluded from computation of the income of any particular accounting year. Step II. The figure arrived at in Step I shall be multiplied by 2 in case of a mainly professional firm and by 3 in the case of any firm. Step III To arrive at the value of a partner's interest, the proportion of his share in the profits of the firm should be applied to the figure arrived at in Step II." From the above notification it may be noted that as per directions contained in cl (c) of Step No. I salaries and interest on capital paid to partner/proprietor are, in the first instance, required to be added back to the income of the business. A deduction would thereafter be allowed for a sum, which, in the opinion of the GTO is considered reasonable remuneration for the working partner/proprietor. A further deduction for a su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....man being and should not be excessive or immoderate in quantity or measure. When this term is used as qualifying the other term 'remuneration' it would mean that the remuneration paid or claimed should be according to the dictates of reason and be not excessive or immoderate in the facts and circumstances of a given case. 17. Now coming to the merits of the controversy before us we may point out that the partnership deed dt. 17th Oct., 1972 governed the assessee's relationship with the said partnership. When the said partnership deed was executed on 17th Oct., 1972 two of the old partners, namely, Ramdas Maneklal Gandhi and Punamchand Somchand Shah, had retired and in their places two new partners-Kirit Navnitlal Damania and Gordhandas Girdharlal Mehta—were admitted in the partnership firm. The constitution of the partnership at the relevant time was as follows: . Name Share of profit and loss in units 1. Mr. Jayandralal Tribhovanari Desai 25 2. Mr. Indravan Manilal Desai —— 3. Mr. Madhukant Manjulal Thakore 26 4. Mr. Jagdish Kanaiyalal Minshi 25 5. Mr. Manharlal Girdharlal Doshit 25 6. Mr. Jayantilal Chhotalal Chasmawala 12 7. Mr. Hemant Virmitra Ch....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rovisions of free motor cars, entertainment and rent reimbursement to be made by the firm to the concerned partners. 18. We have hurriedly gone through the various clauses of the partnership deed in order to show that the case of the assessee that the partners were paid remuneration by the firm was not to be dismissed summarily by the authorities below. In fact various clauses in this partnership deed clearly suggest that the partners, whether they were Junior Partners or Senior Partners, were in fact getting remuneration for the services rendered by them to the firm and such remuneration was required to be taken into account by the GTO while computing the average annual income of the firm for the purposes of working out the value of the property gifted by the assessee. That could have been done by looking into the accounts and assessment orders of the firm for the last 5 years, as required by the notification dt. 20th July, 1977. It is no doubt true that the assessee does not appear to have furnished the detailed particulars of the 'remuneration' paid by the firm to its partners during the last 5 years but for that reason alone his case for deduction of reasonable remuneration i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or Rs. 1000 only in that behalf. In our opinion, the figure 1000 simply represents a typographical mistake which requires to be corrected as in fact and in reality the assessee has undisputedly paid stamp duty of Rs. 1600 on the deed of settlement dt. 27th Dec., 1976. We, therefore, allow the additional ground of appeal and direct the GTO to give credit of Rs. 1600 instead of Rs. 1000, as has been given by him in his assessment order, to the assessee towards stamp duty paid by him on the deed of Settlement dt. 27th Dec., 1976. 21. In the result this appeal succeeds and is allowed for statistical purpose in the manner indicated herein above. The matter shall go back to the GTO to work out the value of the property gifted in this case in the light of discussions made herein above and notification dt. 20th July, 1977. ANNEXURE 'A' GTA No. 54/Ahd/87 STEP—I: Computation of average annual income of M/s Bhaishanker Kanga & Girdharlal for the accounting years 1971 to 1975 Accounting year ended Asst. year Assessed income Blocked capital as on the last date of the accounting year 1 2 3 4 . . Rs. Rs. 31-12-1971 1972-73 2,99,410 3,03,000 31-12-1972 1973-74 4,46,64....