TaxTMI 
TaxTMI 
1983 (2) TMI 85
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....hri Vijay Kumar son of Shri Daya Nand, carried on the business of manufacture of cycle chains and hubs, etc., in partnership under the name and style of Rockman Cycle Industries, Ludhiana, as evidenced by partnership deed dated 23-10-1968. With effect from 1-7-1969, S/Shri Yogesh Chander and Raman Kant, respectively, sons of S/Shri Satya Nand and Brij Mohan Lal, were taken in as partners by mutual consent. This firm continued with this constitution doing the same business up to 31-3-1970. The partnership deed dated 1-7-1969 evidenced that Shri Om Parkash was partner as karta but, Shri Brij Mohan Lal and Shri Raman Kant were partners in their individual capacity, being father and son respectively. 3. On 31-3-1970, Shri Brij Mohan Lal and ....
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.... (iii) Vijay Kumar 24 paise in a rupee (iv) Yogesh Chander 21 paise in a rupee (v) Raman Kant 21 paise in a rupee (vi) Umesh Kumar 14 paise in a rupee." This instrument shows that Shri Brij Mohan Lal became partner on behalf of his HUF as karta. The HUF of Shri Brij Mohan Lal at the material time consisted of himself, his wife, four sons including Shri Raman Kant and one unmarried daughter Miss Gita. 5. According to the GTO, the following partners of the firm, as constituted by the instrument dated 1-7-1969, transferred their right to share the profits of the firm without consideration in money or money's worth to the extent shown against each : ---------------------------------------------------------------------------....
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....the value of taxable gift at Rs. 1,01,409. This was constituted of the following two amounts : Rs. (i) 14 per cent of the development rebate reserve in the books of the firm shown at Rs. 2,36,173 33,064 (ii) Capital transferred to Hero Cycle Industries 68,365 He raised the assessment on 27-3-1969 taking this amount of Rs. 1,01,410 in round figures as the taxable gift. This was challenged in appeal. 6. The AAC held the view that the reconstitution of the firm of Rockman Cycle Industries with effect from 1-4-1970, which resulted in the reallocation of the shares amongst the continuing partners, did not by itself result in a gift. According to him, the facts of the case in the Madras High Court judgment relied upon by the GTO....
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....sel for the assessee arguing his own appeal contended that the assessee had come out of the fold of the partnership with effect from 31-3-1970 when he took away his capital by mutual consent of the then existing partners. It was contended that as an individual, Shri Brij Mohan Lal, who was karta of his HUF, had been acting in individual capacity. But in the reconstituted firm evidenced by the instrument dated 31-5-1970, he entered as a partner as karta of his HUF by contribution of capital of Rs. 1,00,000 from the account of the HUF from Munjal Sales Corporation, Ludhiana, where the HUF was a partner. On these facts it was contended that there was no gift, whatsoever, made by him to anyone when he left the firm on 31-3-1970. 9. Without p....
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....the purpose of gift-tax. 10. The revenue, on the other hand, submitted that the gift-tax amount as worked out by the GTO is less because as per rule 10(3), the gift-tax workable should be more. It was also contended that the AAC erred both in law and on facts in holding that reconstitution of the firm of Rockman Cycle Industries with effect from 1-4-1970 which resulted in the reallocation of the shares amongst the continuing partners, did not by itself result in a gift by the assessee of his 14 per cent share in that firm before the reconstitution, to his HUF and/or his minor son who had interest in the reconstituted firm. It was contended that the AAC was wrong in holding that transfer of the assessee's right in partnership concern did ....
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....herefore, the authorities below were apparently in error in the computation of taxable gift by including therein the sum of Rs. 33,065. The question, however, remains whether the capital amount of Rs. 68,365 which was transferred and which the GTO has taken into account while working out the taxable gift under rule 10(3), is rightly held by the authorities below as an amount liable to gift-tax. 13. The judgment that was relied upon by the GTO to bring to tax the disputed amount was considered by the Madras High Court in a later case of P. Krishnamoorthy and it was distinguished. The Hon'ble Court in this later judgment has held that in the case of V.A.M. Ayya Nadar relied upon by the GTO, the assessee's share capital remained as it was p....