http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 10  

PETITIONER: SRI JAGATRAM AHUJA

       Vs.

RESPONDENT: THE COMMISSIONER OF GIFT TAX,

DATE OF JUDGMENT:       17/08/2000

BENCH: S.P. Bhuracha , S.N. Phukan , & Shivaraj V. Patil

JUDGMENT:

Shivaraj V.  Patil J.

L...I...T.......T.......T.......T.......T.......T.......T..J

   This  appeal is by the assessee against the judgment and order  dated  25.4.1988 passed by the Division Bench of  the High  Court of Andhra Pradesh.  It relates to the assessment year 1972- 73.

   The  Income-tax Appellate Tribunal, Hyderabad (for short the  ‘Tribunal’ ) had referred the following question  under 26(1)  of  the Gift-tax Act, 1958 (for short the ‘Act’)  for the opinion of the High Court :-

   "Whether  on  the facts and in the circumstances of  the case,  the Tribunal was right in holding that the release by the  assessee  who  was one of the partners in the  firm  of 3-Aces,  of  his  rights  in the assets of the  firm  for  a consideration  of  Rs.  3,00,000/- when the market value  of the  assets  of the firm in proportion to his share  was  in excess  thereof, did not amount to a gift within the meaning of the Gift-tax Act."

   The  High  Court by the impugned judgment  answered  the said question in negative and against the assessee.

   Briefly  stated, the facts leading to the filing of this appeal are as follows.

   The  appellant and his brother Bishanlal Ahuja were  the partners of a partnership firm constituted on 9.1.1965 under the name and style of "3-Aces".  The firm was engaged in the business   of   a  restaurant  in   a  building   known   as "Mohsin-ul-Mulk Kothi" situated at Abid Road, Hyderabad.

   An  agreement was entered into between the appellant and his  brother Bishanlal on 15.4.1971.  The terms of the  said agreement are set out below:  -

   "(i)  Sri  Jagatram  (assessee)  is  to  retire   before December 31,1971.

   (ii) Steps are to be taken to finalise accounts relating to  the  partnership and determination of the amount due  to Sri Jagatram on retirement.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 10  

   (iii)Sri  Bishanlal agreed to pay a sum of Rs.  1,50,000 to  Sri  Jagatram  towards  the value of 50%  share  of  the goodwill of the firm.

   (iv)  The  above  sum of Rs.  1,50,000  payable  by  Sri Bishanlal  to  Sri Jagatram shall be in addition to the  sum due  to  Sri  Jagatram from the partnership at the  time  of retirement.

   (v)  If  the total sum including 50% share value of  the goodwill,  i.e.,  Rs.  1,50,000/-, payable to  Sri  Jagatram falls  below  Rs.   3,00,000, the amount in  excess  of  the balance  actually  due  to  Sri  Jagatram  at  the  time  of retirement  shall be treated as the sale value of 50%  share of the goodwill belonging to Sri Jagatram.

   (vi)  Sri  Jagatram shall execute proper  conveyance  in favour  of Sri Bishanlal conveying 50% share in the land and building in which the business of 3-Aces is carried on.

   (vii)It  is  open to Sri Bishanlal to classify  the  sum payable  to  Sri Jagatram as between movable  and  immovable properties  and  get  necessary documents  executed  by  Sri Jagatram."

   Pursuant to the said agreement, a Deed of Dissolution of the  partnership  was  executed on 22.11.1971  w.e.f.   that date.   The  relevant  terms  contained   in  the  Deed   of Dissolution are given below:-

   "(i)  All the assets and liabilities of the  partnership including  the land and building are taken by Sri  Bishanlal from November 22, 1971.

   (ii)  Sri  Jagatram  renounced his interest,  share  and interest  in  the said assets and liabilities from  November 22, 1971.

   (iii)In  full settlement and satisfaction of the  share, right  and  interest  of  Sri Jagatram  in  the  partnership including  land and buildings, profits and goodwill and  the amounts  standing  to  the  credit of Sri  Jagatram  in  the partnership  accounts as on November 21, 1971, Sri  Jagatram has agreed to receive Rs.  3,00,000.

   (iv)  Out  of the said Rs.  3,00,000, Rs.  1,00,000  has already  been paid.  The balance of Rs.  2,00,000 is payable by  Sri  Bishanlal  against the sale  consideration  of  the undivided  50%  share  in  the land and  building  known  as "Mohsin-ul-Mulk Kothi".

   (v)  Sri Jagatram should immediately execute a sale deed and  register the same in favour of Sri Bishanlal  conveying his 50% share in the land and building for Rs.  2,00,000."

   It  was  on 10.3.1972 that the appellant  and  Bishanlal executed a document styled as ‘Release Deed’ pursuant to and consistent with the aforementioned two documents.

   Originally  assessment of gift tax was made on 12.2.1972 on  a total gift of Rs.  70,000/.  After allowing  exemption of  Rs.   5,000/-  it  was   determined  at  Rs.   65,000/-. Subsequently,  the Gift Tax Officer took up the  proceedings under  Section  16  of  the  Act,  1958  by  re-opening  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 10  

assessment  already  made.   He  valued  the  share  of  the appellant in the partnership assets at Rs.  12,67,015/-.  An amount of Rs.  3,00,000/- paid by Bishanlal to the appellant was  deducted and thus the value of the property alleged  to have  been gifted by the appellant to his brother  Bishanlal was arrived at Rs.  9,67,015/-.  On appeal by the appellant, the  Commissioner of Gift-tax (Appeals) confirmed the  order of  the  Gift-tax  Officer.  However, he reduced  the  total value  of the gift by Rs.3,77,000/-.  The appellant took  up the  matter  in  further appeal before  the  Tribunal.   The Tribunal  accepted the appeal holding that the  distribution of  assets between partners on the dissolution of the  firm, even  though  unequal,  does  not  amount  to  "transfer  of property"   within  the  meaning  of  Section  2(xxiv)   and therefore,  did  not amount to "gift" as defined in  Section 2(xii) of the Act.

   At  the  instance of the Revenue, the Tribunal  referred the above stated question under Section 26(1) of the Act for the  opinion of the High Court.  The High Court referring to the  various  decisions  and for the reasons stated  in  the impugned judgment took the view in favour of the Revenue.

   In doing so, the High Court relied on CGT vs.  Chhotalal Mohanlal  [1987]166  ITR  124(SC), M.K.  Kuppuraj  vs.   CGT [1985]  153  ITR  481  (Mad) and CGT  vs.   Premji  Trikamji Jobanputra  [  1982] 133 ITR 317 (Bom.)  distinguishing  the other  cases,  particularly  the  case  of  CGT  vs.   Getti Chettiar  [  1971]  82  ITR 599(SC) strongly  relied  on  in support of the case of the appellant.

   At  the  outset, the learned counsel for  the  appellant submitted   that  the  appellant  is  not  challenging   the valuation  of  property  of  alleged  gift.   Hence,  it  is unnecessary  for  us to go into that question.  The  learned counsel  for the appellant seriously contended that the High Court  manifestly erred in answering the question in  favour of  the Revenue contrary to the ratio and principles  stated in  the case of Getti Chetiar (supra).  He further submitted that the decisions relied on by the High Court in support of its  conclusion  were not directly on the point and some  of them arose under the Estate Duty Act.

   Per   contra,  the  learned   senior  counsel  for   the respondent  argued  supporting  the view taken by  the  High Court.

   We have carefully considered the submissions made by the learned counsel for the parties.  In order to appreciate the respective  contentions  of the parties and to  resolve  the controversy   we   consider  it   appropriate   to   extract definitions  of  "Gift"  and  "Transfer  of  property"  from Section 2 of the Act:  -

   "2  (xii)  "gift"  means the transfer by one  person  to another  of any existing movable or immovable property  made voluntarily  and  without consideration in money or  money’s worth,  and  includes  the  transfer or  conversion  of  any property referred to in section 4, deemed to be a gift under that section;

   Explanation.   --  A  transfer of any building  or  part thereof referred to in clause (iii), clause (iiia) or clause (iiib)  of  section 27 of the Income-tax Act, by the  person who  is deemed under the said clause to be the owner thereof

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 10  

made  voluntarily  and  without consideration  in  money  or money’s  worth,  shall be deemed to be a gift made  by  such person."

   "2  (xxiv) "transfer of property" means any disposition, conveyance,  assignment,  settlement, delivery,  payment  or other  alienation  of  property and,  without  limiting  the generality of the foregoing, includes --

   (a) the creation of a trust in property;

   (b)  the  grant  or  creation of  any  lease,  mortgage, charge, easement, licence, power, partnership or interest in property;

   (c)  the  exercise  of a power of  appointment  (whether general,  special  or subject to any restrictions as to  the persons  in  whose  favour the appointment may be  made)  of property  vested  in  any  person;  not  the  owner  of  the property,  to  determine  its disposition in favour  of  any person other than the donee of the power;  and

   (d)  any  transaction  entered into by any  person  with intent  thereby to diminish directly or indirectly the value of  his  own  property  and to increase  the  value  of  the property of any other person;"

   This Court in Commissioner of Gift-Tax, Madras vs.  N.S. Getti Chettiar [1971] 82 ITR 599 SC ], arising under the Act itself  construing and considering the very same  provisions held that in a Hindu Joint Family by allotting greater share to other members of coparcenary than that to which they were entitled,  the  assessee  could not be held to have  made  a gift.   Facts  of  the case were that the assessee  was  the Karta  of Hindu Undivided Family consisting of himself,  his son  and  his six grandsons.  There was a partition  in  the family  property.  The total value of the properties divided was   Rs.8,51,440/-  but  the   assessee,  the  Karta   took properties  worth only Rs.1,78,343/- allotting the remaining properties  to other coparceners.  After considering various decisions  and provisions of law, this Court arrived at  the following conclusions:-

   i)  That  the partition did not effect any  transfer  as generally  understood  in law and did not,  therefore,  fall within  the definition of gift in Section 2(xii) of the Act. ii) That the partition in the family could not be considered to  be  a disposition, conveyance,  assignment,  settlement, delivery, payment or other alienation of property within the meaning  of those words in Section 2(xxiv) of the Act.  iii) That the partition was not a transaction entered into by the assessee  with  intent  thereby  to  diminish  directly   or indirectly the value of his own property and to increase the value  of  the property of any other person and,  therefore, Section  2(xxiv)(d)  did not apply.  (iv)  That,  therefore, there  was no gift by the assessee of which he was liable to pay  gift  tax.   On  the  reason that  a  member  of  Hindu Undivided  Family  has  no  definite  share  in  the  family property  before  the  division  and he cannot  be  said  to diminish directly or indirectly the value of his property or to  increase  the  value  of   the  property  of  any  other coparcener  by agreeing to take a share lesser than what  he would  have got if he would have gone to a court to  enforce

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 10  

his claim.

   The  word ’transaction’ in clause (d) of Section 2(xxiv) takes  its  colour  from  the main clause;   it  must  be  a transfer  of  property in some way.  The words  disposition, conveyance, assignment, settlement, delivery and payment are all  used to indicate some kind of transfer of property.  An interpretation  clause  which extends the meaning of a  word does not take away its ordinary and popular meaning.

   It  is settled position in law that a partition of Hindu Undivided  Family cannot be considered as a transfer in  the strict  sense.  In Commissioner of Income-tax vs.  Keshavlal Lallubhai  Patel [(1965) 2 SCR 100 = 55 ITR 637] this  Court stated thus:  -

   "But,  is  a partition of joint Hindu family property  a transfer in the strict sense?  We are of the opinion that it is not.  This was so held in Gutta Radhakrishnayya v.  Gutta Sarasamma [ILR 1951 Mad.  607].  Subba Rao J.  (then a judge of   the  Madras  High   Court),  after  examining   several authorities,  came  to  the conclusion  that  ’partition  is really  a  process  in  and by which a  joint  enjoyment  is transformed into an enjoyment in severalty.  Each one of the shares had an antecedent title and, therefore, no conveyance is  involved in the process, as a conferment of a new  title is  not necessary.’ The Madras High Court again examined the question  in  M.K.  Stremann v.  Commissioner of  Income-tax [41 ITR 297 (Mad.)], with reference to section 16(3)(a)(iv). It  observed  that  ’obviously no question  of  transfer  of assets  can  arise  when all that happens is  separation  in status,  though  the result of such severance in  status  is that  the property hitherto held by the coparcenary is  held thereafter  by  the separated members as  tenants-in-common. Subsequent  partition  between  the divided members  of  the family  does not amount either to a transfer of assets  from that  body  of  the  tenants-in-common   to  each  of   such tenants-in-common’."

   This  Court  in Getti Chettiar case  aforementioned  has stated thus:  -

   "A reading of this section clearly goes to show that the words    "disposition",       "conveyance",    "assignment", "settlement",  "delivery" and "payment" are used as some  of the  modes  of transfer of property.  The  dictionary  gives various  meanings for those words but those meanings do  not help  us.  We have to understand the meaning of those  words in  the context in which they are used.  Words in a  section of a statute are not to be interpreted by having those words in  one  hand and the dictionary in the other.  In  spelling out  the  meaning of the words in a section, one  must  take into consideration the setting in which those terms are used and  the  purpose  that they are intended to serve.   If  so understood,  it is clear that the word "disposition" in  the context  means  giving  away  or giving up by  a  person  of something  which was his own, "conveyance" means transfer of ownership,  "assignment"  means the transfer of  the  claim, right  or  property to another, "settlement" means  settling the  property,  right or claim conveyance or disposition  of property for the benefit of another, "delivery" contemplated therein  is the delivery of one’s property to another for no consideration and "payment" implies gift of money by someone to  another.   We do not think that a partition in  a  Hindu

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 10  

Undivided  Family can be considered either as  "disposition" or   "conveyance"  or  "assignment"   or   "settlement"   or "delivery"  or "payment" or "alienation" within the  meaning of those words in s.  2 (xxiv).

   This  leaves  us  with cl.  (d) of S.   2  (xxiv)  which speaks  of  a  transaction entered into by any  person  with intent  thereby to diminish directly or indirectly the value of  his  own  property  and to increase  the  value  of  the property  of  another person.  A member of  Hindu  Undivided Family  who, as mentioned earlier, has no definite share  in the  family  property  before division, cannot  be  said  to diminish directly or indirectly the value of his property or to  increase  the  value  of   the  property  of  any  other coparcener  by agreeing to take a share lesser than what  he would have got if he had gone to court to enforce his claim. Till  partition,  his  share  in   the  family  property  is indeterminate.  He becomes entitled to a share in the family property  only  after the partition.  Therefore there is  no question  of  his either diminishing directly or  indirectly the  value of his own property or of increasing the value of the  property of anyone else.  The "transaction" referred to in  cl.  (d) of s.  2 (xxiv) takes its colour from the  main clause  viz., it must be a transfer of property in some way. This  conclusion of ours gets support from sub-clause (a) to (c)  of clause (xxiv) of s.  2, each of which deals with one or  the  other mode of transfer.  If Parliament intended  to bring  within the scope of that provision partitions of  the type with which we are concerned, nothing was easier than to say so.  In interpreting tax laws, courts merely look at the words  of  the section.  If a case clearly comes within  the section, the subject is taxed and not otherwise."

   This  Court again in Addanki Narayanappa and Another vs. Bhaskara  Krishnappa  [AIR  1966 SC 1300],  considering  the provisions  of  Sections  14, 15, 29, 32, 37, 38 and  48  of Partnership  Act,  1932  has explained as to the  nature  of property  during  subsistence of partnership and  after  its dissolution.   It  is  held that "from a  perusal  of  these provisions it would be abundantly clear that whatever may be the  character  of the property which is brought in  by  the partners,  when  the partnership is formed or which  may  be acquired in the course of the business of the partnership it becomes  the  property  of the firm and what  a  partner  is entitled to is his share of profits, if any, accruing to the partnership  from the realization of this property, and upon dissolution  of  the  partnership to a share  in  the  money representing  the value of the property.  No doubt, since  a firm  has no legal existence, the partnership property  will vest in all the partners and in that sense every partner has an  interest in the property of the partnership.  During the subsistence of the partnership, however, no partner can deal with  any  portion of the property as his own.  Nor  can  he assign  his  interest in a specific item of the  partnership property to anyone.  His right is to obtain such profits, if any,  as  fall to his share from time to time, and upon  the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in Cl. (a) and sub-Cls.  (i), (ii) and (iii) of Cl.  (b) of S.48."

   In   Malabar  Fisheries  Co.    vs.    Commissioner   of Income-tax,  Kerala  [1979]  120  ITR   49  SC]  this  Court considered   few  provisions  of   Income-tax   Act,   1961. Referring to the case of Addanki Narayanappa and other cases

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 10  

expressed  the view that a partnership firm under the Indian Partnership  Act  is not a distinct legal entity apart  from the  partners  constituting it and that in law the  firm  as such  has no separate rights of its own.  When one talks  of the  property  or  assets of the firm all that is  meant  is property  or  assets in which all partners have a  joint  or common interest.  Hence the contention that upon dissolution of   the  firm  rights  in   the  partnership   assets   are extinguished,  cannot be accepted.  It is further, held that the  partners  own  jointly or in common the assets  of  the partnership   and,  therefore,  the   consequence   of   the distribution,  division  or  allotment  of  assets  to   the partners  which  flows upon dissolution after  discharge  of liabilities  is  nothing but a mutual adjustment  of  rights between  the  partners  and  there is  no  question  of  any extinguishment  of  the  firm’s rights  in  the  partnership assets  amounting to a transfer of assets within the meaning of  Section 2(47) of the Income-tax Act, 1961.  Although the case arose under the provisions of Income-tax Act, but as to the nature and character of transaction of mutual adjustment of  rights between the partners upon dissolution of a  firm, it  was clearly held that such a transaction did not  amount to  transfer.   If there is a sale or transfer of assets  by the  assessee to a person, the position would be  different. Since  a  partner  in a firm has no exclusive right  on  any property  of the firm he cannot transfer the property.   But upon  the  dissolution of a firm allotment or adjustment  of the  assets  takes  place.  Hence there was  no  element  of transfer in such a case.

   Yet,  in another case Commissioner of Income-Tax, Madhya Pradesh,  Nagpur  and Bhandara vs.  Dewas  Cine  Corporation [1968]  68  ITR  240  SC], dealing with  the  provisions  of Section  10(2)(vii)  of  Income-tax Act again  referring  to Addanki  Narayanappa’s case this Court took the view that  a partner  might  in an action for dissolution insist to  sell the  assets of partnership to realize his share.  But  where in  satisfaction  of the claim of a partner to his share  in the  value  of the residue determined on the footing  of  an actual  or notional sale, the properties so allotted  cannot be taken to have been sold to him.

   On  principles  and  in  view of the  clear  ratio,  the decision  of Getti Chettiar (supra) of this Court  supported the case of the appellant which decision was rightly applied by the Tribunal to the facts of the case.  The High Court in relation to the said decision has stated thus :-

   "Be  that  as  it may, it is not for us to  express  any opinion  on the said criticism.  By virtue of Article 141 of the   Constitution,   the  said   decision  and   even   the observations aforesaid are binding upon us.  In our opinion, however,  the ratio of the said decision has no  application to  the  distribution  of assets as between  partners  whose shares  inter  se are specific and determined at  any  given point  of time.  Moreover, this decision has to be read  and understood  in  the light of the subsequent decision of  the Supreme  Court in CED vs.  Kantilal Trikamlal [1976] 105 ITR 92, which is, no doubt, a case arising under the Estate Duty Act.   Section  2(15)  of  the   Estate  Duty  Act   defines "property" in the following terms."

   The  High  Court  having rightly stated  that  the  said decision  and even the observations made were binding on  it

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 10  

wrongly  did not apply the ratio of the said decision to the facts of the case in hand.  Further the High Court committed an   error  in  stating  that   the  said  decision  had  no application to the distribution of the assets as between the partners  whose shares inter-se are specific and  determined at any given point of time and that the said decision had to be  read  and  understood  in the light  of  the  subsequent decision  of this Court in Kantilal Trikamlal’s case.  As in the  case of Hindu Joint Family, the coparceners do not have exclusive rights on any specific property of the family, the property  allotted to their shares become specified only  on partition;   the same is the position in the case of partner of  a  firm.   No partner of a firm can claim  exclusive  or specific  right  in any specific asset of the property of  a firm.   Coparceners  also have definite share in  the  Hindu Undivided  Family.  So also the partners have definite share in  the partnership.  In our considered view, the principles stated  in  Getti Chettiar’s case equally apply to  case  of allotment  or  adjustment of properties among  the  partners upon  dissolution  of  a firm.  We fail  to  understand  how Kantilal  Trikamlal’s  case made any difference.   The  said case  did  not  show any disagreement  with  the  principles stated  in Getti Chetiar’s case and no distinction was  made to  take  a different view.  On the other  hand,  principles stated  in Getti Chettiar’s case were affirmed.  In relation to  Getti  Chettiar’s  case, in Kantilal  Trikamlal,  it  is stated thus:-

   "That  a  case  under the Gift-tax Act,  1958,  and  the construction   of  section  2(xxiv)   fell   for   decision. Certainly,  many of the observations there, read de hors the particular  statute,  might reinforce the assessee’s  stand. This court interpreted the expression "transfer of property" in   section   2(xxiv)   and   held  that   the   expression "disposition"  used in that provision should be read in  the context  and  setting of the given statute.  The  very  fact that  "disposition"  is treated as a mode of transfer  takes the  legal concept along a different street, if one may  use such  a  phrase, from the one along which that word  in  the Estate  Duty  Act is traveling.  Mr.  Justice Hegde  rightly observed, if we may say so with respect, that:

   "Words  in  the  section  of a statute  are  not  to  be interpreted  by  having  those  words in one  hand  and  the dictionary in the other.  In spelling out the meaning of the words  in  a section, one must take into  consideration  the setting  in which those terms are used and the purpose  that they are intended to serve." (pp.605-606).

   The  word" transaction" in section 2(24) of the Gift-tax Act  takes its colour from the main clause, that is, it must be  a "transfer" of property in some way.  Since a partition is  not a "transfer" in the ordinary sense of law, the court reached  the  conclusion that a mere partition with  unequal allotments  not  being  a  transfer, cannot  be  covered  by section  2(xxiv).  A close reading of that provision and the judgment  will  dissolve  the mist of  misunderstanding  and discloses  the danger of reading observations from that case for  application  in  the  instant case.   The  language  of section 2(15), Explanation 2, is different and wider and the reasoning  of  Getti Chettiar cannot therefore, control  its amplitude.   It is perfectly true that in ordinary Hindu law a  partition  involves  no  conveyance  and  no  question  o transfer  arises  when  all that happens is a  severance  in status  and the common holding of property by the coparcener

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 10  

is  converted  into  separate title of  each  coparcener  as tenant-in-common.   Nor  does subsequent partition by  metes and   bounds   amount  to  a  transfer.    The   controlling distinction consists in the difference in definition between the  Gift-tax  Act (section 2(xxiv) and the Estate Duty  Act (section 2(15)."

   We find that Kantilal Trikamlal’s case supports the view taken  in  Getti  Chettiar’s case.  Added to  this,  Section 2(15)  of  the Estate Duty Act, defining "property" came  up for  consideration  in  Kantilal Trikamlal’s case.   We  may state  here itself that the words and expressions defined in one  statute as judicially interpreted do not afford a guide to  construction of the same words or expressions in another statute   unless   both  the   statutes   are   para-materia legislations  or  it  is  specifically so  provided  in  one statute  to give the same meaning to the words as defined in other  statute.  The aim and object of the two legislations, namely,  the  Gift-tax Act and the Estate Duty Act  are  not similar.

   In CIT vs.  Bankey Lal Vaidya [1971] 79 ITR 594 (SC), it is  clearly stated that where in the course of  dissolution, the  assets  of  the firm are divided between  the  partners according  to  the  respective   shares,  by  allotting  the individual  assets  or  paying the  money  value  equivalent thereof,  no  transfer is involved and that it is  merely  a case of distribution of assets.

   The  same  view  is taken in Addl.  CIT  vs.   Mohanbhai Pamabhai  [1987]  165  ITR  166 (SC) that  where  a  partner retires  from  a  firm  and receives  his  share  of  amount calculated  on  the valuation of the net partnership  assets including goodwill of the firm, no transfer is involved.

   We now refer to the cases relied on by the High Court to support  its view.  In CGT vs.  Chhotalal Mohanlal [1974] 97 ITR  393 (Guj), this Court reversed the decision of  Gujarat High  Court and in the light of the facts and  circumstances of  the case, held that there was a gift for the purpose  of the  Gift-tax  Act.   In  that case, a  firm  by  name  M/s. Chhotalal  Mohanlal came into existence with three  partners namely, Chhotalal Mohanlal, G.Chhotalal and P.Vedilal with 7 annas,  4 annas and 5 annas shares respectively.  During the assessment  year  1963-64,  under the  new  deed,  P.Vedilal retired.   The share of G.Chhotalal remained unchanged.  One R.Chhotalal  became a partner with 4 annas share.  The share of  assessee Chhotalal Mohanlal was reduced to 4 annas.  For the  remaining  4  annas share, 2 minor  sons  of  Chhotalal Mohanlal  were admitted to the benefits of the firm with 12% and  13% interest respectively.  There was also no change in the  share capital standing in the name of the assessee.  As can  be seen from the facts stated above, P.Vedilal  retired and the firm was reconstituted;  two minor sons of Chhotalal Mohanlal,  one of the partners were admitted to the benefits of   the  partnership  and   simultaneously  share  of  said Chhotalal  Mohanlal  was  reduced from 7 annas  to  4  annas giving  3 annas share to the minor sons.  In this  situation when  at  the  time of the reconstitution of the firm,  a  3 annas share out of Chhotalal Mohanlal’s 7 annas share in the partnership firm was given to his minor sons it was taken as transfer  of  property  by way of gift and as  such  it  was taxable.   Hence  the  case of Chottalal  Mohanlal  did  not advance  the  case of the Revenue on the facts of  the  case

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 10  

before us.

   The  case  of  M.K.Kuppuraj was also a  case  where  the assessee’s  share  was reduced and his minor  children  were admitted to the benefits of the partnership with 8% share in the  profits  and this case was referred to and approved  by this Court in Chottalal Mohanlal’s case.  The case of Premji Trikamji  is  again  a case where in the constitution  of  a firm,   minors  were  admitted  to   the  benefits  of   the partnership  firm.  In all these cases, minors were admitted to  the  benefits of the partnership and if such partner  or minor  did  not  bring  in  capital  of  his  own  into  the partnership  firm  corresponding to his share, it  was  held that  the  transaction amounted to a gift.  But the  present case  stands entirely on a different footing.  It is clearly and merely a case of adjustment or distribution of assets of the  firm  in  regard  to  share of  the  appellant  on  its dissolution and as such no transfer of property was involved in it.

   Thus,  in  our  view, the High court was  not  right  in applying  the  decisions in (1) Chhotalal Mohanlal (2)  M.K. Kuppuraj,  (3)  Premji Trikamji to the facts of the case  in hand.

   The  cases  of  this Court in (1) Getti Chettiar,  (  2) Malabar  Fisheries  Co.,  (3) Dewas  Cine  Corporation,  (4) Bankey  Lal Vaidya and (5) Mohanbhai Pamabhai aforementioned fully   support   the  appellant  on   facts  and   in   the circumstances of the case.

   Having  regard to all aspects and for the reasons stated above, we conclude that the High Court committed an error in answering  the  question in negative i.e.  in favour of  the Revenue  and  against  the assessee-appellant.   Hence  this appeal  is  entitled to succeed.  The judgment and order  of the  High Court reported in [1988] 172 ITR 632 (AP) are  set aside,  upholding  the order of the Tribunal.  The  question aforementioned  is answered in the affirmative i.e.  against the  Revenue  and in favour of the assessee-appellant.   The appeal is ordered accordingly.  No costs.