IN THE HIGH COURT OF KERALA AT ERNAKULAM
OP No. 12086 of 1997(S)
1. THE COMMISSIONER OF GIFT-TAX,COCHIN
... Petitioner
Vs
1. A.J.JOSE,ERNAKULAM
... Respondent
For Petitioner :SRI.P.K.RAVINDRANATHA MENON (SR.)
For Respondent : No Appearance
The Hon'ble the Chief Justice MR.H.L.DATTU
The Hon'ble MR. Justice K.T.SANKARAN
Dated :25/07/2007
O R D E R
H.L.DATTU, C.J. & K.T.SANKARAN, J.
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O.P.No.12086 of 1997
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Dated, this the 25th day of July, 2007
JUDGMENT
H.L.Dattu, C.J.
This is a petition filed by the Revenue under Section 26(3) of the Gift-tax
Act, 1958 ( Act for short) for the assessment year 1983-84.
(2) The respondent was a partner in a firm ‘M/s.Hotel Yuvarani’. He
retired from the partnership firm with effect from 1.1.1982 during the
accounting year relevant to the assessment year 1983-84. The assessing
officer has completed the assessment determining the taxable gift at
Rs.52,280/- being of the opinion that the right to share in future profit of the firm
as goodwill is forfeited by the assessee by retiring from the partnership firm.
Aggrieved by the findings and conclusions reached by the assessing officer,
the assessee had filed appeal before the Deputy Commissioner of Income Tax
(Appeals), Thiruvananthapuram. The said appellate authority has confirmed
the order passed by the assessing authority under the provisions of the Gift
Tax Act.
(3) The assessee , aggrieved by the aforesaid order, had carried the
matter in second appeal before the Income Tax Appellate Tribunal. The
Tribunal following the decision of this Court in the case of Commissioner of
Gift Tax v. Smt.R.Sarojini [(1993) 201 ITR 104] has allowed the appeal filed
by the assessee.
(4) Aggrieved by the aforesaid order, the Revenue had filed an
application before the Tribunal under Section 26(1) of the Act requesting the
Tribunal to refer the following question of law for consideration and decision by
O.P.No.12086/1997
2
this Court. The said questions of law reads as under:
“1. Whether, on the facts and in the circumstances of the case,
a) the Tribunal is right in holding that ‘he is fully
qualified and became a working partner in the firm of
M/s.Hotel Yuvarani ‘ and are not the findings wrong,
against facts and law, unreasonable and unrealistic?
b) did Jose Pradeep have the qualification found by
the Tribunal at the time of his induction in the
partnership?
2. Whether, on the facts and in the circumstances of the case,
the Tribunal is right in law and fact in holding that there is no gift
in the case?”
(5) The Tribunal rejected the application filed by the Revenue under
Section 26(1) of the Act.
(6) The Revenue is before us in this petition filed under Section 26(3) of
the Act to state the case and refer the aforesaid question of law for our
consideration and decision.
(7) The question of law to which the Revenue wants us to consider and
decide is already decided by the apex Court in the case of Commissioner of
Gift Tax v. T.M.Louiz [2000) 245 ITR 831]. In the said decision the apex Court
has stated as under:
“The definition of ‘gift’ makes it clear that there has to be
a transfer by one person to another of movable or immovable
property; such transfer has to be voluntary and without
consideration in money or money’s worth. What is, therefore,
absolutely essential for the purpose of a gift is a transfer of
property. “Transfer of property” is defined for the purpose of the
Gift-tax Act as any disposition or conveyance, or assignment or
settlement or delivery or payment or other alienation of property.
When a partner retires from a partnership, the
partnership continues. The assets and the goodwill of the firm
continue to remain the assets and the goodwill of the firm. All
that the retiring partner gets is the value of his share in the
partnership assets less its liabilities. It cannot, in such
circumstances, be held assuming that the retiring partner
O.P.No.12086/1997
3
received less than what was his due, 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, 1958, or that there was a gift liable to gift-tax.
The word “settlement” in the definition of “transfer of property” in
the Gift-tax Act takes colour from the context of the definition
and its neighbouring words and means a settlement upon trust
and not a settlement of accounts.
During the accounting year relevant to the assessment
year 1973-74, the assessee retired with effect from April 1, 1972,
from two firms in which he was a partner. The Gift-tax Officer
assessed him to gift-tax on the basis that, upon such retirement,
there was a gift because the assessee had surrendered his
rights in the firms. However, the Tribunal and the High Court
held that gift-tax could not be levied. On appeal to the Supreme
Court:
Held, dismissing the appeal, that when the assessee
retired from the two firms, he received the value of his shares
therein. There was merely an adjustment of rights between the
retiring partner and the continuing partners in the assets of the
partnership and there was no element of transfer of interest by
the retiring partner to the continuing partners. Gift-tax could not
be levied.”
(8) In view of the pronouncement of the apex Court, at this stage, it may
not be necessary for this Court to direct the Tribunal to state the case and refer
the questions of law framed by the Revenue for our consideration and decision.
In view of the above, the original petition filed by the Revenue requires to be
rejected and it is rejected.
Ordered accordingly.
(H.L.DATTU)
CHIEF JUSTICE
(K.T.SANKARAN)
JUDGE
vns