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The Commr. Of Gift-Tax vs K.Karunakaran on 19 July, 2007

Kerala High Court
The Commr. Of Gift-Tax vs K.Karunakaran on 19 July, 2007
       

  

  

 
 
  IN THE HIGH COURT OF KERALA AT ERNAKULAM

OP No. 11664 of 1997(S)



1. THE COMMR. OF GIFT-TAX,TVM.
                      ...  Petitioner

                        Vs

1. K.KARUNAKARAN,QUILON
                       ...       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 :19/07/2007

 O R D E R
                            H.L.DATTU, C.J.   &   K.T.SANKARAN, J.

                                  ------------------------------------------

                                               O.P.No.11664 of 1997

                                  ------------------------------------------

                            Dated, this the   19th    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 1984-85.

2. The respondent was a partner of the firm M/s.Karuna Cashew Co.,

Quilon. He retired from the partnership firm during the previous year relevant

to the assessment year 1984-85 . The assessing officer has completed the

assessment determining the taxable gift at Rs.15,69,680/- 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 Commissioner of Income Tax. The said appellate authority has

allowed the appeal and set aside the orders passed by the assessing authority

under the provisions of the Gift Tax Act.

3. The Revenue aggrieved the aforesaid order had carried the matter

in appeal before the Income Tax Appellate Tribunal. The Tribunal following the

decision of this Court in the case of Commissioner of Gift Tax v. T.M.Luiz

Kannamally (180 ITR 257) has rejected the appeal filed by the Revenue.

4. 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 this Court. The said question of

law reads as under:

O.P.No.11664/1997 2

“Whether, on the facts and in the circumstances of the case, the

Tribunal is right in law in holding that the retirement of the

assessee from the partnership firm does not amount to gift and

no gift-tax is leviable?”

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

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

O.P.No.11664/1997 3

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 question 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

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