Commissioner of Gift Tax vs P. Thirunavukarasu

Ratnam, J.—In this tax case reference u/s 26(3) of the Gift-tax Act, 1958, the Revenue seeks a direction to the Tribunal to refer the

following question of law :

Whether, on the facts and in the circumstances of the case the Appellate Tribunal was right in law and had valid material in cancelling the

assessment on the ground that it lacked any foundation ?

Whether the Appellate Tribunal''s view that the moment a partner retires from a firm, he ceased to have any right and hence there is no question

of any giving up of such a right or treating the relinquishment as a gift is reasonable, Supported by valid material and sustainable in law ?

The assessee who was a partner in a firm retired from the firm and, in his place, other persons were taken in as partners. In the course of the

proceedings for the assessment year 1977-78, the Gift-tax Officer took the view that there was a relinquishment of the right to share the future

profit and that would be subjected to gift-tax. In the appeal also, the Appellate Assistant Commissioner confirmed this view, however, on further

appeal to the Tribunal, it took the view that, as the assessee had retired from the firm and whatever was due to him from the firm has also been

paid, he had nothing whatever to don with the admission of the other partners in the firm and there was, therefore, no question of any taxable gift at

all arising under these circumstances and, therefore, the assessment deserved to be set aside. It is against this that the Revenue has come up with

this tax case petition.

We have carefully looked into the order of the assessing authority as well as the appellate authorities. There is not dispute before this court that,

on the retirement of the assessee, the amounts due to him had been ascertained and had also been paid. In other words, in so far as the assessee is

concerned, he had no further claim whatever against the firm and the firm also had no claim against him. If that be so, then we do not see how there

could be any taxable gift at all. With the future profits that would be earned by the firm which had taken in new partners, the assessee had

absolutely nothing to do. There is, therefore, no question of the assessee having given up any right to future profits so as to enable the Revenue to

treat the so called right to future profits as a deemed gift. We are of the view that the Tribunal was quite right in the conclusion arrived at by it and

we do not see any referable question of law arising out of the order of the Tribunal. We, therefore, dismiss the petition, costs Rs. 250.