Commissioner of Gift-tax vs T.R. Vijayakumar

K.S. Paripoornan, J.—At the instance of the Revenue, the Income Tax Appellate Tribunal, Cochin Bench, has referred the following question of law for the decision of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that there is no gift involved in the retirement of the assessee from the firms ?"

The respondents are assessees to gift-tax. We are concerned with the assessment year 1977-78. A common question of law arises for consideration in both the cases. The respondents were partners in a firm of abkari contractors. They retired from the firm on March 31, 1977. They filed returns under the Gift-tax Act showing "nil" gift. The Gift-tax Officer, by order dated November 10, 1982, assessed the respondents to gift-tax regarding their share in the goodwill of the firm. In appeal, the Appellate Assistant Commissioner held that the retirement of the partner from a partnership firm does not involve any gift. He allowed the appeals. The orders so passed by the Appellate Assistant Commissioner were confirmed by the Income Tax Appellate Tribunal by a common order dated September 10, 1987. It is thereafter at the instance of the Revenue that the question of law formulated hereinabove has been referred for the decision of this court.

We heard counsel for the Revenue, Mr. N.R.K. Nair.

At the time of hearing, it was agreed that an identical question arose for the consideration of this court in Commissioner of Gift-tax Vs. T.M. Luiz Kannamally, and this court held that on the retirement of a partner, there is only a readjustment of the rights between the retiring partner and the continuing partners in the assets of the partnership and no relinquish-ment or transfer is involved in the transaction. It was held that the transaction does not amount to a gift and no gift-tax is leviable. Amongst others, this court followed the decision of the Madras High Court in Addl. Commissioner of Gift-tax Vs. P. Krishnamoorthy and Others, . It is also brought to our notice that a similar view has been taken by us in the case of another partner of the same firm in Income Tax Reference No. 14 of 1990, by judgment dated June 3, 1991 ( Commissioner of Gift-tax Vs. Smt. T.M. Sajilatha, . In Income Tax Reference No. 14 of 1990 (see Commissioner of Gift-tax Vs. Smt. T.M. Sajilatha, ), we held that on the retirement of the assessee from the firm, no transfer of the property amounting to a gift, chargeable to tax, arose. There was no goodwill capable of being gifted.

In the light of the Bench decision in Commissioner of Gift-tax Vs. T.M. Luiz Kannamally, and our own decision in Income Tax Reference No. 14 of 1990 (see Commissioner of Gift-tax Vs. Smt. T.M. Sajilatha, ), we are of the view that the Appellate Tribunal was justified in holding that no gift exigible to tax was involved in both the cases. We answer the question referred to this court in the affirmative, against the Revenue and in favour of the assessee. The references are disposed of as above.

A copy of this judgment, under the seal of this court and the signature of the Registrar, shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.