GIFT TAX OFFICER Vs. HIRA NAND AND OM PARKASH
INCOME TAX APPELLATE TRIBUNAL
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S.K. Chander, Accountant Member -
(1.) WE are disposing of these appeals and the cross-objections by a consolidated order because the issues emanate from common set of facts Before we crystallise the issues, we set out the facts.
(2.) There was a firm working under the name and style of Laxmi Chand Chuni Lal, having business in cloth. It had been assessed to tax in the status of a registered firm for the assessment years 1970-71 to 1974-75 on the total income shown against each assessment year in the following tabulated data :
Though the above firm was in existence for a number of years, it is apparent from the deed of partnership made on 1-4-1973 that there were differences amongst the partners as a consequence of which the instrument dated 1-4-1973 had to be drawn. In this deed, the constitution of the said firm was as under :
The business of the firm, however, continued to be that of purchase and sale of cloth on wholesale basis at Purani Mandi, Karnal. This instrument recorded that (he partnership will be at will. The assets and liabilities of the old firm as had existed on 1-4-1973 were considered as taken over by the newly constituted firm. Clause 12 of this instrument provided that the partners can add to, subtract from, or vary the terms and conditions laid down in the instrument by mutual consent.
On 1-4-1974, by an instrument of that date, it was agreed between S/Shri Guranditta Ram and Chuni Lal, both sons of Laxmi Chand, and Smt. Raj Rani, wife of Shri Om Parkash, referred to in the instrument dated 1-4-1974 as parties of the first, second and third part, respectively, to run the business of cloth in the name and style of Laxmi Chand Chuni Lal. It was further agreed to admit Kumari Usha Rani, daughter of Shri Hira Nand, to the benefits of partnership. This deed also provided that though the business was done in the name and style of Laxmi Chand Chuni Lal yet the partners can change the name and style as and when so agreed to by them. It was further agreed that in addition to the business of purchase and sale of cloth of all types, any other such business or any other business as the partners may agree may be carried out. This partnership was at will and the profits sharing ratio was provided in Clause 7 as under :
Since Miss Usha Rani was minor and admitted to the benefits of partnership only, the ratio for sharing the losses, if any, was as under:
(3.) WHILE processing the assessment of the two assessees before us, the GTO held the opinion that "Shri Om Parkash (having 24 per cent share) retired surrendering his right in the firm in favour of others. Similarly, Shri Hiranand (having 26 per cent share) retired surrendering his rights in the firm in favour of others without any consideration, which amounts to a gift by them to the others, namely, Shri Guranditta Ram, Chuni Lal, Smt. Raj Rani and Miss Usha Rani". He, therefore, proceeded on the presumption that there was gift of goodwill of the firm of Laxmi Chand Chuni Lal by the outgoing partners to the partners who continued and those who also joined with effect from 1-4-1974. Taking into consideration the profits of the five years prior to the assessment year 1974-75, he found the average profits of Rs. 90,450 and considered the goodwill to be three times of the average profit. This was determined at Rs. 2,71,350. Since in the case of Om Parkash his share in the firm was 24 per cent prior to 1-4-1974, he took 24 per cent of this figure which comes to Rs. 65,124 as the gift made by him. Similarly, in the case of Hira Nand, since his share of profit in the earlier firm was 20 per cent, the value of the portion of goodwill gifted by him was determined at Ks. 70,530. In both the cases, therefore, the GTO issued notices calling for returns of gifts.;
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