COMMISSIONER OF GIFT TAX Vs. PREMJI TRIKAMJI JOBANPUTRA

JUDGEMENT

(1.) AT the instance of the Revenue, the following question has been referred to us for our determination:

(2.) PREMJI Trikamji Jobanputra, the assessee, started business in cloth in the name of M/s M. Premji & Co. in or about the year 1946 as a sole proprietor thereof. After commencement of the business from time to time he took certain others as partners in the business. In the present case, we are concerned with only two of the partnership deeds dt. 15th July, 1960, and 18th Feb., 1961. By the former deed of partnership, a partnership was formed between the assessee and one A. P. Sheth, with effect from the first day of Vaisakh, Samwat year 2006 (1st June, 1950). Under this deed of partnership, the two partners were to share the profits and losses in equal proportions. There was a change in the constitution of the firm with effect from 15th Feb., 1961, and the terms of the said change of the constitution were put into writing by a new instrument of partnership executed on 18th Feb., 1961. The new instrument of partnership provided that the assessee and A. P. Sheth, who were the partners under the earlier deed, offered to admit Manubhai Amritlal Sheth as a partner of the firm on the terms and conditions contained in the said partnership deed and Manubhai Amritlal Sheth in his turn accepted the said offer and joined as a partner from 16th Feb., 1961. It further provided that the assessee, A.P. Sheth, and M. A. Sheth agreed to admit three minors, Manharlal Premji Jobanputra, Arvind Premji Jobanputra and Pankaj Amritlal Sheth, to the benefits of the partnership from 16th Feb., 1961, upon the terms and conditions contained in the said instrument. The provision about sharing the profits and losses was contained in cl. 5 of the deed of the newly constituted partnership, the material part thereof is as under: "That the profits of the partnership business shall be divided between the parties hereto in the following proportions :

(3.) IN a further appeal by the assessee before the Tribunal, one of the contentions taken up by the assessee related to the valuation of the goodwill. However, the Tribunal did not decide this point as it took the view that no gift tax was attracted by the admission of the minors to the benefits of the partnership. Before the Tribunal, the main contention on behalf of the assessee was that in law no gift tax could be charged since the goodwill solely belonged to the adult partners and to the minors who were admitted only to the benefits of the partnership. This contention on behalf of the assessee was not accepted by the Tribunal because under the Partnership Act a minor also would be entitled on the dissolution of a firm to a share of the surplus assets which would include the value of the goodwill. However, the Tribunal took the view that no gift was made by the assessee to his minor sons by admitting them to the benefits of the partnership. Firstly, it held that the admission of the minors was by a voluntary act of the three major partners and not by an individual act of bounty by the assessee who was one of the partners. Secondly, it pointed out that during the subsistence of a partnership, having regard to the partnership law, no partner has any particular right to any specific asset of the partnership business. It pointed out that during the subsistence of the partnership no partner can deal with any portion of the assets of the partnership as his own, nor can he assign his interest in any specific item of the partnership to anyone. His right is to obtain such profits, if any, as falling to his share from time to time and upon a dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities as provided by S. 48 of the Partnership Act. Accordingly, the Tribunal took the view that the assessee had at no stage the ownership of any particular portion of the goodwill, if any, of the firm, much less a right to assign any portion of it, to his minor son. In the accounting year all that the minors were entitled to was to participate in the profits. By their admission into the firm, there was no immediate gift of a portion of the goodwill to them, which would attract gift tax in the material year. The Tribunal further held that there was no gift of goodwill in the accounting year and the value of the goodwill should be excluded entirely from the assessment. Necessary directions were issued to the GTO in accordance with the order. It is from this order of the Tribunal that the above question has been referred to us for our determination.