G. Santhanam, A.M. - (1.) THESE appeals involve common issue and, therefore, a consolidated order is passed for the sake of convenience.
(2.) The assessee are partners in M/s Tenzing Timber Corporation along with M/s Asia Gule & Chemicals (P) Ltd. Each one of the assessees had 8 per cent share in the profits and losses of the firm with 60 per cent share to the limited company as a partner. The partnership was as a result of a reconstitution made on 1st October, 1982. On 31st December, 1982, the entire business with its assets and liabilities were transferred to M/s Asia Glue & Chemicals (P) Ltd., one of the partners of the firm, with the other five partners retiring from the partnership. Pursuant to the retirement of the assessees from the firm, an indenture of Release Deed was executed on 5th July, 1983. The relevant clauses of the Deed of Indenture are as follows : "(a) Whereas according to mutual agreement between the Releasors on the one part and the company on the other, the Releasors have transferred to the company on 31st December, 1982 their shares in the firm w.e.f. 1st January, 1983 and accordingly ceased to be partners of the firm and the firm itself ceased to exist w.e.f. 1st January, 1983 and consequently the company has become the sole owner of all the assets of the firm from 1st January, 1983; Whereas the Releasors have agreed to formally release and relinquish in favour of the company all their rights and interests over the scheduled properties by getting the amounts standing to their credit to the tune of Rs. 1,01,634.77 as detailed under : Rs. Sri K. A. A. Arunachalam 19,198.95 Sri S. Annamalai 19,100.51 Sri S. Maheswaran 24,057.23 Sri A. Tenzing 24,724.60 Sri S. Ashok 14,523.48" (b) Now this indenture of release witnesseth that in pursuance of the said agreement, by getting the balance standing to their accounts, amounting in all to Rs. 1,01,634.77 (Rupees one lac, one thousand, six hundred & thirty-four and paise seventy-seven only) the Releasors do hereby release and relinquish in favour of the company all their proportionate rights, liberties, interests, claims and titles in, to or upon the scheduled properties. (c) The releasors do hereby agree, declare and confirm as follows : 1. The releasors have retired from the firm on 31st December, 1982 and ceased to be partners of the firm and the firm itself ceased to exist as and from 1st January, 1983. 2. The releasors hereby acknowledge for having received the said amount of Rs. 1,01,634.77 standing to their credit in their respective accounts as detailed under : Rs. Sri K. A. A. Arunachalam 19,198.95 Sri S. Annamalai 19,100.51 Sri S. Maheswaran 24,037.23 Sri A. Tenzing 24,774.50 Sri S. Ashok 14,523.48 The releasors have released all their rights, claims and interests in the firm in favour of the company w.e.f. 1st January, 1983.
(3.) THE company shall not be liable for any personal debts or liabilities of the Releasors and such other debts or liabilities that might have been incurred by them presumably on behalf of the firm but not accounted to the firm and not taken into account in the balance sheet of the firm; (d) THE scheduled properties were purchased as vacant land under a Sale Deed executed by Madhavan Pillai on 27th September, 1962 and registered as document No. 3667 of 1962 in Book I Vol. 274 on pp. 217 to 220 of the Chenganacherry sub-Registry." 3. THE GTO noticed that the market value of the scheduled property was higher than the value of the rights of the partners. It was also noticed that the scheduled property was sold for Rs. 27 lakhs on 15th September, 1986. THE Valuation Cell determined the value at Rs. 23,20,000 as on 31st December, 1982. THErefore, he concluded that the act of the assessees in reconstructing the firm on 1st October, 1982 by admitting the limited company as a partner with 60 per cent share to its credit amounted to a gift. THErefore, he brought to tax the difference between 60 per cent of the market value of the scheduled property as on 1st October, 1982 and the sum total of the balance in the capital account of the 5 assessee partners. He further held that upon retirement as on 31st December, 1982, the assessees have relinquished their rights to the extent of 40 per cent of the market value of the property in favour of the limited company. This time, he computed the value of the gift at the difference between 40 per cent of the market value of the property and the amount to the credit of the retiring partners in their accounts in the books of the firm. Thus, he brought to gift-tax the entire market value of the scheduled property as coming within the purview of GT Act. 4. On appeal, the CGT(A) held that at the time of reconstitution of the firm, though there was a transfer of the interest on the part of the old partners in favour of the incoming partners, yet the value of their interest while the firm is subsisting cannot be assigned and, therefore, no gift-tax is leviable in respect of reduction in profit-sharing ratio suffered by the existing partners. Thus, he vacated the levy of gift-tax on the reconstitution of the firm on 1st October, 1982. THE assessees have no grievance against this part of the order of the CGT(A).;