Satish Chandra, J. - (1.) SARDAR Wazir Singh, the assesses, carried on business as a sole proprietor under the name and style " Kanpur Arms Corporation, Kanpur ". On 1st of May, 1973, he entered into partnership with his two brothers and one nephew. Wazir Singh transferred his business to the new partnership. In this partnership he had 29% share. The rest of the share was divided between the other persons. A regular partnership deed was drawn up on 6th of March, 1964, effective from 1st of May, 1963. For the assessment year 1964-65, the Gift-tax Officer held that 71% share of the goodwill of the sole proprietary business was gifted by Wazir Singh to his brothers and nephew without consideration and this was taxable under Section 4(a) of the Gift-iax Act. He rejected the claim for exemption under Clause (xiv) of Section 5(1) of the Act. This view was upheld by the Appellate Assistant Commissioner. The assessee then took the dispute to the Appellate Tribunal. The Tribunal held that the assessee's sole proprietary businessjdid have a goodwill and the same was transferred to the other partners to the extent of 71% of its value. It held that the transaction in question was covered by Section 4(c) and not by Section 4(a) of the Gift-tax Act. The action of the assessee in admitting three persons as partners amounted to abandonment of his right in the goodwill but since the arrangement was bona fide it was covered by the exempting Clause (xiv) of Section 5(1).
(2.) THE Tribunal then observed : " Before we conclude we would like to mention the fact that in para. 3 of the preamble of the partnership it is stated that on account of expansion of business and on account of advancing age and ill-health of the assessee he has agreed to admit such persons as partners coupled with another fact that the profits and the sales in subsequent years have gone up from 3 to 6 times, it cannot be said even on facts that the transfer was without any consideration." On this view the assessee's appeal was allowed. At the instance of the Commissioner of Gift-tax, the Tribunal has referred the following question of law for the opinion of this court: " Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the transaction by which the assessee admitted three persons as partners in his erstwhile proprietary business was covered by the provisions of Section 4(c) of the Gift-tax Act and, therefore, exempt under Section 5(1)(xiv) of the same Act ? "
(3.) AT the direction of this court the Tribunal has referred the following question of law also to this court: " Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the amount of goodwill was not a gift within the meaning of Section 4(a) of the Gift-tax Act ? " A perusal of the partnership deed shows that the capital of the partnership was fixed at Rs. 77,183 of which the assessee, Wazir Singh, contributed Rs. 68,394 which was then the credit balance in his account books. The balance was contributed by the two brothers and the assessee. The assessee retained a share of 29 nP., the two brothers were given 29 nP. share and the nephew was given 13 nP., share. In the third paragraph of the preamble it was stated that it was on account of advancing age and ill-health of the aforesaid first partner (namely, the assessee) that he agreed to admit the second, third and fourth partners with effect from 1st May, 1963. In our opinion, the Tribunal was justified in holding that in fact there was consideration for the transfer of the assessee's right in the business including the goodwill. His brothers and nephew were taken in partnership so that the business could run better, which the assessee could not because of advancing age and ill-health. In addition, the new partners brought in capital to some extent into the partnership. That was consideration for the transfer of the assessee's right in the business to the other partners. Thus, the factual position is that the transfer was not without consideration. On the contrary, it was for consideration. There is no finding by the Tribunal that the consideration was in any sense inadequate. Clause (xii) of Section 2 of the Gift-tax Act defines a "gift" as follows : " (xii) 'Gift' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money, or money's worth, and includes the transferor conversion of any property referred to in Section 4, deemed to be a gift under that section." ;