High Court Of Madras
Commissioner Of Gift Tax vs. Hajee Moosa Sait & Bros.
Section 4(1)(a)
R. Jayasimha Babu & K. Gnanaprakasam, JJ.
Tax Case No. 684 of 1994
3rd July, 2001
Counsel Appeared
J. Naresh Kumar, for the Revenue : None, for the Assessee
JUDGMENT
K. GNANAPRAKASAM, J. :
The respondent-assessee was a partnership firm consisting of four partners, out of which one partner was the private firm (company). The first three partners had their respective shares and they have transferred the shares to the fourth partner, that being the partnership-firm. The firm was dissolved on 30th March, 1982, and after dissolution of the firm, the assets and liabilities were mutually adjusted among the partners, wherein, the house property valued at Rs. 3,81,294 was taken over by the fourth partner, the private limited company. The GTO estimated the value of that house property as on 31st March, 1981, at Rs. 11,95,000 as against its book value of Rs. 3,81,294. 60 per cent of the difference between the estimated value and the book value of that property was treated as amount liable for gift-tax, as it was gift to the firm by one of the partners and subjected the same to gift- tax.
On appeal, the CIT(A) following the decision of the Supreme Court in the case of CIT vs. Bankey Lal Vaidya (1971) 79 ITR 594 (SC) : TC 20R.874, accepted the contention of the assessee and set aside the order of the AO. Pursuant to the same, this reference has been made to us at the instance of the Revenue, and the question referred to us is, “whether, on the facts and in the circumstances of the case the Tribunal was right in law in holding that the provisions of s. 4(1)(a) of the GT Act are not attracted to the instant case ?”
It has been clearly made out from the facts of the case that the transfer was only among the partners in favour of the private limited company and, therefore, there was no actual transfer, except the mutual adjustment of rights between the parties and there is no question of any extinguishment of the firm’s right in the partnership assets amounting to a transfer of assets by the firm to a partner. The essential requisite of a deemed gift contemplated in s. 4(1)(a) of the Act is that the property should be transferred otherwise than for adequate consideration and, therefore, the Tribunal has correctly held that the amount transferred in favour of the private limited company would not attract the provisions of s. 4(1)(a) of the Act.
The said finding of the Tribunal derives the support of the case of Malabar Fisheries Co. vs. CIT (1979) 12 CTR (SC) 415 : (1979) 120 ITR 49 (SC) : TC 28R.572, wherein, the apex Court has held that a partnership firm under the Indian Partnership Act, 1932, is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm’s property or the firm’s assets all that is meant is property or assets in which all partners have a joint or common interest. It cannot, therefore, be said that, upon dissolution, the firm’s rights in the partnership assets are extinguished, and thereby held that the provisions of s. 4(1)(a) of the Act is not applicable.
The very same view was taken recently by the apex Court in the case of Reva Investment (P) Ltd. vs. CGT (2001) 167 CTR (SC) 471 : (2001) 249 ITR 337 (SC). Applying the principles laid own by the apex Court, the question referred to us has got to be answered in favour of the assessee, and, accordingly, answered in favour of the assessee, and against the Revenue.
[Citation : 254 ITR 474]