JUDGMENT B.P. Jeevan Reddy, C.J.
1. By this application under Section 26(3) of the Gift-tax Act, 1958, the applicant is asking this court to refer the following questions for the opinion of this court :
"(1) Whether, in law and the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that no deemed gift is involved and accordingly no gift-tax was chargeable in this case ?
(2) Whether, in law and the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in arriving at the conclusion that the value of shares of Rs. 8 lakhs issued to the partners of the firm includes profit and goodwill when there is no such documentary evidence which could establish this fact and justify the said conclusion ?"
The assessee, a registered firm, was constituted on January 1, 1972. On August 2, 1972, there was a reconstitution. On October 16, 1972, all the assets and liabilities of the firm were taken over by a company, incorporated under the Companies Act. The Income-tax Officer's order makes it clear that, on the date of taking over of the firm by the company, the accounts of the firm were not made up. However, in the balance-sheet of the company, prepared as on March 31, 1973, the income of the firm for the period January 1, 1972, to November 24, 1972, was separately shown, according to which the income of the firm was determined at Rs. 6,88,375.
2. The partners of the firm who became shareholders of the company were allotted shares of the face value of Rs. 8,00,000. The Income-tax Officer held that, the shares allotted were in lieu of capital contributed by the partners in the firm and, therefore, the aforementioned amount (Rs. 6,88,375 minus certain outgoings) should he deemed as a gift by the linn to the company. This view iias been reversed by the Tribunal and we agree with it. In view of the fart that the entire assets of the firm were taken over by the company as a going concern, the shares allotted would encompass all the assets of the, company. As the Tribunal said, profits are embedded in the assets transferred.
3. In the circumstances, we are not inclined to allow this application. It is, accordingly, dismissed.
4. No costs.