(Per : HONOURABLE MR.JUSTICE AKIL KURESHI)
1) These two appeals arise out of a common judgment of Income Tax Appellate Tribunal dated 17.12.1999. By the said judgment, the Tribunal had dismissed the appeals of the present appellants, that is, assessees and confirmed the decision passed by the Revenue Authorities. The appellants herein and one Smt. Urmilaben A. Patel constituted a partnership firm, having shares of 40%, 40% and 20% respectively. With effect from 01.09.1976, one Surajben Family Trust was admitted as a new partner. This resulted into reallocation of the partnership interest among four partners. The appellants received 30% and 20% shares, Smt. Urmilaben A. Patel received 10% share and the newly added partner, that is, Surajben Family Trust received 40% share. The Revenue Authorities in view of the fact that the erstwhile partners' shares went down, treated 40% total allocation of shares in favour of Surajben Family Trust as a deemed gift. It was this view which the Tribunal has confirmed in the impugned judgment.
2) At the time of admission of the appeal, following substantial question of law was framed;
"Whether in the facts and circumstances of the case, the Tribunal was right in law in holding that the reduction in the partnership share by the appellant would amount to a gift and give rise to levy of gift tax?"
3) Learned counsel Mr.S.N. Soparkar for the appellant submitted that the issue is no longer res-integra. Under very similar circumstances, the Apex Court in the case of Sree Narayana Chandrika Trust Vs. Commissioner of Gift-Tax, reported in 261 I.T.R, page No.279, reversed the decision of the High Court and ruled in favour of the assessee by holding that such reconstitution of a firm would not result into any deemed gift. The question which the Apex Court considered was "whether on the facts and in the circumstances of the case, the Tribunal was right in law and fact in holding that even though the reconstitution of the firm resulted in the reduction of the share of profit of the assessee-trust, there was no gift exigible to tax in its hands?". This question was answered against the Revenue and in favour of the assessee. In that view of the matter, we have no hesitation in reversing the decision of the Tribunal. The question is answered in favour of the appellants-assessees and against the Revenue. The decision of the Tribunal is set-aside. The Appeal is allowed.
(AKIL KURESHI,J.) (HARSHA DEVANI,J.) Vahid Top