ivil Appeal No 2027 of 1974
From the Judgment and Order dated 8101973 of the Gujarat High Court in Gift Tax Reference No 3 of 1971
Wazir Singh KC Dua and Ms A Subhashini for the Appellants
The Judgment of the Court was delivered by RANGANATH MISRA J
This appeal is by certificate under a Deed of Partnership dated 12111958 a Firm by name Ms Chhotalal Vedilal came into existence with three partners Chhotalal Mohanlal 1044 the assessee
Gunvantilal Chhotalal and Pravinchandra Vedilal
These three partners had 7 annas 4 annas and 5 annas share respectively in the firm
This position contin ued until on 911
1961 relevant to assessment year 1963 64 with which this appeal is concerned a change took place in the constitution of the firm
Under the new deed Pravin chandra Vedilal retired no change took place in respect of Gunvantilal Chhotalal one Ramniklal Chhotalal became a partner with 4 annas share
The share of the assessee Chhotalal Mohanlal was reduced to 4 annas for the remaining 4 annas two minor sons of Chhotalal being Kiritkumar and Deepak Kumar were admitted to the benefits only of the firm Kiritkumar having 12 percent and Deepak Kumar having 13 per cent
No alteration was however made regarding the share capital standing in the name of the assessee
The Gift Tax Officer came to the conclusion that the assessee had deprived himself of 19 per cent share in the profits and had gifted away 19 per cent share in the good will of the firm in favour of his two minor sons
He valued the goodwill and treated 19 per cent thereof as taxable gift
The Appellate Assistant Commissioner before whom the assessee appealed adopted a different stand
According to him the gift was not of a share of the goodwill but in respect of the right to receive future profits
He valued that right and since the amount Was higher than what the Income tax Officer had estimated following the requirements of law he enhanced the quantum
In further appeal by the assessee the Tribunal held that in the circumstances of the case there could be no gift of goodwill
As appears from the statement of the case the Revenue did not seek to support the order of the Incometax Officer but pleaded for sustain ing the order of the Appellate Assistant Commissioner
The Tribunal further found that the right to receive future profits could not be subject matter of a gift as the trans fer did not relate to existing property
According to it the situation did not give rise to any gift which could be made liable to tax under the Act
The following question relevant for the purpose of the appeal was referred to the High Court for its opinion at the instance of the Revenue Whether on the facts and in the circumstances of the case the benefit of partnership given to minors Kirit Kumar Chhotalal and Deepak Kumar Chhotalal was a gift under the Gift Tax Act 1958 The High Court answered the question against the Revenue and up 1045 held the view of the Tribunal
This appeal has therefore been carried by the Revenue
In spite of service of notice of appeal the respondent has not appeared
Counsel appearing in support of the appeal has contended that the order of the Gift Tax Officer was right and the Appellate Assistant Commissioner the Tribunal and the High Court had gone wrong in holding that the ar rangement under the deed of 9111961 did not give rise to a taxable event under the Act so far as the assessee was concerned
Gift is defined in section 2xii of the Act  Gift  means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consid eration in money or money s worth and in cludes the transfer of any property deemed to be a gift under section 4
 In support of the appeal learned counsel further relies upon decisions of different High Courts to which we shall presently refer
Before doing so it would be appropriate to indicate that in Khushal Khemgar Shah  Ors
vs Khorsheed Banu Dadiba Boatwalla  Anr  this Court has held that goodwill of a firm is an asset In Commission er of Gift Tax vs Nani Gopal Mondal after referring to a number of authorities of this Court and different High Courts a Division Bench of the Calcutta High Court concluded thus From the cases cited above it appears that goodwill of a partnership business is a property of the firm in which a partner is entitled to a share
Although the above cases are under the Estate Duty Act yet the princi ple laid down in the said cases regarding the nature of goodwill of a firm and the right of a partner in respect thereof is applicable to the instant case
In this connection it may be mentioned that according to section 14 of the Indian Partnership Act property of a firm includes goodwill of the business
Further according to section 292 if a partner transfers his interest and the transferring partner ceases to be a partner the transferee is entitled as against the remaining partners to receive the share of the assets of the firm to which the transferring partner is entitled to
It further appears that under proviso to section 53 of the Indian Partnership Act 1046 in case of dissolution a partner or his representative may buy the goodwill of the firm and under section 551 of the Act in settling the accounts of a firm after dissolu tion the goodwill shall subject to contract between the parties be included in the assets and it may be sold either separately or along with other properties of the firm 
Upon transfer the share or interest in the property of the firm of the transferring partner including the goodwill becomes the share or interest of the transferee
In the instant case Nani Gopal Mondal by the deed of gift transferred his share or interest in the firm which included his share of goodwill also
Hence for the purpose of payment of gift tax the value of one third share of the assessee in the goodwill shall also be taken in account In MK Kuppuraj vs Commissioner of Gift Tax the Madras High Court was called upon to deal with a case of this type where minors were admitted to the benefits of partnership firm and the assessee s interest in the firm suffered the detriment by relinquishment of a portion of his interest
The High Court found that relinquishment of 8 per cent profit was in favour of the minors who were admitted without any consideration
It held that the transaction constituted a gift by the assessee in favour of the minors
The ratio in Sirehmal Nawalkha vs Commissioner of Income Tax as also in Commissioner of Gift Tax Bombay vs Premji Trikamji Jobanputra  17 support the stand of the Revenue that the transaction constitutes a gift 
Once goodwill is taken to be property and with the admission of the two minors to the benefits of partnership in respect of a fixed share the right to the money value of the goodwill stands transferred the transaction does con stitute a gift under the Act
Since there has been no dis pute about valuation of the goodwill as made by the Gift Tax Officer with the conclusion that there has been a gift in respect of a part of the goodwill the answer to the ques tion referred has to be in the affirmative that is it constitutes a gift under the Act
The appeal is allowed and the conclusion of the High Court is reversed
Since the respondent has not appeared there will be no order for costs
APJ Appeal allowed


Summary:
Under a deed of partnership dated 12111958 a firm by the name Ms Chhotalal Vedilal came into existence with Chhotalal Mohanlal the assessee Gunvantilal Chhotalal and Pravinchandra Vedilal as partners each having 7 annas 4 annas and 5 annas share respectively in the firm
This position continued until on 9111961 when a change took place in the constitution of the firm
Under the new deed Pravinchandra Vedilal retired
One Ramniklal Chhotalal became a partner with 4 annas share
The share of the asses see Chhotalal Mohanlal was reduced
For the remaining 4 annas two minor sons of the assessee were admitted to the benefits only of the firm
In the assessment year 1963 64 the Gift Tax Officer concluded that the assessee had deprived himself of 19 share In the profits and had gifted away 19 share in the goodwill of the firm in favour of his two minor sons
He valued the goodwill and treated 19 thereof as taxable gift
In the appeal before the Appellate Assistant Commission er the assessee took the stand that the gift was not of a share of the goodwill but in respect of the right to receive future profits
He valued that right and since the amount was higher than what the Income Tax Officer has estimated he enhanced the quantum
In further appeal by the assessee the Tribunal held that in the circumstances of the case there could be no gift of goodwill and found that the right to receive future profits could not be subject matter of a gift as the transfer did not relate to existing property and the situation did not give rise to any gift which could be made liable to tax under the Act
In the Reference the High Court upheld the view of the Tribunal
1043 In the appeal to this Court on behalf of the Revenue it was contended that the order of the Gift Tax Officer was right and the Appellate Assistant Commissioner the Tribunal and the High Court had gone wrong in holding that the ar rangement under the deed of 9111961 did not give rise to a taxable event under the Act
Allowing the appeal HELD 1
Goodwill of a firm is an asset
1045E Khushal Khemgar Shah  Ors
vs Khorshed Banu Dadiba Boatwalla  Anr   followed
Once goodwill is taken to be property and with the admission of the two minors to the benefits of partnership in respect of a fixed share the right to the money value of the goodwill stands transferred the transaction does con stitute a gift under the Gift Tax Act 1958
1046F 3
Since there has been no dispute about valuation of the goodwill as made by the Gift Tax Officer with the conclusion that there has been a gift in respect of a part of the goodwill the transfer of the benefit of the partner ship constitutes a gift under the Act
1046F G Commissioner of Gift Tax vs Nani Gopal Mondal  MK Kuppuraj vs Commissioner of Gift Tax  Sirehmal Nawalkha vs Commissioner of Income Tax and Commissioner of Gift Tax Bombay vs Premji Trikamji Jobanputra  approved