COMMISSIONER OF GIFT TAX GUJARAT versus CHHOTALAL MOHANLAL

Citation: [1987] 2 S.C.R. 1042 · Decided: 16-04-1987 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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COMMISSIONER OF GIFf TAX GUJARAT 
v. 
CHHOTALAL MOHANLAL 
APRIL 16, 1987 
B 
[R.S. PATHAK, CJ, RANGANATH MISRA AND 
M.M. DUTT, JJ.] 
Gift Tax 'Act, 1958-Section 2(xii) & 4-Goodwill of partner-
ship-Whether can be transfe"ed-Whether such transfer a 'gift'. 
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C 
Under a deed of partnership dated 12.11.1958, a firm by the name '4 
M/s. Cbbotalal Vedilal came Into existence with Cbbotalal Mohanlal 
1 
(the assessee), Gunvantilal Cbbotalal and Pravincbandra Vedilal, as 
partners, each having 7 annas, 4 annas and S annas share respectively ~ 
in the firm. This position continued until on 9.11.1961 when a change 
took place in the constitution of the Orm. Under the new deed, 
D Pravincbandra Vedilal retired. One Ramnlklal Chhotalal became a 
partner with 4 · annas share. The share of the assessee, Cbbotalal 
Mobanll'il 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 
E that the asSeSsee bad deprived himself of 19% share In the profits and 
had gifted away 19% share in the' goodwill of the firm in favour of bis 
· tWo minor. sons. He valued the .goodwill and treated 19% thereof as 
taxable gift; 
In the appeal before the Appellate Assistant Commissioner the 
F · 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 
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·· · ., and since the amount was higher than what the Income Tu Officer bas 
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·· 
·estimated, be enhanced the quantum. 
>-<" 
._ 
In further appeal by the assessee the Tribunal held that in the 
G . circumstances of the case there could be no gift of goodwill and found 
·, that the right to receive future prolits'Could not be subject matter of a 
· gift as the transfer did not relate to existing property and the ~ituation · 
did.not give rise to any gift which could be made liable to tax under the 
----.· 
Act. 
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In the Reference the High Court upheld the view of the Tribunal. 
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1042 
-
COMMR. OF GIFT TAX v. CHHOTALAL !MISRA, J.] 
1043 
In the appeal to this Court on behalf of the Revenue, it was con· A 
tended that the order of the Gift Tax Officer was right and the Appel· 
late Assistant Commissioner, the Tribunal and the High Court had gone 
wrong in holding that the arrangement under the deed of 9.11.1961 did 
not give rise to a taxable event under the Act. 
Allowing the appeal, 
HELD: 1. GoodwlllofafirmiS!IDaSset. [1045E] 
Khushal Khemgar Shah & Ors. v. Khorshed Banu Dadiba 
Boatwalla & Anr., [1970] 3 S(:R 689, followed, 
2. Once goodwill is taken to be property aod with the admission 
of the two minors· to the benefits of partnership in respect of a fixed 
share, the right to the nmney vidue of the goodwill staods triwsferred, the 
transactfon does c11nstitute a gift under the Gift Tax Act, 1958. [1046F] 
B 
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3. Since there l!as been !1'1 dispute about viiluation of the goodwill 
D 
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 traosfer of the benefit of the 
partnership constitutes a gift under the Act. [1046F-G] 
Commissioner of Gift Tax v. Nani Gopal Monda/, 150 ITR 469; 
M. K. Kuppuraj v. Commissioner of Gift· Tax, 153 ITR 481; Sirehmal 
E 
Nawalkha v. Commissioner of Income-Tax, 156 ITR 714 and Commis· 
sioner of Gift Tax, Bombay v. Premji Trikamji Jobanputra, 133 ITR 
317, approved. 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2027 
of 1974. 
F 
From the Judgment and Order dated 8.10.1973 of the Gujarat 
High Court in Gift Tax Reference No. 3 of 1971. 
Wazir Singh, K.C. Dua and Ms. A. Subhashini for the Appel· 
!ants. 
G 
The Judgment of the Court was delivered by 
RANGANATH MISRA, ,J. This appeal is by certificate under a 
Deed of Partnership.dated 12.11.1958, a Firm by name M/s Chhotalal 
Vedilal .came into existence with three partners, Chhotalal Mohanlal 
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1044 
SUPREME COURT REPORTS 
[1987] 2 S.C.R. 
A 
(the assessee), Gunvantilal Chhotalal and Pravinchandra ,Vedilal. 
B 
These three partners had 7 annas, 4 annas and 5 annas share respec-
tively in the firm. This position continued until on 9.11.1961 relevant 
to assessment year 1963-64 with which this appeal is conceroed, a 
change took place in the constitution of the firm. Under the new deed, 
Pravinchandra Vedilal retired; no change took place in respect of 
Gunvantilal Chhotalal; one Ramniklal Chhotalal became 

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