THE COMMISSIONER OF GIFT TAX, TRIVANDRUM versus T.M. LOUIZ

Citation: [2000] SUPP. 3 S.C.R. 352 · Decided: 20-09-2000 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Dismissed

Judgment (excerpt)

A 
tHE COMMISSIONER OF GIFT TAX, TRIV AND RUM 
·-
v. 
T.M. LOUIZ 
SEPTEMBER 20, 2000 
B 
[S.P. BHARUCHA, S.N. PHUKAN AND Y.K. SABHARWAL, JJ.] 
Gift Tax Act, 1958-Section 2(xii), (xiv)-Relinquishment of rights in 
a firm by a partner-Whether constitutes transfer of property for Gift tax 
purposes -
Held, it does not constitute transfer of property and therefore not 
'Ii-
c 
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liable to Gift tax. 
Respondent-assessee, on retirement, surrendered his rights in a firm 
in which he was a partner. The Gift Tax Officer treated the relinquishment 
of the rights as transfer of property under the Gift Tax Act, 1958 and assessed 
D 
to gift tax. On appeal, the Appellate Assistant Commissioner upheld the 
contention of the assessee that there was no voluntary act by the assessee. 
Tribunal dismissed the appeal of the Revenue holding that there was mere 
adjustment of rights in the assets between the retiring partner and the 
continuing partners and that there was no transfer of interest. 
E 
In appeal to this Court, Revenue contended that the relinquishment of 
the rights by the assessee voluntarily in effect, resulted in giving up of his 
rights in favour of the continuing partners, which resulted in transfer of 
property and therefore liable to tax under the Gift Tax Act. 
Dismissing the appeal, this Court 
F 
HELD : 1.1. The definition of 'gift' under the Gift Tax Act, 1958 makes 
it clear that there has to be a transfer by one person to another of movable 
or immovable property; such transfer has to be voluntary and without 
consideration in money or money's worth. What is absolutely essential for 
the purposes of a gift is a transfer of property. (355-H] 
G 
1.2 When a partner retires from a partnership, the partnership 
continues. The assets and the goodwill of the firm continue to remain the 
-
assets and the goodwill of the firm. All that the retiring pa.rtner gets is the 
value of his share in the partnership assets less its liabilities. It cannot in 
H 
such circumstances, be held assuming that the retiring partner received 
352 
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' 
COMMISSIONER OFGIFTTAXv. T.M.LOUIZ[BHARUCHA,J.] 
353 
less than what was his due, that the difference was something that he had A 
transferred to the continuing partners within the meaning of 'transfer of 
property' for the purpose of the Gift Tax Act or that there was gift liable to 
gift tax. (356-C-D) 
Commissioner of Gift Tax v. Nani Gopa/ Monda/, (1984) 150 ITR 469 
and Comissioner of Gift Tax, Gujarat v. Chhota/al Mohan Lal, (1987) 166 B 
ITR 124 SC, distinguished. 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 44 i l of 
1996 
From the Judgment and Order dated 7.6.89 of the Kerala High Court in C 
1.T.R.C. No. 142of1984 
Soli J. Sorabjee, Attorney General, S. Ganesh and Ms. Sushma Suri for 
the Appellant. 
V.B. Saharya for M/s. Saharya & Co., for the Respondent. 
The Judgment of the Court was delivered by 
BHARUCHA, J. The High Court of Kerala answered in the affirmative 
and against the Revenue the following question: 
"Whether, on the facts and in the circumstances of the case, the 
Tribunal was right in holding that no element of gift was involved 
when the assessee retired from the firms in which he had been a 
partner?" 
The Revenue is in appeal by special leave. 
0 
The assessment year with which we are concerned is the Assessment 
Year 1973-74. The assessee retired with effect from lst April. 1972 from two 
firms in which he was a partner. The Gift Tax Officer assessed him to gift tax 
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on the basis that, upon such retirement, there was a gift because the assessee G 
had surrendered his rights in the firms. The assessee appealed and the 
Appellate Assistant Commissioner upheld the assessee's contention that 
there was no voluntary act by him and that he had only relinquished his right 
and interest in the firms so that there was no gift. Before the Tribunal it was 
urged on behalf of the Revenue that the amounts taken by the assessee from 
the firms for his shares therein was less than the market value thereof since H 
354 
SUPREME COURT REPORTS [2000) SUPP. 3 S.C.R. 
A the goodwill of the finn had not been taken into account. There had, therefore, 
been a relinquishment of his shares, which was a gift. The Tribunal took the 
view that on retirement, the retiring partner was only entitled to get the value 
of his share in the partnership assets less liabilities, it was, therefore, merely 
an adjustment of rights between the retiring partner and the continuing 
pa

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