Controller Of Estate Duty, Bombay City-Iii v. Vasantrai B. Mehta.

Kania, J.:— This is a reference under s. 64(1) of the E.D Act, 1953, (hereinafter referred to as “the said Act”), made at the instance of the Controller of Estate Duty, Bombay City-III.

2. The question referred to us for our determination in this reference is as follows:

“Whether, on the facts and in the circumstances of the case, the value of 40%. of the goodwill of the partnership business amounting to Rs. 27,600 was includible in the principal value of the estate of the deceased?”

3. The facts giving rise to this reference are as follows: One Bhavani-das Harjivandas Mehta, the deceased, expired on 17th Oct., 1964. The deceased was a partner in the firm of M/s. Bhavanidas Gangadas & Co. with 50% share therein along with two other persons, being his two sons, Vasantrai B. Mehta, the accountable person herein, and Jekisandas B. Mehta. The said two sons had a 25% share each in the said partner-ship. The said partnership was constituted under a partnership deed dated 12th Jan., 1960. It was a partnership at will. Clause 7 of the said partnership deed provided that the net profits and losses of the partner-ship business shall be divided as under:

(a) Bhavanidas Harjivandas Mehta 50% (b) Vasantrai Bhavanidas Mehta 25% (c) Jekisandas Bhavanidas Mehta 25% 100%

4. Clause 8 of the said partnership deed provided that the capital of the partnership business shall be contributed by the parties thereto in such proportions as may be mutually agreed upon by them from time to time. Clause 16 of the said partnership deed provided that retirement, insol-vency or death of any of the partners shall not dissolve the partnership as to its other partners in the said firm. Clause 17 of the said deed set out that it had been expressly agreed between the parties to the said partner-ship deed that in the event of death or retirement of a partner for what-soever reasons, the right in the goodwill, quota rights and tenancy rights of the business would remain with the continuing partners or parties and that the outgoing partners or parties would have no right in the same. The rest of the said clause provided for making up of accounts on the death or retirement of a partner. Clause 18 of the said partnership deed provided that in pursuance of the wish of the said deceased Bhavanidas Harjivan-das Mehta it had been mutually agreed between the parties to the said partnership deed that in the event of the demise of the said Bhavanidas Harjivandas Mehta, his minor sons, Rameshchandra Bhavanidas and Nav-nitrai Bhavanidas, would be substituted as partners in his stead in the part-nership firm and they would have equal, shares in the share of Bhavanidas in the profits and losses of the said firm which was 50%. The said partner-ship was reconstituted during the lifetime of the said deceased by a part-nership deed dated 25th July, 1964. Under the said partnership deed dated 25th July, 1964, the share of the deceased in the reconstituted partnership was fixed at 10%. Navnitrai Bhavanidas, who had become major at that time, was taken as a partner with a 25% share with effect from 1st July, 1964, and Rameshchandra, the minor son of the said deceased, was admitted to the benefits of the partnership with a 15% share in the profits. It would be useful to note here some of the relevant clauses of the said partnership deed dated 25th July, 1964. The recitals in the said partnership deed show that the said Bhavanidas, Vasantrai and Jekisan-das desired to take up Navnitrai Bhavanidas as a partner in the business of M/s. Bhavanidas Gangadas & Co. and had also mutually agreed to take Rameshchandra, the minor son of the said Bhavanidas, as a partner “for the benefit of the profits of the said partnership” and that Navnitrai had agreed to become a partner in the said business. The relevant clauses of the said partnership deed are as follows:

“1. It has been expressly agreed between the parties hereto that the running business of M/s. Bhavanidas Gangadas & Co. along with the assets and liabilities as per the books of account as on 30th June, 1964, along with goodwill, quota rights and all other benefits of the business are taken over by the new partnership firm of M/s. Bhavanidas Gangadas & Co. as from 1st July, 1964.

7. The net profits of the partnership business shall be divided as under:

(a) Bhavanidas Harjivandas Mehta 10% (b) Vasantrai Bhavanidas Mehta 25% (c) Jekisandas Bhavanidas Mehta 25% (d) Navnitrai Bhavanidas Mehta 25% (e) Rameshchandra Bhavanidas Mehta, the minor, entitled to the benefits of the partnership 15%

The losses, if any, of the partnership shall be divided among the partners hereto as under:

(a) Bhavanidas Harjivandas Mehta 25%(b) Vasantrai Bhavanidas Mehta 25%(c) Jekisandas Bhavanidas Mehta 25%.(d) Navnitrai Bhavanidas Mehta 25% Provided that the said minor Rameshchandra on his attaining majo-rity and agreeing to remain as partner in the firm shall also share the loss in his profit sharing proportion, i.e, at 15%, and in that event the share of loss being borne by the party of the first part shall be reduced propor-tionately:

8. The capital of the partnership business shall be contributed by the parties hereto in such proportions as may be mutually agreed upon by them from time to time.”

5. Clause 9 of the said partnership deed, inter alia, provided that each of the partners would attend diligently and faithfully to his duties in the management and conduct of the partnership business. Clause 17 of the said partnership deed, inter alia, provided that in the event of death or retirement of a partner all his rights in the goodwill, quota rights and tenancy rights in the business would remain with the continuing partners or parties and that the outgoing partners or parties would have no right in the same. Clause 18 of the said partnership deed, inter alia, provided that the parties to the said partnership deed had agreed that, in the event of the death of Bhavanidas, the benefit of his share in the partnership business would be transferred and given to the minor, Rameshchandra, with effect from the date of demise of the said deceased. It must be noted that it is common ground that on the reconstitution of the said firm, the said four partners constituting the new firm as well as the minor, Rameshchandra, have brought in an equal amount of capital, ???amely, Rs. 10,000 each. The Assistant Controller of E.D took the view that since the reduction of the deceased's share in the partnership business ???rom 50% to 10% was not in consideration of any money or money's ???orth, it was a disposition in favour of a relative within the meaning of ???. 27 of the said Act and since the disposition was within two years from ???he date of death of the deceased, which was 17th October, 1964, 40% of ???he goodwill of the said firm amounting to Rs. 27,600 could be treated as ??? gift under s. 9 of the said Act. On this basis the Asst. Controller ???rought to duty the said sum of Rs. 27,600 under s. 9 of the said Act by way of gift of goodwill by the deceased. On an appeal by the accountable ???erson, the Appellate Controller confirmed the said addition. The account-???ble person then preferred an appeal to the Income-tax Appellate Tribunal. The Tribunal found as follows:

“……The deceased had advanced in age and was 56 years old when he two new partners were taken up with effect from July 1, 1964. The incoming parties also contributed capital equal to the same amount as that contributed by the other two partners who held 25% share each. The partnership deed further stated that each of the partners shall attend diligently and faithfully to his duties in the management and conduct of the partnership business and the losses shall be divided among the four major partners in equal shares and on the minor, Rameshchandra, attaining majority and agreeing to remain as a partner in the firm, he would also be made liable to share the losses in his profit-sharing proportion. These considerations by way of money and money's worth mentioned in the partnership deed constituted the consideration for the introduction of the new partners. It could not, therefore, be said that any property was transferred to the deceased other than for adequate consideration.”

6. Apart from this, the Tribunal held that the ratio of the decision of the Gujarat High Court in CGT v. Karnaji Lumbaji, [1969] 74 ITR 343, where-in, according to the Tribunal, it was held that a reduction of a partner's share on the reconstitution of the firm did not amount to a gift, was applic-able to the facts of the present case. The Tribunal held that neither of the two Explanations to s. 2(15) of the said Act applied to the facts of this case. The Tribunal held that there was no transfer of any property involved in the case, that even if there was a transfer of any property it was not made without consideration and such a transfer did not operate as gift within s. 9 of the said Act, that the transaction did not amount to disposition made by the deceased within the meaning of s. 2(15) of the said Act and could not be treated as a gift under s. 27(1) of the said Act and that, in the context, both ss. 9 and 27(1) of the said Act were not applicable to the case. The Tribunal deleted the addition of Rs. 27,600 in the valuation of the estate made by the Assistant Controller. The aforesaid question referred to us for determination arises from this decision of the Tribunal.

7. Before considering the arguments advanced on behalf of the respec-tive parties, it will be useful to take note of certain relevant provisions of the said Act. Sub-section (1) of s. 27 of the said Act reads thus:

“(1) Any disposition made by the deceased in favour of a relative of his shall be treated for the purposes of this Act as a gift unless—

(a) the disposition was made on the part of the deceased for full consideration in money or money's worth paid to him for his own use or benefit; or

(b) the deceased was concerned in a fiduciary capacity imposed on him otherwise than by a disposition made by him and in such a capacity only;

and references to a gift in this Act shall be construed accordingly:

Provided that where the disposition was made on the part of the deceased for partial consideration in money or money's worth paid to him for his own use or benefit, the value of the consideration shall be allowed as a deduction from the valu??? of the property for the purpose of estate duty.”

8. Sub-section (7) of s. 27 defines the term “relative”. It is sufficient to note that the said definition includes a son therein. Sub-section (15) of s. 2 runs thus:

“‘Property’ includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale and also includes any property converted from one species into another by any method.

Explanation 1.—The creation by a person or with his consent of a debt or other right enforceable against him personally or against property which he was or might become competent to dispose of, or to charge or burden for his own benefit, shall be deemed to have been a disposition made by that person, and in relation to such a disposition the expression ‘property’ shall include the debt or right created.

Explanation 2.—The extinguishment at the expense of the deceased of a debt or other right shall be deemed to have been a disposition made by the deceased in favour of the person for whose benefit the debt or right was extinguished, and in relation to such a disposition the expression ‘property’ shall include the benefit conferred by the extinguishment of the debt or right:”

9. Sub-section (1) of s. 9 runs thus:

“(1) Property taken under a disposition made by the deceased pur-porting to operate as an immediate gift inter vivos whether by way of transfer, delivery, declaration of trust, settlement upon persons in succes-sion, or otherwise, which shall not have been bona fide made two years or more before the death of the deceased shall be deemed to pass on the death:…”

10. There is a proviso to this sub-section which is not material for the purpose of this case.

11. The submission of Mr. Joshi, the learned counsel for the applicant, is that the action of the deceased of taking his major son as a partner in the said reconstituted partnership and admitting his minor son to the benefits thereof had the effect of reducing the share of the deceased from 50% to 40% and of giving to the major son a share of 25% and to the minor son a share of 15% in the benefits of the partnership and, hence, the said action is a disposition made by the deceased in favour of his sons which amounts to a gift within the meaning of s. 27 of the said Act. It was submitted by him that the aforesaid action of the deceased was a disposition under s. 9 read with Expln. 2 to sub-s. (15) of s. 2 of the said Act. As the deceased died within a period of two years from the date of the disposition, the property covered by the disposition must be deemed to pass under s. 9 of the said Act. It was urged by him that there was an element of bounty in the transaction and it was not one made for normal commercial expediency.

12. In our view, the reference is really capable of being disposed of on a short point. Even assuming that the act of admitting the major son as a partner in the reconstituted partnership and of admitting the minor son to the benefits of the reconstituted partnership amounted to a disposition made by the deceased in favour of his said sons, it is apparent, in view of the provisions of s. 27(1) of the said Act, that such a disposition would not amount to a gift if it was made on the part of the deceased for full conside-ration in money or in money's worth paid to him for his own use or benefit. The submission of Mr. Trivedi, the learned counsel for the accountable person, is that/in the present case, there was full consideration in money or money's worth paid by the said two sons to the deceased for his own use or benefit and, hence, even assuming that there was a disposition as aforesaid, it did not amount to a gift. In Raman Lal Nagji and Dhirajlal Nagji v. CED, [1979] 118 ITR 785, a decision of a Division Bench of this court, N, who was carrying on his own business, converted it into a partnership. By a partnership deed dated January 3, 1951, his son, R, was taken as a partner with a share of four annas in the profit or loss of the firm, the balance of 12 annas was reserved by N by clause 6 of the partnership deed which provided that all the rights, title and interest of the firm in the premises, furniture, fixtures and goodwill shall belong to N. Another partnership deed was executed on December 12, 1955, between N and R by which the share of R was increased to six annas and the share of N was reduced to ten annas and clause 6 of the earlier partnership deed was retained. By clause 5, R was given commission at the rate of half per cent, on the total sales of the firm in addition to his share. A third partnership deed was executed on December 18, 1959, between N and his two sons, R and D, by which their shares were respectively 55 paise, 30 paise and 15 paise in the rupee. The provision giving commission to R was omitted. By clause 5, D was also given salary at the rate of Rs. 125 per month in addition to his share. Clause 6 of the earlier deeds regarding goodwill was omitted. Clause 7 provided that all the three partners were entitled to attend and conduct the business in the mutual interest and would do so diligently. It was held by the Division Bench that the question whether the provisions of s. 10 of the said Act were attracted or not must principally depend upon whether the relin-quishment by N of his rights in the goodwill and tenancy rights on the occasion of the reshuffling of the profit-sharing proportion amounted to gifts or not; unless the relinquishment amounted to gifts in the sense that it was without adequate consideration, the further question as to whether the donor had not entirely excluded himself from possession and enjoyment of the goodwill and tenancy rights would not arise. It was also held that there was no gift when a partner was inducted in a sole proprietary busi-ness or when shares of partners were reshuffled and the partners given enhanced share of profits and correspondingly an enhanced share in the assets and goodwill for commercial considerations, the actual consideration being that the partner was supposed to work and earn profits. It was further held that the devoting of time, energy and attention by the sons in the partnership business would have to be regarded as sufficient consi-deration for taking the sons as partners. Reference may also be made here to a decision of the Division Bench of this court in CGT v. Smt. Lalita B. Shah, [1979] 118 ITR 794 (Bom), which has been relied on in the afore-said decision. That was a case under the G.T Act, 1958, and the dispute there primarily was whether there was a transfer of property or gift in respect of 40% of the goodwill of the sole proprietary concern of the assessee to his son. The said proprietary concern converted into a partnership in that case was that of chartered accountant. The Division Bench quoted with approval the passage in Lindley on Partnership, 13th Edn., at p. 113, which runs as follows (p. 800 of 118 ITR):

“Agreements to enter into partnership, like all other agreements, require to be founded on some consideration in order to be binding. Any contribution in the shape of capital or labour, or any act which may result in liability to third parties, is a sufficient consideration to support such an agreement.

A bona fide contract of partnership is not invalidated by the unequal value of the contributions of its members, for they must be their own judges of the adequacy of the consideration for the agreement into which they enter.”

13. We may also refer to an unreported decision of the Division Bench of this court in CGT v. Premji Trikamji Jobanputra (Gift Tax Reference No. 1 of 1969 decided by Kantawala C.J and S.K Desai J. on 16th/17th August, 1978) (see p. 317 supra). The said reference arose under the G.T Act, 1958. One of the questions which had to be considered by the court in that case was whether in view of the statutory provisions of the G.T Act including in particular the provisions of cl. (xxiv) of s. 2, which includ-ed within the term “transfer of property” the grant or creation of any lease, mortgage, charge, easement, licence, power, partnership or interest in property and whether having regard to the facts and circumstances of the case, there was a gift by the assessee in respect of his share in the good-will of the firm when his two minor sons were admitted to the benefits of the partnership as a result of which the assessee who had prior to this transaction 60% share in profits got it reduced to 30% and his two minors were given 15% share each. The Division. Bench has observed as follows (p. 326):

“If upon reconstitution of a firm an ???rstwhile partner or even a minor who has been admitted to the benefits of a partnership, has contributed any capital or a major partner has agreed to pay something, then it will not be possible to take the view that so far as the goodwill is concerned there has been a gift, because in such a case there has been consideration, if not in money at least in money's worth.”

14. We have to consider the facts of this case in the light of the aforesaid decisions regarding the question of consideration and the adequacy thereof. We find that as far as the major son, Navnitrai, is concerned, as against his being admitted as a partner in the reconstituted firm, by reason of cl. 9 of the partnership deed dated 25th July, 1964, he agreed to attend diligently and faithfully to his duties in the management and conduct of the partner-ship business. The Tribunal has found as a fact that the deceased was advanced in age when Navnitrai was taken as a partner with effect from 1st July, 1964, and to this extent, the burden on the deceased of looking after the affairs of the partnership must necessarily have been reduced on account of Navnitrai having agreed to look after the said affairs. Just as Navnitrai has been given a 25% share in the net profits of the business of the said partnership, he also became liable to share 25% of the losses of the said business and to that extent, the liability of the deceased to share in the losses of the said partnership was reduced. Finally, Navnitrai brought in the same sum, viz., Rs. 10,000, as his contribution towards the capital of the reconstituted firm as was done by all other partners. It was submitt-ed by Mr. Joshi that this consideration which moved from Navnitrai could not be said to be for the exclusive use and benefit of the deceased and, hence, it would not amount to full consideration under cl. (a) of sub-s. (1) of s. 27 of the said Act. In our view, this contention is totally unsustainable, as we shall point out. When a partner is to be taken in a firm the agreement to take such a person as a partner must necessarily be arrived at by the previous partners who continue to be partners. In these circumstances, it is but natural that the consideration should move from the incoming partner in favour of all the previous partners. Each one of the said pre-vious partners will have some benefit from such consideration and merely because of that it cannot be said that there was no full consideration in money or money's worth given by the incoming partner as contemplat-ed by sub-s. (1) of s. 27 of the said Act. In the present case, the deceased derived benefit from Navnitrai agreeing to attend diligently to the affairs of the partnership firm, from Navnitrai agreeing to share in the losses of the partnership to the extent of 25% to which extent the liability of the deceased was reduced and from the capital contributed by Navnitrai. In these circumstances, in our view, it must be held that there was full con-sideration in money or money's worth paid by Navnitrai to the deceased for his use and benefit as contemplated by cl. (a) of sub-s. (1) of s. 27 of the said Act for agreeing to admit Navnitrai as a partner in the reconstituted firm and for reducing his share in the said partnership.

15. As far as the minor son, Ramesh chandra, is concerned, it is true that he could not be expected to attend to the business of the partnership and was not liable for the losses of the partnership firm. However, we find here as a fact that Ramesh chandra brought into the reconstituted firm, as his share of the capital, the same amount, viz., Rs. 10,000 just as was brought in by the four partners of the reconstituted firm as against which Ramesh chandra has been given the benefits of the partnership only to the extent of 15%. As we have already pointed out, the deceased as well as the other partners of the reconstituted firm had the benefit of the capital contribution brought in by Ramesh chandra and, hence, it must be held that there was full consideration moving from Ramesh chandra to the deceased in money or money's worth as contemplated by cl. (a) of sub-s. (1) of s. 27 of the said Act. In view of what we have observed earlier, we are of the opinion that even assuming that there was a disposition by the deceased in favour of Navnitrai and Ramesh chandra by the aforesaid acts of the deceased, such disposition was for full consideration as contemplated in sub-s. (1) of s. 27 of the said Act and, hence, the said disposition did not amount to a gift. As the disposition, according to us, did not amount to a gift, there can be no question of the property taken thereunder being deemed to pass on the death of the said deceased under s. 9 of the said Act and the question referred to us must be answered in favour of the accountable person.

16. We now propose to consider some of the other arguments advanced before us, although it is not strictly necessary for us to do so, in view of what we have held earlier. It was urged by Mr. Trivedi that in a case like the present one where a major son was taken as a partner in the firm on reconstitution and a minor son admitted to the benefits of the said partnership on such reconstitution, it could never be said that there was any gift by the father in favour of the said sons. In support-of this sub-mission, Mr. Trivedi relied on a decision of a Division Bench of the Gujarat High Court in CGT v. Chhotalal Mohanlal, [1974] 97 ITR 393 (Guj). In that case, the respondent-assessee, and two others, Gunvantlal and Pravinchandra, were partners of a firm having seven annas, four annas and five annas share, respectively. Pravinchandra retired from the partner-ship and a new partnership deed was executed on 9th November, 1961, between the assessee, Gunvantlal, and the assessee's son, Ramniklal, each of them having 25% share. The assessee's two minor sons, Kiritkumar and Deepakkumar, were admitted to the benefits of the partnership, their shares being 12% and 13%, respectively, in the profits. The question was whether there was a gift by the assessee of a share in the goodwill of the firm. It was held that in the old partnership, the retiring partner, Pravinchandra, had a five annas share. The benefits to which the minors, Kiritkumar and Deepakkumar, were admitted under the reconstituted firm were to the extent of 12% and 13%, respectively, in the profits. Ramniklal, who joined the new partnership, was given a share of 25%. On those facts, it could not be said that the share of 25% given jointly to the two minors was any relinquishment or abandonment by the assessee. Secondly, assuming that the right to share in the profits of a partnership business is a property, even then, it could not be said that when the firm was reconstituted and the minor sons were admitted to the benefits of the partnership business there was consequently a relinquishment or abandonment of any debt, contract or other actionable claim or any interest in the property of any person. It cannot be said that when a firm is reconstituted and as a result of its reconstitution, the shares of some partners who have con-tinued after the reconstitution have been diminished, and the new part-ners who joined have been given some shares by the adjustment of the shares amongst the old partners, there is a transfer of property within the meaning of s. 2(xxiv) of the G.T Act. It could not be said that when the minors were admitted to the benefits of the partnership, a transaction was entered into between the minors and the adult partners of the firm and s. 2(xxiv)(d) was not applicable. It was held that giving benefits of partner-ship to the minors, Kiritkumar and Deepakkumar, did not constitute a gift under the G.T Act. It appears to us that this submission is not altogether without force. As held in CGT v. Karnaji Lumbaji, [1969] 74 ITR 343 (Guj), during the subsistence of a partnership, no partner can predicate that he had a definite share in any particular movable or immovable property of the firm which he can transfer or relinquish, but he has merely a right to have the partnership assets realised and converted into money and applied in discharge of the partnership debts and liabilities and the surplus distributed amongst the partners in accordance with the provisions of s. 45 of the Partnership Act. In view of this position, it might be possible to take the view that in the present case during the subsistence of a partner-ship it could not be said that the deceased had any specified share in the goodwill of the said firm which he could transfer or relinquish in favour of his said sons. In connection with this question, one must bear in mind the provisions of sub-s. (1) of s. 31 of the Indian Partnership Act which pro-vides that, subject to contract between the partners and to the provisions of s. 30, which deals with the question of minors being admitted to the benefits of a partnership, no person shall be introduced as a partner into a firm without the consent of all the existing partners. Sub-s. (1) of s. 29 of the Indian Partnership Act, inter alia, provides that a transfer by a partner of his interest in the firm does not entitle the transferee, during the continuance of the firm, to interfere in the conduct of the business, or to require accounts, or to inspect the books of the firm, but entitles the transferee only to receive the share of profits of the transferring partner, and the transferee shall accept the account of profits agreed, to by the partners. In the present case, it is common ground that there was no transfer of any interest by the deceased in favour of his sons as contem-plated by sub-s. (1) of s. 29 of the Partnership Act. It view of this it appears that the submission of Mr. Trivedi that in the present case it could not be said that there was any disposition by the said deceased of any specific share in the goodwill of the firm in favour of his sons, Navni-trai and Rameshchandra, is not altogether without substance. As against this, however, Mr. Joshi placed strong reliance on the aforesaid decision of a Division Bench of this court in Gift-tax Reference No. 1 of 1969*. In that case, it has been held that in a case where the share of the assessee in a firm is reduced on reconstitution of the firm and his minor son or sons are admitted to the benefits of the partnership and given a share in the profits thereof, if the real nature of the transaction which has been entered into as a result of the reconstitution of the firm shows that so far as the goodwill is concerned, the assessee has parted with a share in the goodwill in favour of his minor children and the circumstances do not show that there was any consideration for the same, then naturally such transfer of good-will in favour of the minor son or sons would amount to a gift in favour of the minors for the purposes of the G.T Act. It was, inter alia, sub-mitted by Mr. Trivedi that this decision does not lay down good law and the matter should be considered by a larger Bench. In our view, it is unnecessary to go into this controversy or to consider whether to refer the matter to a larger Bench, because the reference is capable of being dis-posed of on the question of full consideration having been passed in favour of the deceased, as we have already held earlier. It was contended by Mr. Trivedi that apart from all other considera-tions and even assuming that there was a disposition by the deceased in fav-our of Navnitrai and Rameschandra, as contended by Mr. Joshi, it was not open to the department to pick out an individual item of goodwill as having been deemed to pass under s. 9 of the said Act and to seek to levy tax on the same. It was urged by him that if at all there was a transfer by the deceased in favour of his said sons it was of a certain share in the assets and liabilities of the partnership. This share was a single composite item and the goodwill was merely one of the assets comprised in the said share and it was not open to the department to pick out the same and to seek to tax it. In support of this contention, Mr. Trivedi placed strong reliance on the decision of the Supreme Court in CGT v. Gheevarghese, [1972] 83 ITR 403. In that case, the assessee, who was the sole proprietor of a busi-ness, converted it into a partnership by a deed dated 1st August, 1963. The partnership, was to consist of the assessee and his two daughters. The capital of the partnership was Rs. 4 lakhs, of which his contribution was Rs. 3,50,000, and the contribution of the capital of Rs. 25,000 each by the daughters was effected by transfer of Rs. 25,000 from the assessee's account to the account of each of the daughters, all the assets of the pro-prietary business were transferred to the partnership and in these assets the assessee and his daughters were entitled to a share in proportion to their share capital. The profits and losses of the partnership were, how-ever, to be divided in equal shares between all the three partners. For the assessment year 1964–65, the assessee filed a return in respect of the gift of Rs. 50,000 in favour of his daughters representing the share capital contributed by them. The GTO held that, in addition, the assessee had gifted one-third share each in the goodwill of his business to his daughters. The Tribunal held that the gift was only of ⅛th share in the goodwill, but that the gift to the daughters was exempt under s. 5(1)(xiv) of the G.T Act, 1958, on the ground that the assessee was actually carrying on the business when he admitted his two daughters into it and the main intention of the assessee was to ensure continuity of the business and to prevent its extinction on his death. It was, inter alia, held by the Supreme Court that though according to the deed of partnership goodwill was a part of the properties and assets of the business which the assessee had transferred to the partnership, the departmental authorities never treated all the assets and property of the assessee which were trans-ferred to the partnership as the subject-matter of gift. Nor was it claimed before the Supreme Court that the property and assets valued at Rs. 4 lakhs were the subject-matter of the gift. All that the department did and persisted in was to pick out only one of the assets of the assessee's pro-prietary business, viz., its goodwill, and regard that as the subject of the gift. This approach was wholly incomprehensible. No gift-tax was pay-able on the goodwill of the assessee's business. As against this, Mr. Joshi placed strong reliance on the decision of the Madras High Court in CGT v. A.M Abdul Rahman Rowther, [1973] 89 ITR 219. In that case, the assessee who was carrying on business as sole proprietor converted his business on 9th June, 1954, into a partnership consisting of himself and his two daughters and this firm was recognised as genuine and entitled to registration under the I.T Act. On 2nd November, 1960, the assessee transferred Rs. 25,000 each to his daughter and son from his share capital account and on the next day a new partnership was entered into with these two per-sons also. The new partnership deed provided that the gross assets and liabilities of the predecessor firm shall form the assets and liabilities of the new firm, the capital of the firm amounting to Rs. 1,25,000 shall belong equally to the five persons, viz., the assessee, his three daughters and son and the profits and losses of the firm shall be divided between and borne by the partners in equal proportions. It was held by the Madras High Court that there was a transfer of interest in property when the assessee took his daughters and son into the partnership, assigned to them a portion of the share capital and realigned the shares in the partnership and the profit-sharing ratio, which amounted to a gift chargeable to tax and that the redistribution of the profit-sharing ratio on the admission of the two new partners amounted to a gift by the assessee of a portion of his share in the goodwill of the firm. Reliance was also placed by Mr. Joshi on the afore-said decision of this court in Gift-tax Reference No. 1 of 1969 (CGT v. Premji Trikamji) [1982] 133 ITR 317 (Bom), where, as we have already pointed out earlier, the share of the assessee in the firm was reduced and his minor sons were given certain shares in the benefits of the partnership on reconstitution. It was held that the question whether there was a gift in respect of the goodwill of the business by the assessee to his minor sons would depend upon the determination of the two facts: (1) Whether the value of the assets and goodwill of the earlier business was in excess of the total liabilities of the earlier business, and (2) whether on behalf of the minors when they were admitted to the benefits of the partnership there was any capital contribution. This decision clearly proceeded on the footing that where on reconstitution of the firm the share of the assessee was reduced and a share was given to the minor sons it could be said that there was transfer of goodwill by the assessee in favour of his minor sons pro-vided that the value of the assets and goodwill was in excess of the total liabilities of the earlier business. It was contended by Mr. Trivedi that the said decision does not lay down good law and it may be regarded as having been given for, as the decision of the Supreme Court in Gheevarghese's case, [1972] 83 ITR 403 (SC) was not brought to the notice of the Divi-sion Bench. As far as we are concerned, we do not think it necessary to go into this controversy at all. It is true that the decision of the Supreme Court in Gheevarghese's case has been distinguished by the Madras High Court in Abdul Rahman Rowther's case, [1973] 89 ITR 219, on the ground that all the assets of the proprietary business of the assessee were transferred in that case to the partnership and in those assets the assessee and his daughters were entitled to shares in proportion to their share capital. Further, the assessee in that case had already shown in his return a sum of Rs. 50,000 as taxable gift.-The point of distinction made by the Madras High Court appears to be that in the case before the Supreme Court all the assets of the firm including the goodwill were estimated at Rs. 4 lakhs which equalled the capital brought in by the partners including the daughters in the reconstituted firm and the parties had shares in its assets in accordance with the capital brought in by the partners, although there was a different proportion for sharing the profits. On the other hand, in the case before the Madras High Court it was the admitted position that the capital of the reconstituted firm was Rs. 1,25,000 and the value of the goodwill of the previous firm was not taken into account in making this valuation. It is unfortunate, as pointed out by Mr. Trivedi, the decision in Gheevarghese's case, [1972] 83 ITR 403 (SC) was not brought to the notice of the Division Bench of this court which decided the Gift-tax Reference No. 1 of 1969 (CGT v. Premji Trikamji) (see p. 317 supra). However, as we have already pointed out earlier, it is not necessary for us to determine whether the decision in Gift-tax Reference No. 1 of 1969 can be regarded as good law in view of the decision of the Supreme Court in Gheevarghese's case, [1972] 83 ITR 403 (SC), as we have already held that full consideration has passed to the deceased in respect of the disposition of the share made by him in favour of his sons, even assuming that there was a disposition by the deceased.

17. In the result, the question referred to us is answered in the negative. The department to pay to the respondent the costs of this reference fixed at Rs. 300.