Reconstitution of Partnership Firm not amount to deemed gift

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.

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

TAX APPEAL No. 394 of 2000
With

TAX APPEAL No. 395 of 2000

RATILAL P. PATEL
Versus
GIFT TAX OFFICER

CORAM : HONORABLE MR. JUSTICE AKIL KURESHI