The share of a partner in the goodwill of a partnership firm is transferable and is subject to gift tax.

( 1 ) IN this reference under Section 26 (1) of the Gift-tax Act, 1958, the following question has been referred by the Tribunal for the opinion of this court :"whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that no gift-tax is leviable in respect of the assessee's share in the goodwill of the partnership firm, Nani Gopal Mondal and Bros. , as determined by the Gift-tax Officer ? "

( 2 ) IN this case the assessment year involved is 1969-70, for which the relevant date (of gift) is April 7, 1968. The assessee, Nani Gopal Mondal, was a partner of M/s. Nani Gopal Mondal and Bros, carrying on business in gold, silver and silk goods, etc. , at Bishnupur in the district of Birbhum in the State of West Bengal. Originally, the business which dealt in gold and silver was carried on' by the HUF of Nani Gopal Mondal and others, which at the relevant time consisted of three brothers, namely, Nani Gopal Mondal, Benukar Mondal and Ambujakasha Mondal. On the 1st day of the accounting year 1355, Ramnabami, there was a partition and as a result of the partition, each brother got 1/3rd share in the said business. Thereafter, they formed a partnership which took over the business carried on by the undivided family in a running state. In the partnership firm each of the said three persons held 1/3rd share. On September, 14 1944, a partnership deed was executed and Clause 7 of the deed stated that on the death of any partner, the partnership would not be dissolved but the remaining partners would take in heirs and legal representatives of the deceased partner as partners in his place and the partnership business would continue. According to Clause 14 of the said deed, no new partner would be introduced into the business without the concurrence or opinion of the then existing partners. It appears that Benukar Mondal, a partner, died on October 21, 1967. After his death, in his place, his five sons, namely, Radha Charan Mondal, Bishnu Charan Mondal, Shyama Charan Mondal, Apurba Charan Mondal and Adaitya Charan Mondal, were admitted to the partnership, each holding l/15th share in the partnership. A partnership deed was executed on October 23, 1967, wherein there were seven partners namely, Nani Gopal Mondal and Ambujakasha Mondal, each holding 1/3rd share and, the aforesaid five sons of Benukar Mondal, deceased. Clause 8 of the partnership deed provided that on the death of any partner, the partnership would not be dissolved but the remaining partners would take in the heirs and legal representatives of the deceased partner in his place and the partnership business would continue. Another clause, namely, Clause 1. 5, which was added, provides that the partnership was a partnership at will liable to be dissolved on mutual consent.

( 3 ) WHEN the partnership was in existence, the assessee by a deed of gift dated April 7, 1968, made a gift of his 1/3rd share in the partnership to his three sons. The said deed was registered on August 1, 1968. In the said deed of gift, the partnership business assets including cash in hand, cash at bank, stocks, sundry debtors, furniture, etc. , including goodwill are valued at Rs. 2,12,849. 97 and the assessee's share is determined at Rs. 70,949'99 for the purpose and levy of stamp duty. In the schedule of the said deed of gift the total value of all the assets excluding goodwill is worked out at Rs. 2,12,850, and the share of the assessee comes to Rs. 70,950.

( 4 ) THE assessee filed a gift-tax return declaring a gift of Rs. 70,950. The GTO noticed that while the deed of gift refers to the business assets of the partnership firm even including goodwill, the value of the goodwill was not included in the aforesaid amount. It was stated before the GTO that due to fall in the silk business, no goodwill should be attached to the gifted share. This was, however, not accepted by the GTO in view of the gradual increase in the profit of the firm in the subsequent years