CGT KERALA Vs. P V NARAYANI AMMA

JUDGEMENT

(1.) The question referred to this Court under S.26(1) of the Gift Tax Act, 1955 at the instance of the Commissioner of Gift Tax, Kerala, Ernakulam, is the following:

(2.) In the gift tax return for the assessment year 1955-66 the assessee showed the total value of the gift at Rs. 50,000/-. The Gift Tax Officer took the view that by the conversion of the proprietary business into a partnership business the assessee had parted with 75% of the goodwill of the business in favour of his children and that the value of 75% of the goodwill was liable to tax. He rejected the contention of the assessee that the business did not possess any goodwill as also the contention that the entire gift was liable to be exempt under the provisions of S.5(1)(xiv) of the Gift Tax Act, 1958. The Appellate Assistant Commissioner did not also agree with the assessee that the gift was liable to be exempted under S.5(1)(xiv) of the Gift Tax Act. In second appeal the Appellate Tribunal found that the gift is exempt under S.5(1)(xiv) of the Gift Tax Act relying on the decision of this Court in Commissioner of Gift Tax v. P.L. Gee Varghese (68 ITR 132).

(3.) It is seen from Annexure 'A' 'that on the date of the formation of the partnership Sankaran Nair was only 53 years old. The preamble in Annexure 'A' shows that the partnership was formed on the ground that Sankaran Nair was old and for the continuity of the business. By the partnership deed Sankaran Nair was constituted the managing partner of the business and his son P. V. Harikrishnan was named as junior partner. All the powers regarding the partnership were to be exercised by the managing partner. By Clause.10 and 11 the minor children of Sankaran Nair were admitted to the benefits of the partnership.