COMMISSIONER OF GIFT TAX Vs. SURSINGH JAIRAM ASHER

JUDGEMENT

(1.) AT the instance of the Revenue, the Income-tax Appellate Tribunal, Cochin Bench, has referred the following question of law for the decision of this court :

(2.) THE respondents in these references are the assessees. We are concerned with the assessment year 1975-76. THE assessees were partners in the firm Messrs. Jairam and Sons, each having one-third share. THE partnership business was started in 1958. One son of each of the partners was introduced in the partnership on October 27, 1973, and each of them was given half share of his father. THE sons contributed Rs. 15,000 each. THE original partners were assessed to gift-tax on the ground that they have forgone 16-2/3 per cent. of the profit-sharing right to the incoming partners without adequate consideration. THE value of such a right was worked out by taking the average of five years' income, deducting the interest for one year at Rs. 9,000 and managerial remuneration at the rate of 15 per cent. and taking three years' purchase value. Deduction under Section 5(2) of the Act was given. On appeal, the Appellate Assistant Commissioner concurred with the Assessing Officer and dismissed the appeal. THE matter was carried to the Income-tax Appellate Tribunal. By order dated September 3, 1987, the Tribunal allowed the appeals and the assessees were found entitled to the exemption claimed by them under Section 5(1)(xiv) of the Gift-tax Act. It was thereafter at the instance of the Revenue that the question aforementioned was referred to this court for a decision thereon.

(3.) THE Supreme Court in CGT v, P. Gheevarghese, Travancore Timbers and Products [1972] 83 ITR 403, observed that the expression "in the course of carrying on the business, etc.", means that the gift should have some relationship with the carrying on of the business. It was held that, if a donor makes a gift only while he is running the business, that may not be sufficient to bring the gift within the first part of Clause (xiv) of Section 5(1) of the Act. It must further be established that there was some integral connection or relation between the making of the gift and the carrying on of the business in order to bring the gift within that provision.