ACHUTHAN K K Vs. COMMISSIONER OF GIFT TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal has referred the following three questions of law for the decision of this court at the instance of the assessee :

(2.) THE respondent herein is the Revenue. THE short facts are the following: We are concerned with the assessment year 1974-75. THE assessee (applicant) and his three sons were partners in a firm, M/s. Great Oriental Circus. THE assessee had 40% share in it till March 31, 1973. On April 11, 1973, a new deed of partnership was entered into by the assessee and his three sons who were the existing partners in the firm. In that partnership, the assessee's share was reduced to 25%. THE assessee willingly surrendered 15% of his share to the three sons. This relinquishment was held to be a deemed gift by the assessing authority and on that basis, and on the basis of the profit of the firm for the earlier years, the profits relatable to 15% was fixed at Rs. 50,850. On appeal, the Appellate Assistant Commissioner accepted the plea of the assessee that he is entitled to exemption under Section 5(1)(xiv) of the Gift-tax Act. On further appeal by the Revenue, the Appellate Tribunal held that there was a gift exigible to gift-tax by the assessee relinquishing 15% of his share in the profits in the firm, M/s. Great Oriental Circus. It was further held that the assessee is not entitled to exemption under Section 5(1)(xiv) of the Act. THEreupon, the assessee moved the Appellate Tribunal for referring the three questions of law extracted hereinabove for the decision of this court and that is how this reference has come up before us.

(3.) THE only other question is whether the assessee is entitled to the relief contemplated by Section 5(1)(xiv) of the Act. THE Appellate Tribunal held that it has difficulty in accepting the plea of the assessee that the gift had been made for the purpose of the business. This is a pure finding of fact. THEre is no material to hold contra. That apart, in order to attract Section 5(1)(xiv) of the Act, the gift should have been made in the course of carrying on the business. THEre should be complete identity between the person who makes the gift and the person who carries on the business. In this case, the assessee is an individual. He surrendered 15% of his share of profits to his three sons. THE business was carried on by the firm and not by the individual. It cannot be said that there is an integral connection between the new arrangement that was made and the business that was carried on. THE gift is not of a property of the firm. THEse factors will disentitle the assessee (individual) from claiming relief under Section 5(1)(xiv) of the Act. This position is also clear from the decision of the Supreme Court in CGT v. P. Gheevarghese, 1972 83 ITR 403 (SC). It should be stated that, in this case, the assessee, who surrendered his 15% of the share of profits, as also the three persons, in whose favour the surrender was made, were all majors. THEre was no question of any minor being involved in the above transaction. So, the Appellate Tribunal was justified in distinguishing the decision of the Gujarat High Court in CGT v. Chhotalal Mohanlal, [1974] 97 ITR 393. It should also be stated that the said decision of the Gujarat High Court in Chhotalal Mohanlal's case [1974] 97 ITR 393 was reversed by the Supreme Court in CGT v. Chhotalal Mohanlal, 1987 166 ITR 124.