COMMISSIONER OF GIFT TAX Vs. RUKMANI AMMAL S

JUDGEMENT

(1.) THE question that has been referred under Section 26(1) of the Gift-tax Act, 1958, is :

(2.) THE assessee was carrying on business in paper, hardware, chemicals, cycles, etc., as a sole proprietor. He took his three major sons as partners and admitted a minor son to the benefits of the partnership and a partnership deed was executed on March 4, 1957. THE assessee and his sons including the minor son were each entitled to 1/5th share in the profits of the business and the assessee and his three major sons were liable to share the losses of the business in equal shares. In response to a notice issued by the Gift-tax Officer, the assessee filed a nil return for the assessment year 1958-59. THE assessee contended that since the partnership deed was dated March 4, 1957, which was prior to the coming into force of the Gift-tax Act, no taxable gift was involved in the forming of the partnership. THE Gift-tax Officer, was of the view that though the document is dated March 4, 1957, it came into force on April 1, 1957, as specifically stated in the partnership deed and the assessee would be liable to be assessed to gift-tax. He accordingly determined the value of the gift at Rs. 31,387 and levied a gift-tax of Rs. 855.48. This order was confirmed in appeal by the Appellate Assistant Commissioner. In the appeal before the Tribunal, the assessee, in addition to the contention that the transfer or gift took place only on March 4, 1957, also contended that the gift was exempt from tax under Section 5(1)(xiv) of the Act. THE Appellate Tribunal overruled the objection of the assessee that the transfer or gift took effect only on March 4, 1957, and held that the gift was on April 1, 1957. This point is not now the subject-matter of the reference. On the second point the Tribunal held that the gift was exempt under Section 5(1)(xiv) of the Act and, therefore, cancelled the gift-tax assessment. Hence this reference by the Commissioner of Gift-tax.