COMMISSIONER OF GIFT TAX Vs. SHAH MOHANRAJ

JUDGEMENT

(1.) ONE Shah Pukharaj hailing from . Northern India came to Coimbatore 30 years ago and started a business in handloom sarees, yarn, lace, etc., in the name of Shah Pukharaj Mohanraj which is the name of his son. Shah Pukharaj, and his son, Mohanraj constituted a joint family. Admittedly, the son also was taking active part in the said business along with his father. However, the income from the business was being assessed in the hands of the father in the status of an individual. But in the assessment year 1956-57 he claimed to be assessed in the status of a Hindu undivided family in respect of the income from the above business, but this claim was turned down by the revenue and he was assessed as an individual as in the earlier years. Pukharaj and his son, the assessee, effected a partition of the joint family properties on February 25, 1959. But, the business did not form part of the subject-matter of the said partition. But by a partnership deed dated March 27, 1959, the business was converted into a partnership business between Pukharaj, and Mohanraj with effect from April 1, 1959. On that date Pukharaj transferred a sum of Rs. 61,311 from his capital account to his son's account as representing his son's share capital in the partnership business.

(2.) THE Gift-tax Officer took the view that by converting his individual business into a partnership business and by admitting his son as a partner, Pukharaj had made a gift of not only the said sum of Rs. 61,311 but also the half share in the goodwill of the business. He therefore issued a notice under Section 13(2) of the Gift-tax Act (hereinafter referred to as "the Act") calling upon Pukharaj to file a gift-tax return. But, Pukharaj died on May 3, 1961, without filing the return. On a further notice under Section 15(4) of the Act to his son, Mohanraj, he stated that the business run in the name of Shah Pukharaj Mohanraj was a joint family business, that by converting this joint family business into a partnership business, Pukharaj cannot be said to have made any gift in bis favour and that, therefore, Pukharaj was not liable to pay any gift-tax on the value of the share allotted to him. THE Gift-tax Officer did not, however, accept this contention, and held that there was no evidence to prove that the business in question was a joint family business, and the main reasons given by him were :

(3.) AT page 363 :