COMMISSIONER OF GIFT TAX Vs. SHANMUGHAM T S

JUDGEMENT

(1.) THE Income -tax Appellate Tribunal, Madras Bench, has referred the following two questions of law for the opinion of this court tinder Section 26(1) of the Gift -tax Act :

(2.) HOWEVER, on second appeal preferred by the assessee to the Income -tax Appellate Tribunal, the Tribunal allowed the appeal and held, following its earlier decisions that when a partnership firm is reconstituted resulting in the reduction of share of profits of the partners, the consequent enhancement in the share of profits of the other partners could not result in a gift exigible to tax under the Gift -tax Act. Independent of the above conclusion, the Tribunal also held that the gift in question would fall within the scope of Section 5(1)(xiv) of the Gift -tax Act, and, therefore, would not be liable to tax. For the purpose of coming to this conclusion, the Tribunal referred to the recitals in the partnership deed dated January 1, 1964, as to why the first partner was reducing his share of profits and consequently increasing the shares of other partners and the Tribunal also held that the said redistribution was bona fide and it was not suggested by the department that it was brought about for any mala fide purpose and consequently the gift was made during the course of the carrying on of the business and was made bona fide for the purpose of carrying on the business and, therefore, will fall within the scope of Section 5(1)(xiv) of the Gift -tax Act. It is the correctness of these conclusions of the Tribunal that are challenged before this court in the form of the two questions extracted above.

(3.) IN view of these facts, it was held that the gift with which the Supreme Court was concerned did not fall within the scope of Section 5(1)(xiv) of the Gift -tax Act.