COMMISSIONER OF GIFT TAX Vs. SHANMUGAM G

JUDGEMENT

(1.) IN relation to the assessment year 1965-66 the question has arisen whether a gift, said to arise from the transformation of an individual business to a partnership business, would be exempt from gift-tax under Section 5(1)(xiv) of the G.T. Act, 1958. At the instance of the revenue, the following question has been referred to this court and that question forms the subject matter of T.C. No. 3 of 1973 :

(2.) NOT satisfied with the above reference, the revenue sought a more specific question being referred to this court in relation to the same assessment for the same year and that has resulted in T.C. No. 4 of 1975 with the following question :

(3.) TWO elements are necessary to satisfy this section. The gift must be "in the course of carrying on a business" and the gift must be "for the purpose of the business". The matter has now been elaborately dealt with by the Supreme Court in the decision in CGT v. P. Gheevarghese [1972] 83 ITR 403 and also in CGT v. Dr. George Kuruvilla [1970] 77 ITR 746. It is, therefore, unnecessary and perhaps not permissible to deal with this aspect anew and afresh. The principles laid down by the Supreme Court are that it is not enough if the gift is made while running a business, but it must be established that it is in the course of business. To understand the meaning of the expression "in the course of a business" their Lordships referred to an early decision of the Supreme Court in State of Trawncore-Cochin v. Shanmugha Vilas Cashewnut Factory [1953] 4 STC 205 and stated that there must be a link between the business and the gift in order that the gift can be said to be in the course of business. Apart from this connection or nexus between the business and the gift, it must also be established that there is a design, there is a purpose or plan in making the gift and that the gift is made for the purpose of the business. It is not enough if a gift is made in the course of business but it must also be established that the gift is for the purpose of the business. Such a purpose can be established when it is shown that the gift was made to protect the business, to ensure its continuity or to produce greater efficiency or to make it more profitable. It is not possible or even desirable that we should try to enumerate exhaustively the circumstances under which it can be said that the gift has been "for the purpose of the business". It can be for various reasons or purposes of the business and each case will have to be dealt with on the basis of the material and the evidence in that case.