COMMISSIONER OF GIFT TAX Vs. SARDAR WAZIR SINGH

JUDGEMENT

(1.) SARDAR Wazir Singh, the assesses, carried on business as a sole proprietor under the name and style " Kanpur Arms Corporation, Kanpur ". On 1st of May, 1973, he entered into partnership with his two brothers and one nephew. Wazir Singh transferred his business to the new partnership. In this partnership he had 29% share. The rest of the share was divided between the other persons. A regular partnership deed was drawn up on 6th of March, 1964, effective from 1st of May, 1963. For the assessment year 1964-65, the Gift-tax Officer held that 71% share of the goodwill of the sole proprietary business was gifted by Wazir Singh to his brothers and nephew without consideration and this was taxable under Section 4(a) of the Gift-iax Act. He rejected the claim for exemption under Clause (xiv) of Section 5(1) of the Act. This view was upheld by the Appellate Assistant Commissioner. The assessee then took the dispute to the Appellate Tribunal. The Tribunal held that the assessee's sole proprietary businessjdid have a goodwill and the same was transferred to the other partners to the extent of 71% of its value. It held that the transaction in question was covered by Section 4(c) and not by Section 4(a) of the Gift-tax Act. The action of the assessee in admitting three persons as partners amounted to abandonment of his right in the goodwill but since the arrangement was bona fide it was covered by the exempting Clause (xiv) of Section 5(1).

(2.) THE Tribunal then observed :

(3.) AT the direction of this court the Tribunal has referred the following question of law also to this court: