COMMISSIONER OF GIFT TAX Vs. ETHIRAJULU G

JUDGEMENT

(1.) : This is a reference under s. 26(3) of the GT Act, 1958. The assessee, G. Ethirajulu, was a partner of an unregistered firm, Kasetty Rangappa and Sons, for several years. By December 15, 1956, all the other partners of the firm retired and he became the sole proprietor of the business which he carried on as such till March 31, 1957. On April 1, 1957, he converted the business from a proprietary business into a partnership business, with himself and three other persons as partners. His share in the partnership business was 6/16ths while that of the other three partners was 4/16ths, 4/16ths and 2/16ths, respectively. Admittedly, the entire capital of the business was contributed by the assessee alone, the other partners being mere working partners. The GTO was of the view that the conversion of the proprietary business into a partnership business resulted in a gift of a 10/16ths share in all the assets (including goodwill) of the business to the other partners. A contention raised by the assessee that under the terms of the partnership the other partners had no right to a share in the assets was not accepted by the GTO as there was no such restrictive clause in the partnership deed. Another contention that the goodwill of the business should not be valued and included in the assets in assessing the value of the gift was not also accepted. The GTO assessed the value of the gift at Rs. 1,00,000 and levied gift- tax on that amount. The AAC confirmed the order of the GTO. On further appeal to the Tribunal, the latter while holding that there was a gift and that the goodwill of the business should also be included in the assets for valuing the gift, held that the gift was exempt from tax by reason of s. 5(1)(xiv) of the GT Act as according to the Tribunal the gift was made bona fide "in the course of carrying on a business "and" for the purpose of such business". The Tribunal, therefore, allowed the appeal and set aside the orders of the GTO and the AAC. At the instance of the CGT, the Tribunal has referred the following question to us : "Whether, on the facts and in the circumstances of the case, the gift was exempt under s. 5(1)(xiv) of the GT Act, 1958 ?"

(2.) SEC. 5(1)(xiv) of the GT Act is as follows :

(3.) PERHAPS, this is another face of the same idea that we have expressed in the previous paragraph. In the present case the business ceased to belong exclusively to the assessee and became the property of a partnership. Clearly it is not the same person and the gift was not "in the course of the carrying on of the business".