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Issues:
1. Whether the conversion of a sole proprietary business into a partnership business amounts to a gift under the Estate Duty Act, 1953? 2. Whether the partners in the converted business were donees? 3. Whether there was consideration for the conversion into a partnership business? 4. Whether section 9 or section 10 of the Estate Duty Act, 1953 applies in this case? Analysis: The case involved a reference under sub-section (1) of section 64 of the Estate Duty Act, 1953, regarding the conversion of a sole proprietary business into a partnership business. The deceased, a planter-manufacturer and tea merchant, converted his business into a partnership styled 'Korangani and Azizbagh Tea Estate' by admitting his wife and two sons as partners. Each partner contributed Rs. 2,000, and they were declared equal shareholders. The deceased passed away in 1964, and the inclusion of the business assets in his estate was contested. The main issue was whether the conversion constituted a gift under the law. The accountable persons argued that there was consideration for the conversion, as the sons agreed to devote their time to the business. Citing relevant cases, it was contended that where there is consideration for such conversions, it does not amount to a gift. The court examined the deeds and agreements to determine if there was valid consideration, ultimately concluding that there was no gift involved in this case. Regarding the application of sections 9 and 10 of the Estate Duty Act, 1953, it was noted that the deed of conversion was executed more than two years before the deceased's death, rendering section 9 inapplicable. The Revenue authorities applied section 10, which deals with property passing on death. The court discussed precedents where the Supreme Court held that section 10 did not apply when there was a valid consideration for the conversion. The judgment highlighted a shift in the interpretation of the law based on various cases, emphasizing the importance of valid consideration in determining whether a conversion of business structure constitutes a gift. Ultimately, the court ruled in favor of the assessee, holding that there was no gift involved in the conversion of the business into a partnership. Consequently, the question of the escalation of asset values did not need to be addressed, and no costs were awarded in the case.
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