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Issues Involved:
1. Whether the admission of a new partner with a 25% share and the reduction of the assessee's share by 25% involved a gift by the assessee. 2. Whether the Tribunal was justified in rejecting the assessee's claim for exemption of the said gift under section 5(1)(xiv) of the Gift-tax Act, 1958. Detailed Analysis: Issue 1: Admission of New Partner and Gift Implication The Tribunal examined whether the admission of a new partner in the firm of M/s. Joseph & Markose, with a 25% share, and the corresponding reduction of the assessee's share by 25%, constituted a gift by the assessee. The assessee, Sri V. O. Markose, transferred 50% of his share in the firm's assets to Sri V. O. Abraham without consideration, which the Tribunal determined amounted to a gift. The Tribunal's decision was based on the fact that the transfer was made without any consideration, and thus, it was not seriously contended that the transfer did not amount to a gift. Issue 2: Exemption Under Section 5(1)(xiv) of the Gift-tax Act The second issue involved the applicability of section 5(1)(xiv) of the Gift-tax Act, which exempts gifts made "in the course of carrying on a business, profession or vocation" if proven to be made bona fide for the purpose of such business. The Tribunal rejected the assessee's claim for exemption, stating that there was no material evidence to show that the gift was made for the purpose of the business. The Tribunal emphasized that it was not demonstrated that the firm's work would have stopped or been seriously curtailed without the new partner, nor was it shown that the management of the firm was left wholly to the new partner. Court's Analysis and Conclusion: The court analyzed the principles laid down by the Supreme Court in Commissioner of Gift-tax v. P. Gheevarghese, which emphasized that a gift must have an integral connection with the carrying on of the business and be made for the purpose of the business. The court noted that the Tribunal applied incorrect principles by requiring unnecessary evidence, such as the firm's work stopping without the new partner or the firm's management being left entirely to the new partner. The court concluded that the gift was made in the course of the business and for the purpose of the business, as there was a clear need for assistance due to the senior partners' health conditions, and the new partner had already been assisting the firm effectively. The court found a direct link between the gift and the carrying on of the business, satisfying the requirements of section 5(1)(xiv). Judgment: 1. The first question was answered in the affirmative, against the assessee and in favor of the department, confirming that the transfer amounted to a gift. 2. The second question was answered in the negative, in favor of the assessee and against the department, granting the exemption under section 5(1)(xiv). The court directed that a copy of the judgment be sent to the Appellate Tribunal as required by section 260(1) of the Income-tax Act, 1961.
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