1970 (4) TMI 60 - SC - Income Tax

Whether, on the facts and in the circumstances of the case, the assessee was entitled to the exemption in respect of G. K. Hospital and the adjoining land of 1.38 cents under section 5(1)(xiv) of the Gift-tax Act ? Held that - The donor is exempt under section 5(1)(xiv) from liability to pay tax only if the gift is in the course of carrying on a business, profession or vocation and is made bona fide for the purpose of such business, profession or vocation. The clause does not enact that a gift made by a person carrying on any business is exempt from tax, nor does it provide that a gift is exempt from tax merely because the property is used for the purpose for which it was used by the donor. Without deciding whether the test of commercial expediency is strictly appropriate to the claim for exemption under section 5(1)(xiv), we are of the view that there is no evidence on the record to prove that the gift to Thomas was in the course of carrying on the business of the donor, and for the purpose of the business. Appeal is allowed and the order passed by the High Court is set aside

Summary

Issues:
1. Whether the respondent was entitled to exemption under section 5(1)(xiv) of the Gift-tax Act for the gifts made to his son, including a hospital building and adjoining land.

Analysis:
The case involved a medical practitioner who gifted property to his son, including a hospital building and land, and claimed exemption under section 5(1)(xiv) of the Gift-tax Act. The respondent contended that the gifts were exempt as they were made in the course of carrying on his medical profession and for the purpose of the profession. The Gift-tax Officer and the Appellate Assistant Commissioner rejected the claim, but the Appellate Tribunal ruled in favor of the respondent, leading to an appeal to the High Court of Kerala.

The High Court, considering the circumstances, opined that the gifts could be seen as made for the betterment of the respondent's business. However, the Supreme Court disagreed with this interpretation. The Court emphasized that for exemption under section 5(1)(xiv), the gift must be made in the course of carrying on a business, profession, or vocation, and bona fide for that purpose. The Court noted that the deed of gift stated the gifts were made "out of love and affection," without any indication of being related to the respondent's medical profession. The Court highlighted that there was no evidence to prove that the gifts were made in connection with the respondent's medical practice.

The Court clarified that the clause does not automatically exempt gifts made by a person in business or profession from tax, emphasizing the need for a genuine connection between the gift and the business or profession. The Court found that the gifts did not meet the criteria for exemption under section 5(1)(xiv) and ruled in favor of the Commissioner of Gift-tax, setting aside the High Court's decision. The Court allowed the appeal, granting costs to the Commissioner of Gift-tax in both the Supreme Court and the High Court.

In conclusion, the Supreme Court held that the respondent was not entitled to exemption under section 5(1)(xiv) of the Gift-tax Act for the gifts made to his son, including the hospital building and land, as there was no evidence to establish that the gifts were made in the course of the respondent's medical profession and for the purpose of the profession.