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Issues:
1. Whether the conversion of a proprietary business into a partnership business involving the admission of major sons as partners constitutes a gift liable to tax under the Gift-tax Act, 1958. Detailed Analysis: The judgment by the Appellate Tribunal ITAT Bangalore involved a case where the assessee converted his proprietary concern into a partnership concern by admitting his two major sons as partners, each receiving a 15% share with a capital contribution of Rs. 5,000 each. The Gift Tax Officer (GTO) determined that there was an element of gift to the extent of 30% in favor of the incoming partners, valuing the goodwill and relinquishment of rights. The AAC upheld the assessment, leading to the current appeal. The main contention was whether the admission of the sons as working partners with capital contributions constituted adequate consideration, thereby negating the existence of a gift. The assessee argued that the sons' involvement as working partners and their capital contributions provided adequate consideration, while the departmental representative maintained that the admission of the sons amounted to a gift. The Tribunal considered relevant case law, including decisions by various High Courts, such as the Bombay High Court and the Karnataka High Court, which established that the contribution of capital, participation in business, and sharing in profits constituted sufficient consideration for admitting new partners. The Tribunal applied the principles from these cases to the current scenario, emphasizing that the sons' contributions and active involvement as working partners constituted adequate consideration, thereby ruling out the existence of a taxable gift. Ultimately, the Tribunal concluded that the admission of the sons as partners with capital contributions and active participation in the business constituted adequate consideration, precluding the need to explore the exemption under section 5(1)(xiv) of the Gift-tax Act. As a result, the appeal was allowed in favor of the assessee, highlighting that there was no taxable gift due to the presence of adequate consideration in the form of capital contributions and active involvement of the sons as working partners in the partnership business.
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