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TMI Blog1971 (11) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, M. Sankaran Nair, now deceased, was running a proprietary business in the purchase and sale of yarn. On July 1, 1964, he transferred a sum of Rs. 50,000 out of his capital account in the business to his five children, and converted his proprietary business into a partnership concern by taking his major son. P. V. Harikrishnan, as partner and by admitting the remaining four minor children to the benefits of partnership. The partnership deed is annexure " A ": In the gift-tax return for the assessment year 1965-66, the assessee showed the total value of the gift at Rs. 50,000. The Gift-tax Officer took the view that by the conversion of the proprietary business into a partnership business the assessee had parted with 75% of the goodwil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a business, profession or vocation, to the extent to which the gift is proved to the satisfaction of the Gift-tax Officer to have been made bona fide for the purpose of such business, profession or vocation." To attract the benefit of the exemption, two conditions have to be satisfied. The first is that the gift has to be in the course of carrying on a business, profession or vocation. The second is that the gift should have been made bona fide for the purpose of such business, profession or vocation. In Commissioner of Gift-tax v. Kuruvilla in interpreting section 5(1)(xiv) of the Gift-tax Act, 1958, this court took the view that to apply section 5(1)(xiv) of the Gift-tax Act, 1958, it would be enough that the gift is made on grounds of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of carrying on the business' of the donor, and 'for the purpose of the business' " In Commissioner of Gift-tax v., P. Gheevarghese, followed by the Tribunal, the assessee who was the sole proprietor of a business converted the same into a partnership concern by inducting his two daughters as partners in the business. In upholding the claim for exemption the learned judges of this court observed : " Section 5(1)(xiv) makes it quite clear that in order to earn the exemption the assessee should prove that the transformation of his proprietary business into a partnership concern and the induction of his two daughters as the owners of a 1/8th share in the assets of that partnership was made bona fide for the purpose of that business. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first condition of section 5(1)(xiv), namely, "in the course of carrying on of business, profession or vocation", some integral connection or relation between the making of the gift and the carrying on of the business has to be established and to satisfy the second condition contained in the provision, namely, "for the purpose of such business, profession or vocation", it must be established that the object in making the gift or the desig nor intention bebind it should relate to the business. It is clear from the decision that a mere conversion of a proprietary business into a partnership concern without anything more is not enough to satisfy the requirements of section 5)(1)(xiv). The terms of the partnership deed show that Sankaran Nair ..... X X X X Extracts X X X X X X X X Extracts X X X X
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