Law:

Section:

Section 5(1)(xiv) of the Gift-tax Act, 1958 - Exemptions - Gift in course of business - Assessment year 1964-65 - Assessee converted his proprietary business into a partnership concern with his two employees as partners - GTO held that assessee, thus, parted with two-third share of goodwill in business and assessed its value to gift-tax - Apart from producing partnership deed assessee had not adduced evidence to prove circumstances under which business was converted into partnership - Preamble of partnership deed also did not give any specific reasons for such conversion but only showed that concerned employees were helping assessee in his business and they were being remunerated by salary and since assessee had agreed to admit them in partnership, partnership had been formed - Whether burden was upon assessee claiming exemption to prove facts which would entitle him to benefit of section 5(1)(xiv) - Held, yes - Whether evidence adduced by assessee were absolutely insufficient to uphold claim for exemption under section 5(1)(xiv) - Held, yes FACTS During assessment year 1964-65 the assessee, being the sole proprietor of a boarding and lodging house, converted his proprietary business into a partnership with his two employees. The GTO was of the view that the assessee parted with two-third of his goodwill in favour of the partners, and held that this being a gift of the goodwill in the business, its value had to be brought to tax. On appeal, the AAC reduced the value of the goodwill. On second appeal, the Tribunal left open the question whether the goodwill of a business could form the subject-matter of gift, but held that the gift was exempted under section 5(1)(xiv). On reference: HELD The preamble of the partnership deed did not give any specific reasons for converting the proprietary business into a partnership concern. Apart from producing the partnership deed the assessee had not adduced evidence to prove the circumstances under which the business was converted into a partnership firm. Two conditions must be satisfied in order that the provision of section 5(1)(xiv) can apply, namely, (1) the gift should be made in the course of carrying on a business; and…

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