Law:

Section:

Section 5(1)(xiv) of Gift-tax Act, 1958 - Exemptions - Gift in course of business - Assessment year 1965-66 - Whether mere conversion of proprietary business into a partnership concern without anything more is not enough to satisfy requirements of section 5(1)(xiv) - Held, yes - Whether burden to make out ground for claiming exemption under section 5(1)(xiv) would be on assessee - Held, yes - Whether where except producing partnership deed assessee did not advance any evidence to prove grounds for conversion of proprietary business into partnership concern, assessee was not entitled to exemption - Held, yes FACTS The assessee was running a proprietary business in the purchase and sale of yarn. 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 as partner and by admitting the remaining four minor children to the benefits of partnership. In the gift-tax return the assessee showed the total value of the gift at Rs. 50,000. The GTO took the view that by the conversion of the proprietary business into a partnership business the assessee had parted with 75 per cent of the goodwill of the business in favour of his children and that the value of 75 per cent of the goodwill was liable to tax. The Tribunal held that the entire gift was exempt under section 5(1)(xiv). On reference : HELD 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. 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 assessee was only 53 years old and he was continuing as the managing partner of the partnership and apart from making the adult son as a junior partner, all his other minor children were admitted to the benefits of the partnership. The mere statement that the…

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