Law:

Section:

Section 5 of the Gift-tax Act, 1958 - Exemptions - Position prior to 1-4-1993 - Assessment year 1964-65 - Assessee was carrying on a business in Burmah shell agency and a business in bus service - As assessee's business had enormously increased, he constituted two partnership firms with his brothers and transferred his proprietary business to these two firms with object to run its business in better manner - Assessee made a gift of goodwill of his business to those partnerships - Whether on facts, gift made by assessee was exempt from taxation under section 5(1)(xiv) - Held, yes FACTS The assessee was carrying on a business in Burmah Shell agency and a business in bus service. By two agreements of partnership, the assessee constituted two partnerships, one with one of his brothers and the other with all his three brothers. By one partnership the business of Burmah Shell agency was taken over. By the other partnership the business of bus and lorry service was taken over. During the previous year relevant to the assessment year 1964-65 it was found by the GTO that 60 per cent of the goodwill in Burmah Shell agency and 35 per cent of the goodwill in the bus service were gifted by the assessee to his brothers. The assessee claimed that it was exempt under section 5(1)(xiv). The GTO disallowed the assessee's claim. On appeal, the AAC held that gift was exempt from tax under section 5(1)(xiv). The Tribunal upheld the order of the AAC. On reference : HELD To attract the benefit of exemption, under section 5(1)(xiv ) 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. To satisfy the first condition, namely, the gift should be in the course of carrying on a business, profession or vocation, it must be shown that the transaction of the gift has some integral connection or relation with the business and to satisfy the second condition it must be established that the object of making the gift should relate to the business. A mere conversion of a proprietary business into…

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