Law:

Section:

Section 5(1)(xiv) of the Gift-tax Act, 1958 - Exemptions - Gift in course of business - Assessee converted his proprietary business into a partnership concern taking in his wife, his two sons and five daughters as partners - While sons had gained experience in business as employees, there was no material to show that gifts in favour of daughters were necessary and justified in order to carry on business or that they were made truly and really for purposes of business - Whether, on facts, gift of goodwill of business in favour of daughters of donor was not exempt from taxation under section 5(1)(xiv) - Held, yes FACTS An Ayurveda Vaidyasala was owned by one 'K'. Subsequently, he converted this business into a partnership concern the partners being himself, his wife, his two sons and five daughters, each of them having a 1/9th share in it. On death of 'K' the GTO determined the value of the gift including a sum being the sum total of each gifts by 'K' to his sons, and daughters made on the day previous to the formation of the partnership, and another sum being the value of the 7/9thshare of the goodwill. The exemption claimed under section 5(1)(xiv) was not allowed. The AAC confirmed the order of assessment. On further appeal, the Tribunal held that since the two sons had gained experience in the business as employees exemption under section 5(1)(xiv) was available so far as the transfers in their favour were concerned. To that extent the appeal was allowed. On reference : HELD The principles deduced from various decisions relating to application of provisions of section 5(1)(xiv) are as follows (1) section 5(1)(xiv) will be attracted only if both the conditions, viz., that the gift should have been made 'in the course of carrying on the business, profession or vocation' and that it should have been made'bona fide for the purpose of such business, profession or vocation,' are satisfied. (2) Further, there should be an integral or real connection between the making of the gift and the carrying on of the business, profession or vocation. (3) The gift should also have been bona fide for the purpose of such business, profession or vocation. In other words, the gift…

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