Law: Gift Tax Act, 1958

Section: 5(1)(xiv),2(xviii)

Section 2(xviii) of the Gift-tax Act, 1958 - Person - Assessment year 1978-79 - Whether a firm is liable to be assessed to gift-tax as a taxable entity - Held, yes Section 3 of the Gift-tax Act, 1958 - Charge of tax - Whether since assessee-firm transferred its entire business with stock, goodwill and right to use its name to a company without any consideration, that was a gift liable to tax under section 3 - Held, yes Section 5(1)(xiv) of the Gift-tax Act, 1958 - Exemptions - Gift in course of business - Whether where assessee-firm transferred its business itself including stock, goodwill and right to use its name, it was not exempt from gift-tax under section 5(1)(xiv) - Held, yes HELD As regards the question as to whether a firm is liable to gift-tax, a similar question had already been considered by the High Court in CIT v. Bharani Pictures [1981] 129 ITR 244/[1980] 3 Taxman 478 (Mad.). In view of that decision, the firm, being a body of individuals, is clearly covered by the definition of a 'person' under section 2(xviii ). Therefore, a firm is liable to gift-tax. [Para 5] As regards the question as to whether a gift was made under the provisions of the Act, no proof was produced by the assessee to the effect that any consideration was paid for the transfer of the entire export business in coffee along with stocks by the assessee-firm to the company. It was never the case of the assessee that what was transferred did not have a value. A valuable running business having been transferred for no consideration at all, clearly amounted to a gift within the meaning of section 2(xii ). Thus, the transfer of movable properties, including the coffee stocks as also the goodwill of business together with the right to use its name without any consideration, was a gift liable to be brought to tax under section 3. [Para 8] As regards the exemption under section 5(1)(xiv ), this clause contemplates a running business making gifts in the course of the conduct of such business to others for the purpose of its own business and such gifts being made bona fide. The provision has no application to a gift of the business itself, which the assessee had done in the instant case.…

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