1981 (4) TMI 169 - AT - Income Tax

Summary

Issues:
1. Whether the transfer of property by two joint owners to a partnership constitutes a gift.
2. Whether the exemption under section 5(1)(xiv) of the Gift-tax Act, 1958 applies to the alleged gift made in the course of business.

Detailed Analysis:

1. The appeals involved a transaction where two assessees, joint owners of a property, sold it to a partnership they were part of. The Gift-tax Officer (GTO) assessed a gift element of Rs. 80,000 by the two owners to the third partner. The assessees contended before the Appellate Assistant Commissioner (AAC) that there was no gift and if there was, it should be exempt under section 5(1)(xiv) of the Gift-tax Act. The AAC accepted a reduced gift value of Rs. 20,000 for each assessee. The assessees appealed this decision before the ITAT, arguing for complete exemption under section 5(1)(xiv) due to the business nature of the transaction.

2. The ITAT considered the arguments presented. The department contended that the transfer constituted a gift due to the difference in property value and that the exemption under section 5(1)(xiv) did not apply as the assessees were not carrying on any business as property owners. The department emphasized that the business should have made the gift, not received it. The assessees argued that the transfer was integral to the partnership business, increasing funds and profits. They relied on the Supreme Court's interpretation in CGT v. P. Gheevarghese [1979] 83 ITR 403 to support their position.

3. The ITAT acknowledged the connection between the sale transaction and the partnership business but rejected the argument that the business to be considered under section 5(1)(xiv) was the partnership business. It clarified that the assessees, as property owners, did not carry on the business in question; it was conducted by the partnership. The ITAT distinguished between the business of a firm and that of an individual partner, stating that the gift should go out of the business, not into it. Consequently, the ITAT dismissed the appeals, ruling that the exemption under section 5(1)(xiv) was not applicable as the gift was not made by the assessees in the course of carrying on a business.