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Issues:
1. Whether the gift arising from the transformation of an individual business to a partnership business is exempt from gift-tax under section 5(1)(xiv) of the Gift-tax Act, 1958. 2. Whether the gift was made bona fide for the purpose of the donor's business and could be considered reasonable. Analysis: 1. The High Court of Madras considered the exemption of a gift from gift-tax under section 5(1)(xiv) of the Gift-tax Act, 1958, in the context of the transformation of an individual business into a partnership. The case involved Alagiriswami Chetti, who, at the age of 70, formed a partnership with his nephews for a transport business. The nephews did not contribute capital or goodwill to the partnership. The court examined the partnership deed and relevant paragraphs to determine the nature of the gift and its relation to the business. The court emphasized the necessity for a gift to be in the course of carrying on a business and made for the purpose of the business, as outlined in previous Supreme Court decisions. It was crucial to establish a connection between the business and the gift, showing a design or plan in making the gift for the business's benefit. The court found that the gift in this case was made in the course of business and for the purpose of the business, supported by relevant case law and the circumstances of the partnership. 2. The court also addressed the specific question of whether there was material to support the finding that the gift was made bona fide for the donor's business and was reasonable. Despite the provision in the partnership deed allowing partners to leave at will, the court emphasized that such a provision alone did not negate the gift's purpose for the business. The continuity of the business was ensured through another clause in the deed, indicating the intention for the business to continue even if partners chose to leave. Relying on previous decisions and considering the circumstances of the case, the court concluded that the gift was indeed made bona fide for the purpose of the business. The court answered both questions in favor of the assessee, ruling against the revenue department. The court also highlighted the importance of the business's purpose and continuity in determining the validity of the gift for exemption from gift-tax.
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