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1967 (10) TMI 8

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..... is an existing property within the meaning of section 2(xii) of the Gift-tax Act ? (2) Whether on the facts and in the circumstances of the case, the assessee gifted only a 1/8th share in the goodwill of the business to his two daughters or whether he gifted a 2/3rd share ? (3) Whether, on the facts and in the circumstances of the case, the gift was exempt from assessment under section 5(1)(xiv) of the Gift-tax Act ? " The assessee was the sole proprietor of a business conducted by him under the name and style of Travancore Timbers and Products, Kottayam. On August 1, 1963, he converted that proprietary business into partnership concern by inducting his two daughters as his partners. The two daughters inducted were the only major chi .....

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..... e business. The goodwill was valued at Rs. 1,61,865 and there is no dispute as regards the valuation. The Gift-tax Officer, as already stated, calculated the share of each of the two daughters in the goodwill as 1/3rd as each of them was entitled to receive a 3rd of the profits of the business. This is obviously incorrect as their share in the assets of the partnership--whatever be their share in the profits and losses of the firm---was only 118. Goodwill is a capital asset, and the Gift-tax Officer should, therefore, have valued their share in the goodwill of the business which was the subject-matter of the gift to the two daughters at only 1/8th of Rs. 1,61,865 as held by the Appellate Tribunal and not at 2/3rd as he did in his order .....

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..... the assessee should prove that the transformation of his proprietary business into a partnership concern and the induction of his two daughters as the owners of a 1/8th share in the assets of that partnership was made bona fide for the purpose of that business. The expression " for the purpose " has come up for consideration in connection with section 10(2)(xv) of the Indian Income-tax Act, 1922, and the corresponding provision in England and in the Income-tax Act, 1961. As pointed out by the Supreme Court in Commissioner of Income-tax v. Malayalam Plantations Ltd., the expression " for the purpose of the business " is wider in scope than the expression " for the purpose of earning profits " and may include measures for the preservation of .....

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