TMI Blog1971 (11) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... nakulam, is the following : " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the gift is exempt under section 5(i)(xiv) of the Gift tax Act, 1958 ? " The assessee, M. Sankaran Nair, now deceased, was running a proprietary business in the purchase and sale of yarn. On July 1, 1964, he transferred a sum of Rs. 50,000 out of his capital account in the business to his five children, and converted his proprietary business into a partnership concern by taking his major son. P. V. Harikrishnan, as partner and by admitting the remaining four minor children to the benefits of partnership. The partnership deed is annexure " A ": In the gift-tax return for the assessment year 1965-66, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefits of the partnership. Section 5(1)(xiv) of the Gift-tax Act, 1958 reads : " 5. (1) Gift-tax shall not be charged under this Act in respect of gifts made by any person - . . . (xiv) in the course of carrying on a business, profession or vocation, to the extent to which the gift is proved to the satisfaction of the Gift-tax Officer to have been made bona fide for the purpose of such business, profession or vocation." To attract the benefit of the exemption, two conditions have to be satisfied. The first is that the gift has to be in the course of carrying on a business, profession or vocation. The second is that the gift should have been made bona fide for the purpose of such business, profession or vocation. In Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciding whether the test of 'commercial expediency' is strictly appropriate to the claim for exemption under section 5(1)(xiv), we are of the view that there is no evidence on the record to prove that the gift to Thomas was'in the course of carrying on the business' of the donor, and 'for the purpose of the business' " In Commissioner of Gift-tax v., P. Gheevarghese, followed by the Tribunal, the assessee who was the sole proprietor of a business converted the same into a partnership concern by inducting his two daughters as partners in the business. In upholding the claim for exemption the learned judges of this court observed : " Section 5(1)(xiv) makes it quite clear that in order to earn the exemption the assessee should prove that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Appellate Tribunal." In Commissioner of Gift-tax v. P. Geevarghese, Travancore Timbers Products, Kottayam, their Lordships of the Supreme Court reversed the said decision. Their Lordships observed that to bring the gift within the first condition of section 5(1)(xiv), namely, "in the course of carrying on of business, profession or vocation", some integral connection or relation between the making of the gift and the carrying on of the business has to be established and to satisfy the second condition contained in the provision, namely, "for the purpose of such business, profession or vocation", it must be established that the object in making the gift or the desig nor intention bebind it should relate to the business. It is clear ..... X X X X Extracts X X X X X X X X Extracts X X X X
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