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1972 (4) TMI 9

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....chemicals, cycles, etc., as a sole proprietor. He took his three major sons as partners and admitted a minor son to the benefits of the partnership and a partnership deed was executed on March 4, 1957. The assessee and his sons including the minor son were each entitled to 1/5th share in the profits of the business and the assessee and his three major sons were liable to share the losses of the business in equal shares. In response to a notice issued by the Gift-tax Officer, the assessee filed a nil return for the assessment year 1958-59. The assessee contended that since the partnership deed was dated March 4, 1957, which was prior to the coming into force of the Gift-tax Act, no taxable gift was involved in the forming of the partnership.....

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.... consideration by the Supreme Court in Commissioner of Gift-tax v. P. Gheevarghese, Travancore Timbers and Products. It was held therein that in order to invoke the benefit of the provision it should be proved that the gift was made not only " in the course of carrying on the business, profession or vocation ", but also " bona fide for the purpose of such business, profession or vocation." The Supreme Court interpreted the expression " gift in the course of carrying on business, profession or vocation " as meaning that the " gift must not only be made while the donor was running the business but also there must be some integral connection or relation between the making of the gift and the carrying on of the business ". Their Lordships furth....

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....nce that the major sons or any of them had any specialised knowledge or business experience so as to be able to assist the assessee in the development and management of the business. The fact that the business was running at a loss prior to the partnership and was earning profit subsequent to the partnership was relied on by the assessee in this connection. But making of profit or suffering loss not only depends on the persons who manage but also the market conditions and other factors. There is nothing to connect the earning of the profits with the efficiency of the management by the sons. In fact, the inclusion of the minor son also in the partnership clearly shows that the object of entering into the partnership was to benefit the sons a....