TMI Blog2004 (8) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 5(1)(xiv) - We agree with the reasoning given by the Tribunal and hold that the gift is not exempted under section 5(1)(xiv) of the Gift-tax Act. - - - - - Dated:- 12-8-2004 - Judge(s) : S. SANKARASUBBAN., A. K. BASHEER. JUDGMENT The judgment of the court was delivered by S. Sankarasubban J. - The question of law referred in this case is as follows: "Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the conversion of the proprietary concern of the assessee into a partnership involved a gift which was not exempt under section 5(1)(xiv) of the Gift-tax Act, 1958?" The facts of the case are as follows: The assessee, Dr. V. Mohandas, is a medical practitioner. From 1969, he ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee filed the return showing a taxable gift of Rs. 4,88,000 with an endorsement on it. The Gift-tax Officer did not agree with the assessee that there was no liability under the Gift-tax Act on account of the conversion of the business into a partnership business. The Gift-tax Officer made the assessment on the ground that in converting the proprietary business into a partnership, Dr. Mohandas had forgone his interest in the immovable properties and the goodwill of the concern in favour of the incoming partners. On that view of the matter, the Gift-tax Officer computed the taxable gift by taking the value of the hospital buildings at Rs. 41,83,000 and the value of the gift in favour of the other partners at 60 per cent, thereof, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn that the value of the gift was Rs. 4,88,000. The case was remitted back to the Commissioner of Income-tax (Appeals) and the Tribunal held that the Commissioner of Income-tax (Appeals) would consider the assessee's objection against the assessment of Rs. 4,88,000 as the taxable gift inspite of the fact that in the return the assessee had shown that amount as taxable gift. It is in the above background that the assessee has approached this court by making a reference under the Gift-tax Act. The question for consideration is whether the gift is exempted under section 5(1)(xiv) of the Gift-tax Act. Section 5(1)(xiv) reads as follows: "in the course of carrying on a business, profession or vocation, to the extent to which the gift is proved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circus shows, the assessee having 40 per cent, share in it till March 31, 1973. On April 1, 1973, a new deed of partnership was executed by the assessee and his three sons, who were the existing partners in the firm, and in that partnership, the assessee's share was reduced to 25 per cent., having surrendered 15 per cent, of his share to his three sons. The Income-tax Officer held that the relinquishment by the assessee of his 15 per cent, share in favour of his sons was a deemed gift liable to gift-tax. The Appellate Assistant Commissioner held that the assessee was entitled to exemption under section 5(1)(xiv) of the Gift-tax Act, 1958, to the extent of the profits relating to the relinquishment. The Tribunal held that the assessee was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere statement that the partnership was formed to ensure continuing of the business is not sufficient for claiming the exemption. In the case before us the test of commercial expediency is also not satisfied. As we had indicated in CGT v. R. Narasimhan Potti [1972] 83 ITR 296 (Ker) in I.T.R. No. 14 of 1969, the burden to make out the grounds for claiming the exemption is on the assessee. Except producing the partnership deed the assessee did not adduce any evidence to prove the grounds for the formation of the partnership. To us, it appears that the real motive behind the partnership is to benefit the children of the assessee. Section 5(1)(xiv) has no application to such cases. The terms of annexure 'A' are almost identical with the document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84. The capital of the second partner shall be the outstanding loans due from the first party. There is no capital by the third and fourth partners. They will render service out of their medical qualifications to the partnership firm. The income or loss of the firm's profession or business shall be shared or borne by the partners in the following proportion: 1. Dr. V. Mohandas (first partner) 40 per cent. 2. Dr. Molly M. Das (second partner) 30 per cent 3. Dr. Vinod (third partner) 15 per cent. 4. Dr. Veena (fourth partner) 15 per cent. Clause 12 says that any partner shall have the right to retire from the partnership and any partner can be retired by agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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