Govindan Nair, C.J. -
(1.) TWO questions have been referred to us by the Income-tax Appellate Tribunal, Cochin Bench, which read as follows:
"(i) Whether, on the facts and circumstances of the case, the Tribunal was correct in law in holding that the admission of a new partner in the firm of M/s. Joseph & Markose with a 25% share along with the reduction of the share of the assessee in the said firm by 25% involved a gift by the assessee ?
(ii) If the answer to the first question is in the affirmative, whether the Tribunal is justified in rejecting the assessee's claim for exemption of the said gift under Section 5(1)(xiv) of the Gift-tax Act, 1958 ?"
(2.) FOR the assessment year 1968-69, Sri V. O. Markose, partner, M/s. V.J. Joseph & Markose, Lawyers, Kottayam, claimed that 50% of his share in the assets of the said firm was transferred to one Sri V. O. Abraham who was admitted to the partnership with effect from August 17, 1966, and that such transfer did not constitute a gift. He further contended that, even if it amounted to a gift, that gift was exempted by virtue of Section 5(1)(xiv) of the Gift-tax Act, 1958. Both these contentions were negatived by the Income-tax Officer, in appeal by the Appellate Assistant Commissioner, and in further appeal by the assessee, by the Tribunal.
Sri V. O. Markose was one of the two partners of the firm of M/s. Joseph and Markose for a fairly long period and V. O. Markose was entitled to a half share in the profits of the firm. The partners of the firm were members of the legal profession practising law. At the time of the transfer, Sri V. O. Markose was 75 years old and his partner. Sri Thomas Vellapally, has had a serious heart attack and was not in full vigour or health. Sri V. O. Markose wrote two letters explaining the circumstances under which and the reasons that prompted the induction of the new partner. The new partner was a man with varied experience and quite elderly. He has been assisting the firm by doing part of the work of the firm for four years and he was being given remuneration by the firm for such work before he was taken as a partner in the firm. During the last two of those four years he had been paid substantial remuneration for the work that he did for the firm amounting to Rs. 18,000 for each of those years. It is thus clear that the person taken in was one competent to discharge the functions of a partner and was a parson associated with the particular type of work that the firm has been doing, and a person who has had experience in handling the type of cases the firm had to deal with. There were only two partners in the firm as we indicated already and both were not in good physical condition which would permit them to undertake arduous tasks which an advocate or counsel is often called upon to discharge, and at, times for continuous periods without any respite. A need for assistance has, therefore, been clearly made out and the partners of the firm decided to take one who was associated with the firm and who had apparently proved to be useful to the firm.
In the above circumstances the senior partner decided to transfer one-half of his interest in the assets of the firm to the person newly admitted without any consideration. This transfer certainly amounted to a gift and it was not seriously contended before us that the transfer did not amount to a gift. Section 5(1)(xiv) is in these terms :
"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."
(3.) THE gift must be "in the course of carrying on a business" and further "it must be bona fide for the purpose of the business", A number of decisions had been cited before us by counsel for the assessee and by counsel for the department. But we do not think we should in the light of the two categorical pronouncements of the Supreme Court refer to all these decisions. We shall, however, refer to one case on which much reliance had been placed by counsel for the department merely for the purpose of saying that it will have no application to the question before us. THE decision is in AK. Venkiteswaran v. Commissioner of Income-tax. THE section that was construed by a Division Bench of this court in that case is Section 16(v) of the Income-tax Act, 1961, for short " the Act", That section is in these terms :
"16. THE income chargeable under the head "Salaries" shall be computed after making the following deductions, namely :--.....
(v) any amount actually expended by the assessee, not being as amount expended on the purchase of books or other publications, or on entertainment or on the maintenance of a conveyance, which, by the conditions of his service, he is required to spend out of his remuneration wholly, necessarily and exclusively in the performance of his duties."
The assessee in that case, an Income-tax Officer, claimed that the rent he paid for a building that he took on hire in Ernakulam to which place the officer was transferred was a payment made by him which satisfied the requirements of the section and so claimed the rent as an allowable deduction from his salary in computing his total income for the purpose of assessment under the Income-tax Act, 1961. This court ruled that the payment of rent may perhaps be for the performance of his duties but was not wholly, necessarily and exclusively required to be spent in the performance of the duties. The claim of the assessee was, therefore, negatived. We do not think that the principle of this decision has any application.;