COMMISSIONER OF GIFT TAX Vs. GHEEVARGHESE P TRAVANCORE TIMBERS AND PRODUCTS
HIGH COURT OF KERALA
COMMISSIONER OF GIFT-TAX, KERALA
P. GHEEVARGHESE, TRAVANCORE TIMBERS AND PRODUCTS
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(1.) THIS is a reference by the Income-tax Appellate Tribunal, Madras Bench, at the instance of the Commissioner of Gift-tax, Ernakulam, under section 26(1) of the Gift-tax Act, 1958. The assessment year concerned is 1964-65, and the questions referred are :
"(1) Whether, on the facts and in the circumstances of the case, the goodwill of the assessees business is in 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 ?"
(2.) 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 concerned by inducing his two daughters as his partners. THE two daughters inducted were the only major children of the assessee at that time.
The capital of the partnership was fixed at Rs. 4 lakhs. The assessee contributed Rs. 3,50,000 and his two daughters, Rs. 25,000 each. In order to enable the two daughters to contribute their share to the capital of the firm, the assessee transferred from his account Rs. 25,000 to each of them.
All the assets of the proprietary business were transferred to the partnership, and as from the date of the partnership the assessee and his daughters were entitled to shares in those assets in proportion to their share capital, that it to say, the assessee was entitled to a 7/8th share and each of his daughters to a 1/16th share in those assets. The profits and losses of the partnership business, however, were to be divided in equal shares between all the three partners.
(3.) THE assessee was to be the managing partner of the firm. THE partnership deed also provided for the continuance of the partnership business in spite of the death or retirement of any of the partners, and for the admission of the assessees minor children into the partnership after they attained the age of majority.
The assessee filed a return showing a gift of Rs. 50,000 in favour of the two daughters. The Gift-tax Officer came to the conclusion that the two daughters together obtained a 2/3rd share in the goodwill of the business as well and that the value of the gift made by the assessee should be computed at Rs. 50,000 plus the value of a 2/3rd share in the goodwill of the business.;
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