Decided on February 07,1974

V.O. MARKOSE Appellant
CIT, KERALA Respondents


- (1.) Two questions have been referred to us by the Income Tax Appellate Tribunal, Cochin Bench 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 and Markose with a 25 per cent share along with the reduction of the share of the assessee in the said firm by 25 per cent 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 S.5(1)(xiv) of the Gift Tax Act, 1958 For the assessment year 1968-69 Sri V. O. Markose, Partner, M/s V. J. Joseph and Markose, Lawyers, Kottayam claimed that 50 per cent 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 17th August 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 S.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.
(2.) 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 Sri. 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 of 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 person 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 a 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 relapse. 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.
(3.) In the above circumstances the senior partner decided to transfer one half of his interests 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. S.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;";

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