# COMMISSIONER OF GIFf TAX· KERALA v. GHEEVARGHESE. TRAVANCORE TIMBERS & PRODUCTS, KOTTAYAM

- **Citation:** [1972] 1 S.C.R. 817
- **Court:** Supreme Court of India
- **Decided:** 1971-09-20
- **Case number:** Civil Appeal No. 2293 of 1968
- **Bench:** K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-giff-tax-kerala-v-gheevarghese-travancore-timbers-products-5466
- **Pages:** 11

## Headnote

817
.Gift Tax Act 1958, s. 5(1) (xiv)-Proprietary business converted into
partnership business-Proprietor's daughters taken as partners-AU assets
of proprietary business transferred to partnership business-c-Daughters' contribution of capital effected by transfer of money from father"s account to
c
daughters' accounts-Whether share of goodwill of proprietary firm also
thereby gifted-Gifted amounts whether exempt under s. 5(1) (xiv)-Tests
for exemption-"In the course of business and "for the purpose of the
Cusiness', meaning of.
The assessee wao the sole proprietor of a business in timber and timber
products. He converted the proprietary business into a partnership business by means of a deed of partnership dated August 1, 1963. The partD
nership consisted of the assessee and his two daughters. The capital of
the partnership was to be Rs. 4,00,000. The assessee contributed Rs.
3,50,000 and each· of his two daughters, one married and the other unmarried contributed Rs. 25,000. The contribution of the capital by the
daughters was effected by transfer of Rs. 25,000 from the assessee's account to the account of each of the daughters.
All the assets of the
proprietary business were t{ansferred to the partnership.
In these assets,
the assessee and bis daughters were entitled to shares in the proportion
E
of their share capital i.e. the assessee was entitled to a 7/8 share and each
of his daughters to 1/16 share. The profits and losses Of the partnership
business were to be divided in equal shafes between all the three partners.
The assessee was the managing partner of the firm.
The assessee filed a
return of gift tax for the assessment year 1964-65 in respect of the gift
Of Rs. 50,000 in favour of his daughters representing the share capital
contributed by his daughters. The Gift Tax Officer however took the
view that in addition to the gift of the aforesaid amount the assessee had
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gifted 113r<l portion of the goodwill of his proprietary business to each
of his daughters.
Accordingly he added a sum equal to 2/3rd df the
i'Jodwill as estimated by him to the gift of &.. 50,000 admitted by the
assessee.
The Appellate Assistant Commissioner dismissed the assessee's
appeal. The Appellate Tribunal held that only 1/8 of the goodwill was
gifted to each of the daughters but the gift was exempt under s. 5(1)(xiv)
of the Gift Tax Act. The High Court in reference held in favour of the
G
wessee.
In appeal by special leave,
HELD : The goodwill was a part of the assets which had been transferred to the partnership.
Under s. 14 of the Partnership Act, wbject
to the contract between the partners the property of the firm includes all
property and rights and interests in property originally brought into the
stock of the firm or acquired by purchase or otherwise by or 'for the firm
and includes also the goodwill of the business.
The departmental authorities in the present case never treated as all the assets and property of the
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assessee which were transferred to the partnership pertaining to his proprietary business as a gift nor was it suggested that the property and
assets valued at Rs. 4,00,000 were the subject matter of the gift.
The
departrnentaf 11uthoritieo 'cmly picked up one of the assets of the assessee's
l 8--L3Sup.C.I./72
818
SUPREME COURT REPORTS
(1972) 1 S.C.R.
proprietary business namely its goodwill and regarded that as the subject
of giit having been made to the daughters. There was no justification for
this approach.
Accordingly no ~ft tax was payable by the assessee on
the goodwill of the assessee's business.
[823 A-DJ
(ii) To be exempt under s. 5 ( 1) (xiv) a gift should be proved to
have been made not only in the course of carrying on the business, pro--
fession or vocation but also 1for the purpose of such business, profession
or vocation.
The expression .'in the course of carrying on of business etc.'
means that the gift should have some relationship with the carrying on
of . the business. If a donor makes a gift only while h

## Text

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COMMISSIONER OF GIFf TAX· KERALA
v.
GHEEVARGHESE. TRAVANCORE TIMBERS &
PRODUCTS, KOTTAYAM
September 20, 1971
[K. S. HEGDE AND A. N. GROVER, JJ.]
817
.Gift Tax Act 1958, s. 5(1) (xiv)-Proprietary business converted into
partnership business-Proprietor's daughters taken as partners-AU assets
of proprietary business transferred to partnership business-c-Daughters' contribution of capital effected by transfer of money from father"s account to
c
daughters' accounts-Whether share of goodwill of proprietary firm also
thereby gifted-Gifted amounts whether exempt under s. 5(1) (xiv)-Tests
for exemption-"In the course of business and "for the purpose of the
Cusiness', meaning of.
The assessee wao the sole proprietor of a business in timber and timber
products. He converted the proprietary business into a partnership business by means of a deed of partnership dated August 1, 1963. The partD
nership consisted of the assessee and his two daughters. The capital of
the partnership was to be Rs. 4,00,000. The assessee contributed Rs.
3,50,000 and each· of his two daughters, one married and the other unmarried contributed Rs. 25,000. The contribution of the capital by the
daughters was effected by transfer of Rs. 25,000 from the assessee's account to the account of each of the daughters.
All the assets of the
proprietary business were t{ansferred to the partnership.
In these assets,
the assessee and bis daughters were entitled to shares in the proportion
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of their share capital i.e. the assessee was entitled to a 7/8 share and each
of his daughters to 1/16 share. The profits and losses Of the partnership
business were to be divided in equal shafes between all the three partners.
The assessee was the managing partner of the firm.
The assessee filed a
return of gift tax for the assessment year 1964-65 in respect of the gift
Of Rs. 50,000 in favour of his daughters representing the share capital
contributed by his daughters. The Gift Tax Officer however took the
view that in addition to the gift of the aforesaid amount the assessee had
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gifted 113r<l portion of the goodwill of his proprietary business to each
of his daughters.
Accordingly he added a sum equal to 2/3rd df the
i'Jodwill as estimated by him to the gift of &.. 50,000 admitted by the
assessee.
The Appellate Assistant Commissioner dismissed the assessee's
appeal. The Appellate Tribunal held that only 1/8 of the goodwill was
gifted to each of the daughters but the gift was exempt under s. 5(1)(xiv)
of the Gift Tax Act. The High Court in reference held in favour of the
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wessee.
In appeal by special leave,
HELD : The goodwill was a part of the assets which had been transferred to the partnership.
Under s. 14 of the Partnership Act, wbject
to the contract between the partners the property of the firm includes all
property and rights and interests in property originally brought into the
stock of the firm or acquired by purchase or otherwise by or 'for the firm
and includes also the goodwill of the business.
The departmental authorities in the present case never treated as all the assets and property of the
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assessee which were transferred to the partnership pertaining to his proprietary business as a gift nor was it suggested that the property and
assets valued at Rs. 4,00,000 were the subject matter of the gift.
The
departrnentaf 11uthoritieo 'cmly picked up one of the assets of the assessee's
l 8--L3Sup.C.I./72
818
SUPREME COURT REPORTS
(1972) 1 S.C.R.
proprietary business namely its goodwill and regarded that as the subject
of giit having been made to the daughters. There was no justification for
this approach.
Accordingly no ~ft tax was payable by the assessee on
the goodwill of the assessee's business.
[823 A-DJ
(ii) To be exempt under s. 5 ( 1) (xiv) a gift should be proved to
have been made not only in the course of carrying on the business, pro--
fession or vocation but also 1for the purpose of such business, profession
or vocation.
The expression .'in the course of carrying on of business etc.'
means that the gift should have some relationship with the carrying on
of . the business. If a donor makes a gift only while he is running the
business that may not be sufficient to bring the gift within the first part
of cl. (xiv) of s. 5 ( 1) of the Act. It must further be established to
bring the gift within that prMision, that there was some integral connection or relation between the making of the gift and the carrying on of the
business.
The meaning of the word 'purpose' is that which one sets
before himself as an object to be obtained; the end or aim to be kept in
view in any plan, measures, exertion or operation,
design, intention.
Therefore on the plain meaning of the word 'purpose' as employed in
cl. (xiv) the object, plan or design must have connection or relationship
with the business.
[824 A-G]
Jn the present case, considering the terms of the partnership deed
there was no cogent material to come to the conclusion that the gift of
Rs. 25,000 to each of the daughters by the assessee was in the course of
carrying on the business of the assessee and was for the purpose of the
business.
The real object of the assessee was to benefit the daughters for
the natural reason that the father wanted to look to the advancement of
his daughters.
Accordingly the asscssee who bad himself shown the amount
of Rs. 50.000 in his return of gift tax could not claim exemption for that
amount under s. 5(7)(xiv). [826C-G]
State of Travancore Cochin & Ors. v. Chanmugha Vilas Cashew Nut
Factory & Ors. [1954] S.C.R. 53, B. W. Noble Ltd. v. Mitchell 11 T.C.
372, Morgan v. Tate & Lyle Lid. 35 T.C. 367, 378, C.J.T., West Bengal v.
Birla Cotton Spinning & Weaving Mills Ltd. dt. 17-8-71 and Commissioner
of Gift Tax v. Dr. Grorge Kuruvilla, 77 l.T.R. 746, applied.
Commissioner of Gift Tax, Kera/a v. Dr. George Kuruvilla,
(1965)
K.L.R. 721, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2293 of
1968.
Appeal by special leave from the judgment and order dated
October 9, 1967 of the Kerala High Court in Income-tax Reference No. 64 of 1966.
0. P. Malhotra, R. N. Sachthey and B. D. Sharma, for the
appellant.
S. T. Desai, A. K. Verma and J. B. Dadachanji, for the
respondent.
The Judgment of the Court was delivered by
Grover, J.
This is an appeal by special leave from a judgment
of the Kera la High Court in a refere.nce made under s. 26 ( 1) of
the Gift Tax Act, 1958, hereinafter referred to as the "Act", relating to the assessment year 1964-65.
The assessee was the sole
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C.G.T. V, GHEEVARGHESE (Grover, J.)
819
A proprietor of the business run under the name and style of Travancore Timbers and Products at Kottayam.
He converted the proprietary business into a partnership 1*Jsiness by means of a deed of
partnership dated August l, 1963. The partnership consisted of
the assessee and his two daughters.
The capital of the partnership
was to be Rs. 4,00,000/-. The assessee contributed Rs. 3,50,000/-
B and each of his two daughters, qne of whom was married and the
other unmarried, contributed Rs. 25,000/-.
The contribution of
the t:apital by the daughters was effected by transfer of Rs. 25,000/-
from the assessee's account to the account of each of the daughters.
All the assets of the proprietary business were transferred to the
partnership.
In these assets the assessee and his daughters were
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entitled to shares in proportion to their share capital.
In other
words the assessee was entitled to a 7 / 8 share aind each of his
daughters to 1/16 share.
The profits and losses of the partnership, business, however, were to be divided in equal shares between
all the three partners.
The assessee was the managing partner of
the firm. The assessee filed a return of gift tax for the assessment
D year 1964-65 in respect of the gift of Rs. 50,000/- in favour of
his daughters representing the share capital cc.ntributed by his
daughters.
The Gift Tax Officer, however, took the view that in
addition to the gift of the aforesaid amount the assessee had gifted
1/3rd portion of. the goodwill of his proprietary business to each
of his daughters.
On the basis o4' the profits of the earlier years
the Gift Tax Officer determined the value of the goodwill at
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Rs. 1,61,865/- rund the value of the 2/3rd share of the goodwill
gifted to the daughters at Rs. 1,07,910/- which was added to the
amount of Rs. 50,000/- and the gift tax was assessed accordingly.
The assessee preferred an appeal to the Appellate Assistant Commissioner of Gift Tax which was dismissed.
The Appellate
Tribunal on appeal held ( i) the goodwill constituted ain exiting
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immovable property at the time of the admission of the assessee's
daughters into the business;
(ii)
the gift was exempt under
s. 5 (i )(xiv) of the Act as the assessee was actually carrying on
the business when he admitted his two daughters into it, the main
intention of the assessee being to ensure continuity of the business
and to prevent its extinction on his death. Such a purpose amountG
ed to business expediency and therefore all the conditions of
s. 5 (I )(xiv) were satisfied; (iii) the goodwill was a capital asset
and the assessee's daughters had only 1/8 share in the assets of the
business.
The gift or the goodwill were, therefore. Mly of 1./8
share.
The foilowing questions 0£ law were referred
by the
Tribunal at the instance of the Commissioner of Gift Tax :
ti
( i) "Whether on the facts and bll the circumstances
of the case, the goodwill of the assessee's business
is an ·existing property within 1;he meaning of
f. 2(xii) of the Gift-tax Act?
820
SUPREME COURT REPORTS
(1972] 1 S.C.R.
(ii) 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?
(iii) Whether on the facts and in the circumstances
of the case, the gift was exempt from assessment
wnder s. 5 (1 )(xiv) of the Gift tax Act?"
The High Court answered all the questions in favour of the
assessee and against the Revenue.
A
B
It is essential to look at the deed of partnership closely because
certain clauses which have a material bearil!lg do not appear to
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have received the attention either of the Appellate Tribunal or the
High Court.
It was recited, inter a/ia, that the assessee was
desirous of introducing into the business of Travatncore Timbers
and Products his major daughters and also his minor children as
and whero. they attained majority.
It was next stated that upon
the treaty for the introduction of the said partners into the business
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and for the partnership it was agreed that the first partner
(assessee) would gift a sum of Rs. 25,000/- to each of his two
major daughters.
The property of the busillless was next described. It was stated to consist of the land and buildings, plant,
fixtures and machinery, book debts, benefits of existing cont~ acts
etc. and stock-in-trade and other movable chattels and effects.
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The assessee as beneficial owner conveyed and assigned unto the
partners including himself all these properties including the goodwill of the marks and all rights and privileges belonging thereto.
Each of the partners covenanted that he or she will duly pay discharge or perform all the debts and liabilities, contracts and
engagements of the individual business of the assessee subsisting
in the shares and proportions in which they respectively became
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entitled under the business. It was expressly stated in the first
schedule which contaillled the terms, conditions and stipulations
that the partnership was to be at will.
Clause (2) in the schedule
is of particular importance.
According to clause 2 (a) if the partners or partner who, for the first time, represented or possessed the
major part in the value of the capital of the busiiness desired to
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continue the business with additional partners they, he or she would
be at liberty to do so on giving 6 months' previous lllOtice to the
other partner or partners paying to the partners or partner not
desiring to continue the value of their his or her shares or share
and interest in the business, property and the goodwill and giving
a bond of "indemnity" with regard to the rriode of ascertaining such
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value and the payment thereof and the amount of the penalty of
such bond and otherwise as i,f the partnership had under these
presents been stipulated to continue after the 31st day of March
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C.G.r. v. GHEEVARGHESE (Grover, J.)
821
1964 and such other partners or partner had happened to die immediately after the last mentioned day.
It was further provided that
if the 31st day of March 1964 passed without the then partners or
partner who possessed the major part in the value of the capital
having given the aforesaid notice then the partners or partner who,
for the first time, represented or possessed a minor part in value
not being less than two equal third parts of the capital would be at
liberty to continue the business by givi1ng six calendar months'
previous notice of their, his or her desire to do so and paying to
the partners or partner not desiring to continue the value of their,
his or her shares or share and interest for the time being of the
business and the property and goodwill thereof etc. If the partnership was to continue under either of the eventualities mentioned
before every partner for the time being who desired to continue
would have the right to do so.
Clause 7 laid down that the parties
shall be entitled to the capital and property of the partnership for
the time being in the following shares : "The said first partner
Ghee Varghese shall be entitled to 7 /8th share thereof and each
of second and third partners to 1/ 16th part thereof". Clause 8 (a)
D and Clause 9 are reproduced below :
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8(a) "The capital of the partnership shall be the
sum of Rs. 4,00,000/- (Rupees Four lakhs only) being
the value ascertained as aforesaid of the property of the
said late business taken over by the mid parties hereto
and of such further capital as shall be hereafter contributed by the partners and all such further capital shall
whether the same shall be contributed out of the profits
or otherwise be cqntributed by the partners for the time
being in the shares in which they are for the time being
entitled to the existing capital of the partnership."
9. "The net profits or losses of the partnership shall
subject to the provisions of these presents belong to the
partners for the time being in equal shares."
Under clause 10 the assessee was to be the managing partner of
the firm.
He alone had the power to sign the cheques Q11 account
G of the partnership in the name of the firm.
He had the power to
borrow from Banks and other private parties for the purpose of
the business and to execute bOln.ds, documents agreements and
other activities as might be necessary.
There were other provisions also which showed that it was the assessee who retained
substantially the control of the runniing ol the business in his own
H hands.
Clause 17 provided that whenever any of the partners
died during the cqntimrance of the partnership then the partnership
would not be dissolved between the surviving partners and fairly
elaborate provisions were made with regard to what would pass to
szz
SUPREME COURT REPORTS
[ 1972] 1 S.C.R.
the representatives of such deceased partner from out of the proA
perties and assets of the partnership as a1so its profits. The partnership deed also contained what were called special provisions as
to the share of the first partner.
Clause 18 provided that the
assessee who was the first partner could nominate either one or all
of the his minor children to be a partner or partners on their
attaining majority. Such nomination or appointment could
be
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made by a will or codicil.
It is somewhat surprising that the Gift Tax Officer picked up
the assets of the business of the assessee, 111amely, the goodwill for
treating that as a gift apart from the amount of Rs. 50,000/- which
had' admittedly . been gifted to the daughters. It was mentioned c
in the assessment order that as the assessee had failed to disciose
the gift relating to the same actiOlll under s. 17 ( 1) ( c) was being
taken.
Before the Appellate Assistant Commissioner it was contended inter a/ia, that the value o.f the goodwill should not be
included as a part of the gift. Alteriuatively it was contended that
the value had been calculated correctly.
This was apart from the
other contentions which were raised claiming exemption under
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s. S(l)(xiv) of. the Act.
Without examiniiJig the contentions that
the value of the goodwill should not be included as a part of the
gift the Appellate Assistant Commissioner examined the other
contentions a111d agreed with the view taken by the Gift Tax
Officer.
The way the Tribunal examined the question relating to the
goodwiJl was by treating it as an ·asset which had beein gifted by
the assessee to his two daughters.
This is what the Tribunal
observed:
"By admitting his two daughters, as partners of the
business, the assessee also admitted them to the benefit
arising out of the goodwill of the business".
Now it is quite clear that according tQ the deed of partnership
and even otherwise on admitted facts goodwill was a part of the
properties and assets of the business which the assessee was running
under the style of Travancore Timber & Products at Kottayam.
All these were valued at Rs. 4,00,000/-.
The entire property of
the assessee's proprietary business was transferred to the new partnership.
According to clause 7 in the schedule to the partnership
deed the parties were to be entitled to the capital 'and property of
the partnership i.n the following shares :
Asses see
~ach daughter
: 7 /8th share.
: 1/16 share
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C.G.T. 1'. GHEEVARGHESE (Grover, J.)
823
A These shares were proportionate to the capital with which the
partnership was stated to have been started. Out of Rs. 4,00,000/-
the assessee was deemed to have contributed Rs. 3,50,000 and
each of the daughters Rs. 25,000/-.
The goodwill,
as
stated
earlier, was a part of the assets which had been transferred to the
partnership.
Under s. 14 of the Indian Partnership Act subject
B to contract between the partners, the property of the firm includes
all property and rights and interests in property origina!Jy brought
into the stock of the firm or acquired by purchase or otherwise by
or for the firm and includes also goodwill of the business.
The
departmental authorities, in the present case, never treated all the
assets and property of the assessee which were transferred to the
c partnership p~aining to his proprietary business as a gift nor has
any suggestioin been made before us on behalf of the Revenue that
the property and assets valued at Rs. 4,00,000/- were the subject
matter of gift.
All that the departmental authorities did and that
position continued throughout was that they picked up one of the
assets of the assessee's proprietary business, namely, its goodwill
D and regarded that as the subject of gift !raving been made to the
daughters who were the other partners of the firm which came into
existence by virtue of the deed of partnership.
This approach is
wholly incomprehensible and no attempt has been made before us
to justify it. In our opinion the second question which was referred
by the Tribunal should have been framed as follows :-
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"Whether on the facts amd in the circumstances any
gift tax was payable on the goodwill Otf the assessee's
business. If the answer be in the affirmative how much
share in the goodwill was liable to such tax" ?
We reframe the question in the above terms.
It is quite obvious
that the answer to the first part of the questionhas to be in the
negative and therefore there is no necessity of answering the second
part of the question.
Question No. I also does not arise and need
not be 'answered.
We may next deal with the third question.
Section 5 of the
G Act gives the exemption in respect of certain gifts.
Sub-clause
(xiv) of sub-s. ( 1) is as follows :
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, profesH
~ion or vocation, to the extent to which the gi4't
1s proved to the satisfaction of the Gift
Tax
Officer to have been made bona fide for the
purpose of such business, profession or vocation".
824
SUPREME COURT REPORTS
[1972] l s.c.R.
The critical words are "in the course of" and "for the purpose".
Therefore the gift should be proved to have been made not oniy
"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 words "in the course of" were considered by
this Court in State of Travancore Cochin & Others v. Shanmugha
Vilas Cashew Nut Facrory & Others(') in connection with the
language employed in Art.
286 of the Constitution. It was
pointed out that the word "course" etymologically denotes movement from one point to another and the expression "in the course
of" not only implies a period of time duril!lg which the movement
is in progress but also postulates a connected relation.
There
clause l ( b) of the Article was under consideration iind what was
exempted under the clause was the sale or purchase of the goods
taking place in the course of the import of the goods into or export
n
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of the goods out of the territory of India.
The only assistaillce
which can be derived in the present case is the emphasis on there
being connected relation between the activities for which these
words are used. Thus the expression "in the course of carrying o°r
I>
of business etc." means that the gift should have some relationship
with the carrying on of the business. If a donor makes a gift only
while he is runni[lg the business that may not be sufficient to bring
the gift within the first part of clause (xiv) of s. 5(1) of the Act.
It must further be established, to bring the gift within that provision, that there was some integral connectiM or relation between
the making of the gift and the carrying on of the business.
Under clause (xiv) of s. 5 (!) the second requirement is that
the gift should have been made bona fide for the purpose of such
business etc.
According to the meaning cf the word "purpose" in
Webster's New Internatio1nal Dictionary, it is that which one sets
before himself as an object to be attained; the end or aim to be
kept in view in any plan, measure, exertio.n or operation; design
intention.
Therefore on the plain meaning of the word "purpose"
as employed in clause (xiv) the object, plan or design must have
connection or relationship with the business.
To put it differently
the object in making the gift or the design or intention behind it
should be related to the business.
Some assista.nce may be derived
from the language used in s. 19(2) (xv) of the Income tax Act
1922.
According to that provision any expenditure laid out or
expended wholly and exclusi·:e!y for the purpose of business, pro·
fession or vocation is a permissible deduction in the computation
of profits. In B. W. Noble Ltd. v. Mitchell(') a snm had been
paid to a retiring Director in very peculiar circumstances.
The
object of making the payment was that of preserving the status and
reputation of the company which the Directors felt would be
(I) [1954] S.C.R. 53.
(2) II T.C. 372.
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825
imperilled either by the other Director remaining in the business.
or by a dismissal of him against his will involving proceedings ry
way of action i,n which the good name of the company might suffer.
Sargant L.J. was of the view that preservation of the status aind
dividend earning power of the company was well within the ordinary purpose of the·trade, profession or vocation of the company.
Indeed the English courts have refrained from adopting any dogmatic or set line for discovering the meaining of the expression "for
the purpose of" when used in connection with trade or business
because it is essentially a matter which depends on the various
sets of circumstances and facts of a particular case {or determining
whether certain expenditure has been i1ncurred for the purpose of
the trade or business: (See Morgan
v.
Tate & Lyle, Ltd.(').
According to a recent decision of this court in Civil Appeals Nos.
1351-1353, 1897 & 1241 o.f 1968 (The Commisswner of Income
tax, West Bengal v. Bir/a Cotion Spinning & Weaving Mills Ltd.
etc.(') the expression "for the purpose of the business" is essentially wider than the expression "for the purpose of earning profits".
It covers not only the running of the business or its administration
but also measures for the preservation of the business, protection
of its assets and property. It may Jegiti.mately comprehend many
other acts incidental to the carrying on of the busines>.
Another
test that has often been take1n into consideration is whether the
expenditure was necessitated or justified by commercial expediency.
The High Court, in the present case relied on Commissioner of
Gift Tax, Kera/av. Dr. George Kuruvilla('). There the asscssee
was a doctor by profession at the time of the gift which he made
in favour of his son who also joined his father's profession.
The
Kerala High Court took the view that the gift had been made in the
course of carrying on of the business, profession or vocation
F
within the meaning of s. 5 ( 1 )(xiv) of the Act and also for the
purpose of such business, profession or vocation.
That decision
w;is reversed by This court in Commissioner of Gift Tax v. Dr.
George Kuruvilla(').
It has been observed thats. 5(l)(xiv) of
the Act does not indicate that a gift made by a person carrying on
G
H
any business is exempt from tax nor does it provide that a gift is
exempt from tax merely because the property is used for the purpose for which it was used by the donor. Without deciding whetl1er
the test of "commercial expedie;ncy" was strictly appropriate to 1 l;c
claim for exemption under the aforesaid provision this court held
that there was no evidence to prove that the gift to the donee in
that case was "in the course of carrying on the business" of the
donor and "for the purpose of the business".
·
(!) 35 T.C. 367, 378.
(3) (1965) K.L.T. 721.
(2) Decided on 17-8·1971.
(4), 77 LT.R. 746.
826
SUPREME COURT REPORTS
[1972] 1 S.C.R.
We are satisfied that in the vresent case also it has not been
established tlrat the requirements of s. 5(l)(xiv) of the Act were
satisfied.
The assessee was certainly carrying on his business at
the point of time when he admitted his two daughters into the firm.
But from that fact alone it did not follow that the gift had been
made in the course of the assessee's business nor cou!d it be held
that the gift was made for the purpose of carrying on the assessee's
business. The Tribunal came to the conclusion that the partnership
did provide for the continuance of the partnership business in spite
of the death of the partner a1nd that the main intention of the
assessee was to ensure the continuity of the business and to prevent
its extinction oin his death.
A true and correct reading of the deed
A
B
of partnership indicates that the partners could go <>ut from the
C
partnership in terms of clause 2 of the schedule in the deed of
partnership. Moreover the partnership was expressly stated to .be
at will.
The real intention of the assessee aparently was to take
his daughters into the firm with the object of conferring benefit on
them for 1h~ natural reason that ithe father wanted to look to the
advancement of his daughters.
It was further provided in the deed
D
that even the minor children would, in due course, be admitted to
partnership.
Clause 18 of the schedule already referred to laid
down that the assessee could nominate either one or aII of his minor
children to be partner or partners on their attaining majority and
such nomination or appointment could be made even by a will or
codicil.
The assessee retained complete control over the running
of the partnership business and it can hardly be said that he jlleeded
E
any help from his daughters particularly when there is no evidence
that he was in a weak state of health, his age bei)l.g below 50 years.
Moreover there is nothing to show that the daughters had any
specialised knowledge or business experience· so as to be able to
assist in the development or mainagement of the business.
We are
wholly unable in these circumstances to accept tlidt the present
case is different from Dr. George Kuruvilla's(1).
In our judgment
there was no cogent material to come to the conclusive that the
gift of Rs. 25,000/- to each of the daughters by the assessee was
"in the course of carrying on the business" of the assesese and was
"for the purpose of the business".
It may be recalled that the assessee had himseif made a return
in the matter of assessment of Gift tax payable under the Act in
respect of the amount of Rs. 50,QOO/- which had been gifted by
him to his two daughters.
The answer to question No. 3. consequently, would be in favour of the Revenue and against the assessee.
so far as that amount is concerned.
For the reasons given above the answers returned by the High
Court'are discharged aind in their place the question shall stand
F
G
H
.\
C.G.T. v. GHEEVARGHESE (Grover, J.)
827
A answered in accordance with this judgment in the foliowing
manner:
Question No. 1 : does mot arise.
Question No. 2 as reframed : The first part is answered in the negative and in favour oi the assessee. The
B
second part does not arise.
Questioo. No. 3 : The answer is in favour of the
Revenue and against the assessee so far as the gift of
Rs. 50,000/- is concerned.
The appe"al shall stand disposed of accordingly. In the circumC
stances of the case we make mo· order as to costs.
G.C.
Appeal dismissed.