Gift-tax exemption requires bona fide business purpose; conversion into partnership alone is not enough where family benefit is the real object.

Exemption under section 5(1)(xiv) of the Gift-tax Act, 1958 is available only where the gift is made in the course of carrying on a business and bona fide for the purpose of that business. A mere conversion of a proprietary concern into a partnership does not by itself satisfy the statutory test. The assessee must prove business necessity and commercial expediency, and production of the partnership deed alone is insufficient. On the facts, the transfer was found to be motivated by benefit to family members, not by advancement of the business, so the claimed exemption was denied.

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Issues: Whether the gift made on conversion of a proprietary business into a partnership concern was exempt under section 5(1)(xiv) of the Gift-tax Act, 1958.

Analysis: The exemption under section 5(1)(xiv) applies only if the gift is made in the course of carrying on a business and bona fide for the purpose of that business. A mere conversion of a proprietary concern into a partnership is not enough. The assessee bore the burden of proving the statutory conditions, but produced only the partnership deed and no further material to show that the transfer was dictated by business necessity. On the facts, the formation of the partnership was found to be aimed at benefiting the children rather than advancing the business, and the claimed test of commercial expediency was not satisfied.

Conclusion: The gift was not exempt under section 5(1)(xiv) of the Gift-tax Act, 1958, and the answer to the referred question was against the assessee and in favour of the Revenue.

Ratio Decidendi: To claim exemption under section 5(1)(xiv) of the Gift-tax Act, 1958, the assessee must prove that the gift was made in the course of carrying on the business and bona fide for the purpose of that business; a transfer made primarily to benefit family members does not satisfy the statutory test.

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