Joint family business and partnership reallocation did not create a taxable gift where family nucleus was proved.

A business standing in a coparcener's name is not presumed to be joint family property, but that inference arises where a sufficient joint family nucleus and surrounding circumstances show that the business grew out of family assets. On the facts described, the family properties were adequate to support such a nucleus and the son's participation in the business reinforced the conclusion that it belonged to the Hindu undivided family. If the business is already joint family property, its conversion into a partnership and allotment of a share to a family member does not involve a transfer by the father and does not attract gift-tax; the same result follows where the facts show blending into family property rather than a taxable transfer.

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Issues: (i) Whether there was material to support the finding that the business was joint family business before it was converted into partnership business; (ii) Whether the creation of the partnership and allotment of a share to the son amounted to a gift attracting gift-tax for the assessment year 1960-61.

Issue (i): Whether there was material to support the finding that the business was joint family business before it was converted into partnership business.

Analysis: The question whether a business is joint family property depends on whether it grew out of a sufficient joint family nucleus or was acquired with aid of family assets. There is no presumption that a business standing in the name of a coparcener is joint family business, but once sufficient nucleus is shown, the evidentiary burden shifts. On the facts found, the family possessed properties adequate to constitute a nucleus, the son had participated in the business for years, and the surrounding circumstances supported the inference that the business had the character of joint family property. The contrary circumstance that the income had been assessed in the father's individual hands was not conclusive.

Conclusion: The finding that the business belonged to the Hindu undivided family was supported by material and was upheld.

Issue (ii): Whether the creation of the partnership and allotment of a share to the son amounted to a gift attracting gift-tax for the assessment year 1960-61.

Analysis: If the business already belonged to the joint family, converting it into a partnership and allocating a share to the son did not involve any transfer by the father so as to constitute a gift. Even on the alternative footing that the business had originally been self-acquired, the facts indicated a blending or conversion into joint family property, which would not amount to a transfer of property within the meaning of the gift-tax law. The statutory concept of gift therefore was not attracted.

Conclusion: The creation of the partnership did not give rise to gift-tax liability.

Final Conclusion: The reference was answered in favour of the assessee and against the revenue, with the business treated as joint family property and the partnership arrangement held not to constitute a taxable gift.

Ratio Decidendi: Where a sufficient joint family nucleus is proved and the surrounding facts support the inference that a business was carried on as joint family property, its subsequent conversion into a partnership and allotment of shares among family members does not amount to a gift chargeable to gift-tax.

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