Judgment

GROVER, J.:- This is an appeal by special leave from a judgment of the Kerala High Court in a reference 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 proprietor of the business run under the name and style of Travancore Timbers and Products of Kottayam. He converted the proprietary business into a partnership business by means of a deed of partnership dated August 1, 1963. The partnership consisted of the assessee and his two daughters. The capital of the partnership was to be Rupees 4,00,000/-. The assessee contributed Rupees 3,50.000/- and each of his two daughters, one of whom was married and the other unmarried, contributed Rupees 25,000/-. The contribution of the capital by the daughters was effected by transfer of Rupees 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 entitled to shares in proportion to their share capital. In other words the assessee was entitled to a 7/8 share and each of his daughters