Sankarasubban, J.

Question of law referred in this case is as follows:

"1) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the conversion of the proprietory concern of the assessee into a partnership involved a gift which was not exempt under Sec. 5(1)(xiv) of the Gift Tax Act, 1958?"

The facts of the case are as follows:

2. Assessee, Dr. V. Mohandas is a Medical Practitioner. From 1969 he has been running a Nursing Home at Attingal under the name "V.V.Clinic". On 1.4.1984, he formed a partnership with his wife Dr.Molly M. Das and their son M.Vinod and daughter M.Veena to take over the Hospital as partnership business. Till then Dr.Molly Das was working in the Hospital as a salaried employee. The son Vinod was a final year MBBS student and the daughter Veena was studying for B.D.S. (Dentistry). Though the partnership deed was dawn on 12.12.1984, it is stated in the deed that the partnership shall be deemed to have come into effect from 1.4.1984. It is provided in the partnership deed that the capital of the first partner viz. Dr. Mohandas, shall be the balance in his account as on 1.4.1984 as per the account book and the capital of the second partner Dr. Molly Das shall be the loans due from Dr. Mohandas as per the account books. There was no capital contribution by the other two partners. The partnership deed provides that in the profits and loss of the business, Dr. Mohandas will have 40% shares, the remaining shares going to the other three partners in the ratio of 30:15:15.

3. The Gift-tax Officer was of the view that on the formation of the partnership there was a gift by Dr. Mohandas in favour of other partners and so he initiated proceedings under Gift-tax Act on Dr.Mohandas for the assessment year 1985-86 by issuing a notice under Sec. 13 of the Gift-tax Act. In response to the above notice, the assessee filed the return showing a taxable gift of Rs.4,88,000/- with an endorsement on it.

4. The Gift-tax officer did not agree with the assessee that there was no liability under the Gift-tax Act on account of the conversion of the business into a partnership business. The Gift-tax officer made the assessment on the ground that in converting the proprietory business into a partnership, Dr. Mohandas had foregone his interest in immovable properties and the goodwill of the Concern in favour of the incoming partners. On that view of the matter, the Gift-tax Officer computed the taxable gift by taking the value of the Hospital buildings at Rs.41,83,000/- and the value of the gift in favour of the other partners at 60% thereof, i.e. Rs.25,09,800/-. Towards the share in the goodwill transferred by the assessee there was addition of Rs.3,06,826/-thereby assessing the total value of the gift at Rs.32,11,626/-.

5. The assessee took up the matter in appeal and the CIT (Appeals) accepted the assessee's plea that there was no element of gift involved in converting the proprietory Concern into a partnership as the arrangement was to provide continuity of the service that was being rendered to the patients. But the CIT (Appeals) found it was not possible to delete the sum of Rs.4,88,000/- which the assessee had declared as taxable gift in the return filed by him. Accordingly, the Appellate Authority upheld the assessment to the extent of Rs.4,88,000/-. Both the assessee and the Revenue filed appeals before the Tribunal. In disposing of the Revenue's appeal, the Tribunal held that the CIT (Appeals) was not justified in holding that the gift involved in the conversion of the proprietory Concern was exempt under Sec. 15 (1)(xiv) of the Gift-tax Act. As regards the quantification of the gift involved in the transaction, the Tribunal restored the matter to the file of then CIT (Appeals) for fresh consideration. In the assessee's appeal, the Tribunal held that the CIT (Appeals) was not correct in confirming the assessment to the extent of Rs.4,88,000/- merely because the assessee had admitted in