1The question referred to this Court under S.26(1) of the Gift Tax Act , 1955 at the instance of the Commissioner of Gift Tax, Kerala, Ernakulam, is the following:
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the gift is exempt under S.5(1)(xiv) of the , 1958".
The assessee M. Sankaran Nair, now deceased, was running a proprietary business in the purchase and sale of yarn. On 1-7-1964 he transferred a sum of Rs. 50,0000 out of his capital account in the business to his five children, and converted his proprietary business into a partnership concern by taking his major son P. V. Harikrishnan as partner and by admitting the remaining four minor children to the benefits of partnership. The partnership deed is Annexure 'A'.

2 In the gift tax return for the assessment year 1955-66 the assessee showed the total value of the gift at Rs. 50,000/-. The Gift Tax Officer took the view that by the conversion of the proprietary business into a partnership business the assessee had parted with 75% of the goodwill of the business in favour of his children and that the value of 75% of the goodwill was liable to tax. He rejected the