Viswanatha Iyer, J.
1. The following question has been referred to this court for consideration under Section 26(1) of the Gift-tax Act, 1958, by the Appellate Tribunal, Cochin Bench :
' Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the gift is exempt under Section 5(1)(xiv) of the Gift-tax Act, 1958 '
The facts are as follows: The assessee was having a Burmah Shell agency business and also a bus service. During the previous year relevant to the assessment year 1964-65 it was found by the Gift-tax Officer that 60 per cent, of the goodwill in Burmah Shell agency and 35 per cent, of the goodwill in the bus service were gifted by the assessee to his brothers. The value of the goodwill of the Burmah Shell agency business which was gifted was determined at Rs. 34,200 and the value of the goodwill of the bus service gifted was determined at Rs. 10,500. After allowing the statutory exemption the Gift-tax Officer taxed Rs. 39,700 as gift. It was contended before him that the gift was exempt under Section 5(1)(xiv) of the Gift-tax Act. But this contention was negatived by the Gift-tax Officer. On appeal to the Appellate Assistant Commissioner, this gift was held to be exempt from taxability under Section 5(1)(xiv). On second appeal, the Appellate Tribunal agreed with the Appellate Assistant Commissioner and found that the claim for exemption of the gift was perfectly sustainable under Section 5(1)(xiv) of the Gift-tax Act. Aggrieved by the said decision the Commissioner applied for a reference to this court and it is in these circumstances that this reference arises for consideration.
2. As we said easier, the assessee was carrying on a business in Burmah Shell agency and a business in bus service. By two agreements of partnership, both dated May 1, 1963, the assessee constituted two partnerships, one with one of his brothers and the other with all his three brothers. By one partnership the business of Burmah Shell agency was taken over. By the other partnership the business of bus and lorry service was taken over. The subject of the gift was the goodwill of the business of the assessee transferred to these partnerships. The question for consideration is whether the gift is exempted under Section 5(1)(xiv) of the Gift-tax Act.
3. Section 5(1)(xiv) reads as follows:
' Gift-tax shall not be charged under this Act in respect of gifts made by any person--...... (xiv) in the course of carrying on a business, profession or vocation, to the extent to which the gift is proved to the satisfaction of the Gift-tax Officer to have been made bonafide for the purpose of such business, profession or vocation....'
To attract the benefit of this exemption, two conditions have to be satisfied. The first is that the gift has to be in the course of carrying on a business, profession or vocation. The second is that the gift should have been made bona fide for the purpose of such business, profession or vocation. To satisfy the first condition, namely, the gift should be in the course of carrying on a business, profession or vocation, it must be shown that the transaction of the gift has some integral connection or relation with the business and to satisfy the second condition it must be established that the object of making the gift should relate to the business. A mere conversion of a proprietary business into a partnership concern without anything more is not enough to satisfy the requirements of Section 5(1)(xiv). This provision has been the subject-matter of consideration by the Supreme Court and by this court. The learned counsel appearing for the department relied on the decision of the Supreme Court in Commissioner of Gift-tax v. Dr. George Kuruvilla,  77 I.T.R. 746 (S.C.), Commissioner of Gift-tax v. P. Gheevarghese, Travancore Timbers and Products,  83 I.T.R. 403 (S.C.) and of this court in Commissioner of Gift-tax v. R. Narasimhan Potti,  83 I.T.R. 296 (Ker.), Commissioner of Gift-tax v. Ganapathy Moothan,  84 I.T.R. 758 (Ker.) and Commissioner of Gift-tax v. P. V. Narayani Amma,  K.L.T. 9 and contended that the gift in this case is not exempted. In these cases it was held that the conversion of a proprietary business into a partnership concern without anything more is not enough to satisfy the requirements of Section 5(1)(xiv). But, in this case, it had been found as a fact by the Tribunal that the assessee's business had enormously increased. He could not attend to these by himself and he was keen on continuing the business on both the lines and since he could not attend to all the activities of both the businesses, he found it expedient to transform the proprietary concern into two partnerships and make his brothers bear the responsibility of running the business. The two partnerships were actually managed by the brothers and it was found by the Tribunal that it was in the interest of the business that the partnership was formed for both businesses considering the increase in business. The inclusion of two minor brothers into one of the partnerships was relied on by the department to show that this case is not differentfrom the cases which came up for decision before this court as well as the Supreme Court. As rightly pointed out by the Tribunal, this does not in any way detract from the two conditions satisfied in this case to make the gift exempt from taxation. So, in this case, the two conditions required under Section 5(1)(xiv) of the Gift-tax Act are clearly established and, therefore, the Tribunal was right in holding that this gift is exempt from taxation under Section 5(1)(xiv) of the Act.
4. In the light of our conclusion, we hold that this gift is exempted under Section 5(1)(xiv) of the Act from being taxed. The question referred to this court is answered in the affirmative and against the department. There will be no order as to costs.
5. A copy of this order shall be forwarded to the Appellate Tribunal, Cochin Bench, as required by law.