| 6/1/2009 |
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| Board of Special Commissioners - Cases |
| Case No. 11/52 |
Decided: 31 October, 1953 |
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Transfer of shares by appellant to his son and son-in-law; partnership deemed fictitious
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Appellant, who was sole owner of a firm, sold one-third of the shares to his son and entered into partnership agreement with him. Both made their contribution to the partnership. After a while, appellant transferred another portion of his shares (one-sixth), this time to his son-in-law. The new shareholder agreed to pay the price over a period of two years, at an interest rate of 3%.
The Commissioner ignored the transaction as: the price had not been paid; appellant's son had remained unmarried; after 18 months his son-in-law had not yet left his employment with the Services. Consequently the son's profits were to be considered to be appellant's, since he was single and lived with his father.
The Board examined the partnership's trade records and noted that the partners' share capitals were not entered in the partnership's records in the first year. It was only during the following year that their share capital and their share of profits were reported. However, in spite of the fact that appellant's share had been reduced by half, the partnership's trade records still did not show that the two new partners owed appellant half the value of the shares.
Taking all circumstances into consideration the Board held that the partnership was a fictitious one: it noted that neither appellant's son nor his son-in-law had made any payments; even the 3% interest had remained unpaid; there had been certain inconsistencies between the testimony given both by appellant and his son-in-law; the formation of the partnership had not been published in accordance with the Commercial Code; no Chamber of Commerce licence had been requested; the two new "partners" had received a commission on sales - something usually paid to employees and not to partners.
Appellant entered an appeal before the Court from this Board decision. The Court (case no. 9) upheld the Board's decision.
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