Commissioner of Gift-tax vs T.V. Sundaram Iyengar and Sons Ltd.

N.V. Balasubramanian, J.—In pursuance of the directions of this court dated December 19, 1983, the Appellate Tribunal has referred the

following questions of law u/s 26(1) of the Gift-tax Act, 1958, for our consideration :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the gift-tax assessment made on the

assessee in respect of the donations of Rs. 1,25,000 made to Andhra Pradesh Congress Committee, Mysore State Congress Committee and All

India Congress Committee ?

Whether, on the facts and in the circumstances of the case, and having regard to Clause 24 of the memorandum of articles of association, the

Appellate Tribunal was right in holding that the donations have been made under the authority of the said clause in the memorandum and articles of

association and, therefore, the gift is exempt u/s 5(1)(xiv) of the Gift-tax Act in the light of the Board''s Circular No. 1-G. T., dated January 5,

1960 ?

Whether, the Appellate Tribunal''s view that the Board''s Circular No. 1. G. T., dated January 5, 1960, would be applicable to the assessee''s

case is sustainable in law especially when the same was withdrawn by the Board''s Instruction No. 923, dated June 9, 1972 ?

The assessment year involved is 1968-69 and the assessee during the accounting year relevant for the assessment year made various donations

and charitable payments which included Rs. 1,25,000 to the Congress Committees. The said amount of Rs. 1,25,000 was made up of three items,

viz., Rs. 50,000 to the Andhra Pradesh Congress Committee, Rs. 50,000 to the Mysore Congress Committee and Rs. 25,000 to the Chairman,

Reception Committee of the All India Congress Committee. The Gift-tax Officer while completing the assessment under the provisions of the Gift-

tax Act held that there was no nexus between the donation made by the assessee and the business carried on by the assessee and, therefore, the

assessee was not eligible to claim exemption provided u/s 5(1)(xiv) of the Gift-tax Act. The Commissioner of Income Tax (Appeals) on appeal

preferred by the assessee confirmed the assessment made by the Gift-tax Officer. The assessee went on appeal before the Income Tax Appellate

Tribunal. The Appellate Tribunal relying upon a circular dated January 5, 1960, published in pages 1057-1058 of volume 1. Taxmann''s Direct

Tax Circulars (1980 edition), held that the assessee had satisfied the conditions contained in the said circular and the benevolent Board circular is

binding on the Income Tax Officer and the assessee was entitled to claim exemption on the basis of the Board circular. In this view of the matter,

the Appellate Tribunal did not consider the question regarding the fulfilment of the conditions u/s 5(1)(v) or (iv) of the Act.

The Revenue challenged the order of the Appellate Tribunal and on the basis of the directions of this court the questions of law set out supra

have been referred to us.

Mr. C.V. Rajan, learned counsel for the Revenue, has forcibly argued that the order of the Appellate Tribunal is erroneous in law as the Tribunal

failed to take notice of the fact that the circular would apply only in the case of gift made by a company to a political party under the authority of a

specific clause in the memorandum and articles of association of the company and in the instant case, it was only a general clause and the Tribunal

is not correct in holding that the circular would be applicable to the facts of this case. Learned counsel for the Revenue further contended that in

any event the circular is not binding on this court and in support of his submission, he relied upon the decisions in Commissioner of Income Tax

(CNTL), Ludhiana Vs. Hero Cycles Pvt. Ltd., Ludhiana, , Commissioner of Wealth-tax Vs. V.T. Ramalingam and others, and Commissioner of

Gift-Tax, Kerala Vs. P. Gheevarghese, Travancore Timbers and Products, and submitted that the conditions prescribed in Section 5(1)(xiv) of the

Act are not satisfied and, therefore, the assessee was not eligible to claim exemption. He also submitted that the Board circular which was relied

upon by the Tribunal referred to an earlier circular which was not withdrawn by the Board and the earlier circular would alone apply to the facts of

the case. On the basis of the earlier circular, the assessee was not entitled to claim exemption under the Act.

Mr. S.A. Balasubramanian, learned counsel for the assessee, on the other hand, submitted that the assessee fulfilled the conditions prescribed in

the Board circular relied upon by the Tribunal and the Tribunal has come to the conclusion that the donation was made by the assessee to a

political party on the basis of the specific clause in the memorandum and articles of association of the company and, therefore, the assessee was

entitled to the benefit of the said circular.

We find there is considerable force in the submission of learned counsel for the Revenue. The Board circular dated January 5, 1960, in terms,

would apply only where a gift was made to a political party by a company under the authority of a specific clause in the memorandum and articles

of association of the company. The Board circular also referred to the case of Jayantilal Ranchchoddas Koticha Vs. Tata Iron and Steel Co. Ltd.,

and the decision of the Bombay High Court makes it clear that there was a specific clause in the memorandum and articles of association of the

company to make donation to a political party. Considering the circular of the Board in the light of the decision of the Bombay High Court, it is

clear that the Board circular was intended to apply only to cases where there is a specific clause in the memorandum and articles of association of

the company. However, we are of the view that it is unnecessary to pursue the matter further as we are of the opinion that even though we may

hold that the Board circular is not applicable to the facts of the case, we may have to remit the matter to the Appellate Tribunal to consider the

applicability of Section 5(1)(xiv) of the Gift-tax Act as well as Section 5(1)(v) of the Act as the Tribunal has not considered the question regarding

the fulfilment of the said condition for the assessee to claim exemption. On perusing the order of assessment, we find that the tax effect is only Rs.

11,500 and the assessment year involved is 1968-69. We have also noticed that the Board circular dated January 5, 1960, was subsequently

withdrawn by the Board in the year 1972. Since the Board itself has withdrawn the earlier circular and there is a statutory prohibition against the

companies making donation in favour of the political parties, we are of the opinion that in view of the small tax effect involved in the case, it is not

necessary to remit the matter to the Appellate Tribunal to consider whether the conditions contained in Section 5(1)(xiv) are fulfilled in the instant

case- Though we are of the view that the Tribunal may not be quite correct in holding that the Board circular would apply to the case of the

company making donations to political parties by virtue of the general power conferred by the memorandum and articles of association, still in view

of the negligible tax effect involved in the case and in view of the fact that the matter is not likely to recur by reason of the withdrawal of the earlier

circular by the Board, we are of the view that the order of the Appellate Tribunal need not be disturbed in this case. Though we technically answer

the questions of law referred to us against the Revenue, it does not mean that we are upholding the order of the Appellate Tribunal on the merits of

the case. In this view of the matter, we answer the questions of law in the affirmative and against the Department subject to the observations made

by us.