Commissioner of Gift-tax vs Yateshwari Saradapriya

Ramanujam, J.—This is an application filed by the Revenue under s. 26(3) of the G.T. Act for a direction to the Tribunal to refer the

following question for the opinion of this court :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal''s view, that the sum of Rs. 2,50,000 being the initial gift made

by the assessee to Ram Seetha Educational Trust, is exempt u/s 5(1)(v) of the Gift-tax Act, is sustainable in law ?

The assessee in this case made a gift of a property worth about Rs. 2,50,000 to ""Ram Sita Educational Trust."" When the GTO proposed to

bring that gift to charge, the assessee contended that she was entitled to exemption under s. 5(1)(v) of the G.T. Act in respect of the said gift. This

contention was rejected by the GTO on the ground that she was not entitled to exemption in respect of the said gift, as it was an initial gift made by

the assessee to the Trust. The assessee took the matter in appeal to the AAC and the AAC accepted the contention of the assessee that the gift

was exempt under s. 5(1)(v) of the Act. The Revenue took the matter further in appeal to the Tribunal, objecting to the grant of exemption under s.

5(1)(v) on the ground that the gift in question was not made to an already established trust or fund, but constituted the nucleus of the fund itself.

The Tribunal, relying on the decision of the Bombay High Court in Commissioner of Gift Tax, Bombay City I Vs. Yogendra N. Mafatlal and

Another, , and the decision of the Punjab and Haryana High Court in Commissioner of Gift-tax Vs. Lachhman Dass Oswal, , held that even an

initial gift would be entitled to exemption under s. 5(1)(v). This view of the Tribunal is question by the Revenue.

The Revenue does not dispute the fact that all subsequent gifts to the trust will be entitled to exemption. The contention of the Revenue,

however, is that an exemption under s. 5(1)(v) of the Act will not be available to an initial gift made to a trust. It is contended by the learned

counsel for the Revenue that the language of s. 5(1)(v) of the Act indicates that only a gift made to an institution or fund already established or

deemed to have been established for a charitable purpose will be entitled to exemption and that in this case there was no already established

institution or trust and it was only by virtue of the settlement, the trust was established and the gift had been made to the trust. We are of the view

that this contention of the learned counsel is not tenable. If a gift is made to a trust which the author of the gift has created simultaneously with the

making of the gift, then the trust should be taken have been established for the purpose of the acceptance of the gift. Even though the gift and the

establishment of the trust are simultaneous, still for the purpose of s. 5(1)(v), the trust or fund should be taken have come into existence a moment

prior to the actual gift itself. A perusal of the settlement deed executed by the assessee on July 5, 1969, shows that a trust known as the Ram Sita

Educational Trust was created and the properties referred to in the settlement were gifted to that trust. Thus in point of time, the trust should be

taken to have been created first and the gift should be taken to have been made to that trust, though both the gift and the creation of the trust were

made under the same document.

This view of ours find support from the decision of the Bombay High Court in Commissioner of Gift Tax, Bombay City I Vs. Yogendra N.

Mafatlal and Another, . In that case also, a trust was created for a charitable purpose and an initial gift of certain shares was made constituting the

fund. The Revenue contended that since it was only an initial gift to the trust, it will not entitled to exemption under s. 5(1)(v) of the Act. The court,

however, held that the initial gift was entitled to exemption in the same manner in which subsequent gifts to the fund would be. After referring to the

language of s. 5(1)(v), the learned judges expressed the view that the definitions of the terms ''gift'', ''property'' and ''transfer of property'' would all

indicate that the creation of the trust and transfer or property to that trust could take place simultaneously and that, if the creation of the trust is for

a charitable purpose and the gift is made to the trust which was created under the deed for a charitable purpose, then the gift could be said to have

been made to the fund for a charitable purpose within the meaning of s. 5(1)(v) of the Act. The learned judges also expressed the view that it was

difficult to understand why the Legislature should have looked upon with disfavour the founder of the fund and disentitled him to exemption, which

was allowed to others, who donated to the fund later, that there could be no doubt about what the Legislature had intended, and that the language

which the Legislature had used was so clear as to leave no manner of doubt about its meaning. The court also expressed its opinion that if

subsequent gifts made to the trust were entitled to exemption, there was no reason why the initial gift alone should be denied exemption, that the

very initial gift by which the fund started constituted the part to which the further gifts were added, that all the gifts together formed the fund, and

that, if the subsequent gifts which were parts of the fund itself were gifts to the fund, the initial gift which started the fund itself could as well be a gift

to the fund and as such entitled to the exemption.

The same view has also been taken in Commissioner of Gift-tax Vs. Lachhman Dass Oswal, . In that case also, the gift and the creation of the

trust were made under the same document. When the said gift was brought to charge, the assessee resisted the same contending that it was entitled

to exemption under s. 5(1)(v) of the Act. The Revenue rejected the contention on the ground that the initial gift was no entitled to exemption under

the said provision. The court, following the decision in Commissioner of Gift Tax, Bombay City I Vs. Yogendra N. Mafatlal and Another, ,

referred to above, held that the initial gift was entitled to exemption in the same manner in which subsequent gifts to the fund would be.

The view taken by the Tribunal in this case gives full effect to the provisions of s. 5(1)(v) of the Act. We do not, therefore, think that this is a fit

case for directing a reference. The tax case petition is accordingly dismissed. There will be no order as to costs.