K.A. Mohideen Pitchai vs Gift Tax Officer and Another

Swamikkannu, J.—The determination arrived at by the Commissioner of Gift-tax, Madurai, on appeal u/s 24 of the Gift-tax Act, 1958, from

the order dated March 17, 1979, passed by the IV Gift-tax Officer, Tirunelveli, has not discussed the contents of the deed in which the purpose

for which the trust has been created can be available. When that portion of the gift deed is not extracted nor discussed so as to come to a decision

the conclusion arrived at cannot be said to be correct and in accordance with law. While dealing with the provisions of section 5(1)(va)(ii) of the

Gift-tax Act, 1958, both the IV Gift-tax Officer, Tirunelveli, as well as the Commissioner of Gift-tax, Madurai, have not taken into consideration

the religious purpose for which the charity has been created. In the instant case, it is common ground that on the day of Ramzan, poor people have

to be fed which is one of the objects. Unless the purpose is sectarian and communal, even though it may mention a particular auspicious day and

though it was of a religious character, that does not take away the purpose for which it is created, viz., charitable purpose. The mere fact that the

existence of the festival named in a deed created a charitable endowment cannot also be a ground for coming to the conclusion that the said

purpose is not a charitable purpose. Section 80G(5) of the Income Tax Act is the relevant section which runs as follows :

(5) This section applies to donations to any institution or fund referred to in sub-clause (iv) of clause (a) of sub-section (2), only if it is established

in India for a charitable purpose and if it fulfils the following conditions, namely : -

(i) where the institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of sections

11 and 12 or clause (22) or clause (22A) or clause (23) or clause (23C) of section 10 :

Provided that where an institution or fund derives any income, being profits and gains of business, the condition that such income would not be

liable to inclusion in its total income under the provisions of section 11 shall not apply in relation to such income if, -

(a) the institution or fund maintains separate books of account in respect of such business;

(b) the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and

(c) the institution or fund issues to a person making the donation a certificate to the effect that it maintains separate books of account in respect of

such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business;)

(ii) the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not contain any

provision for the transfer or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other

than a charitable purpose;

(iii) the institution or fund is not expressed to be for the benefit of any particular religious community or caste;

(iv) the institution or fund maintains regular accounts of its receipts and expenditure; and

(v) the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860 (21 of 1860), or

under any law corresponding to that Act in force in any part of India or u/s 25 of the Companies Act, 1956 (1 of 1956), or; is a university

established by law, or is any other educational institution recognised by the Government or by a university established by law, or affiliated to any

university established by law or is an institution approved by the Central Government for the purposes of clause (23) of section 10 or is an

institution financed wholly or in part by the Government or a local authority.

This section is a guiding factor in which mandatory relief is provided and which has to be followed when a dispute arises as to whether a trust is

a public charitable trust or private charitable trust or a trust which can be exempted under the provisions of section 5(1)(v) of the Gift-tax Act.

Learned counsel for the petitioner has brought to the notice of this court the provisions of section 5(1A) of the Gift-tax Act which had been

introduced or inserted by Act 15 of 1965 by section 21 which came into effect on April 1, 1964, in the course of his arguments. It is also seen that

the definition in sub-section (va) of section 2 of the Gift-tax Act, 1958, has undergone a vital amendment by way of omission by the Taxation Laws

(Amendment) Act, 1984, of the last few words in the said sub-section (va), i.e., ""not involving the carrying on of any activity for profit"". Therefore,

charitable purpose"" so far as the Gift-tax Act, 1958 (Central Act 18 of 1958), is concerned, which came on the statute book on April 1, 1958

includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility. Referring to this definition

regarding "" charitable purpose "", learned counsel for the petitioner submits that the contents of the trust deed ought to have been viewed and

discussed by the authorities below which they have failed to do and as such, the order under writ petition is necessarily to be quashed.

Learned counsel for the respondents has taken me through the common counter-affidavit filed on behalf of both the respondents and submitted

that section 5(1A) of the Gift-tax Act, 1958, specifically provides that gifts made to charitable purposes, which are wholly or substantially of a

religious nature, are not entitled to exemption from tax. Whether this aspect has been considered by both the authorities, who are the respondents

herein, is the question that confronts this court at this stage, and the only answer that can be given is in the negative and not in the affirmative.

Therefore, this court is of the opinion that the matter has to be remitted to the IV Gift-tax Officer, Tirunelveli, for taking evidence, if any, regarding

the interpretation of the contents of the trust deed after the original being filed before the said officer as exhibit and to give an opportunity to both

sides and receive all the evidence, both oral and documentary, and come to a conclusion whether the petitioner is eligible for the exemption or not

as per the provisions of section 5(1)(va)(ii) of the Gift-tax Act, 1958. Inasmuch as the appellate order also suffers from an infirmity in the sense that

though it confirmed the order of the IV Gift-tax Officer, Tirunelveli, yet it is bereft of the reasoning how it has come to the independent view

regarding the ascertainment of the nature of the trust involved in the case when the trust deed was not there before it. Under these circumstances,

the writ petition is allowed and the matter is remitted to the IV Gift-tax Officer, Tirunelveli, for rendering an order in accordance with law after

giving an opportunity to the assessee, taking due care of the relevant provisions of the Gift-tax Act, 1958, together with the provisions of section

80G of the Income Tax Act, 1961. With these observations, the writ petition is allowed and the matter is remitted. There is no order as to costs.

The matter has to be disposed of within two months from this date.