1982 (2) TMI 161 - AT - Income Tax

Summary

Issues:
- Appeal against gift-tax assessment for the assessment year 1968-69.
- Whether donations made to political parties are taxable gifts.
- Interpretation of section 2(xii) and section 5(1)(v) or (xiv) of the Gift-tax Act, 1958.
- Validity and applicability of Circular of the Central Board of Direct Taxes dated 5-1-1960.
- Authority of a specific clause in the memorandum and articles of association for donations.
- Binding nature of Board's Circular on assessing authorities.
- Entitlement to exemption under section 5(1)(xiv) based on Circular.

Analysis:
The case involved an appeal filed against a gift-tax assessment for the assessment year 1968-69 by T.V. Sundaram Iyengar & Sons Ltd. The dispute centered around donations made by Sundaram Motors (P.) Ltd., succeeded by T.V. Sundaram Iyengar & Sons Ltd., to political parties, which were brought to tax as taxable gifts. The assessee contended that these donations did not qualify as gifts under section 2(xii) of the Gift-tax Act, 1958, and were exempt under section 5(1)(v) or (xiv) of the Act. Both the Gift Tax Officer (GTO) and the Appellate Assistant Commissioner (AAC) rejected the assessee's contentions.

The case referred to a Circular of the Central Board of Direct Taxes dated 5-1-1960, which addressed donations to political parties. The circular emphasized that donations made by a company under the authority of a specific clause in its memorandum and articles of association could be considered as part of the company's business and exempt from gift-tax. The circular was in force during the relevant accounting year. The memorandum of the company in question had a clause empowering donations to be made to persons and cases deemed beneficial to the company's objectives, including political parties. The absence of any legal prohibition under the Indian Companies Act against such donations further supported the company's authority to make such contributions.

The tribunal highlighted the binding nature of the Board's Circular on the assessing authorities, citing established legal precedents. It referenced a decision by the Kerala High Court, emphasizing that if a circular was in force at the beginning of the assessment year, it should be applied even if subsequently withdrawn. Based on the Circular and the company's authority under its memorandum, the tribunal concluded that the donations to political parties were authorized and exempt under section 5(1)(xiv) of the Act. Consequently, the tribunal allowed the appeal, annulling the assessment against the assessee.