2006 (2) TMI 107 - HC - Income Tax

Gift Tax Act, 1958 - Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that, the assessee-trust was exempt under the provisions of section 45(e) of the Gift-tax Act, even though the civil court has no power to make amendments or alter the objects of the trust deed under section 92 of the Civil Procedure Code? - we have no reason to interfere with the order of the Tribunal and accordingly, the appeal stands dismissed

Summary

Issues:
1. Interpretation of exemption under section 45(e) of the Gift-tax Act for an assessee trust.
2. Effect of civil court decree on the grant of exemption under section 11 of the Income-tax Act.
3. Application of the decision in CIT v. Kamla Town Trust to determine exemption eligibility retrospectively.

Issue 1: Interpretation of exemption under section 45(e) of the Gift-tax Act:
The case involved a dispute regarding the exemption of a gift made by an assessee trust under section 45(e) of the Gift-tax Act for the assessment year 1985-86. The Commissioner of Gift-tax set aside the original assessment, directing the computation of taxable gift due to offending clauses in the trust deed. Despite obtaining a declaratory decree from the civil court to delete the offending clauses, the Revenue did not grant exemption. The Assessing Officer also denied exemption, leading to an appeal by the assessee before the Commissioner of Gift-tax (Appeals) and subsequently before the Income-tax Appellate Tribunal.

Issue 2: Effect of civil court decree on exemption under section 11 of the Income-tax Act:
The civil court decree dated April 29, 1981, allowed rectification of the trust deed, resulting in the deletion of offending clauses with effect from June 25, 1968. However, the Commissioner of Gift-tax (Appeals) held that the amendment had only prospective effect, leading to the Tribunal's involvement. The Tribunal, following the decision in CIT v. Kamla Town Trust, allowed the appeal, granting exemption under section 11 of the Income-tax Act from the date of the civil court decree but not retrospectively.

Issue 3: Application of CIT v. Kamla Town Trust decision for retrospective exemption eligibility:
The Tribunal, in line with the apex court's decision in CIT v. Kamla Town Trust, granted exemption to the assessee trust under section 11 of the Income-tax Act from the date of the civil court decree. The Tribunal's refusal to refer the matter to the High Court was based on the precedent set by the Kamla Town Trust case, which established that the rectification decree had prospective application. As a result, the Tribunal's decision to apply the Kamla Town Trust precedent for the assessment under the Gift-tax Act for the year 1985-86 was upheld by the High Court, leading to the dismissal of the appeal by the Revenue.

In conclusion, the judgment clarified the interpretation of exemption provisions under the Gift-tax Act and the Income-tax Act concerning a trust's eligibility for exemption based on civil court decrees. The application of the Kamla Town Trust decision played a crucial role in determining the retrospective effect of trust deed rectifications on exemption eligibility, ultimately leading to the dismissal of the Revenue's appeal.