ORDER
D.S. Meenakshisundaram, Judicial Member
1. The only point of dispute in this appeal is whether the appellant is entitled to the exemption claimed by him Under Section 5(1)(xii) of the GT Act, 1958 in respect of the gift made by him to his son.
2. The appellant is a medical practitioner. During the previous year ended 31-3-1983, relevant for the assessment year 1983-84, the appellant gifted to Ms son Shri P. Suresh Rao a sum of Rs. 4,942 in cash on 22-6-1982 and also a car worth Rs. 50,000 on 29-3-1983. It is common ground that during this previous year the appellant’s son Shri P. Suresh Rao was studying in the MBBS course in the Madras Medical College, Madras. In his gift-tax return filed on 12-7-1983 the appellant admitted the value of the total gifts amounting to Rs. 54,942 and declared the taxable gift as nil after claiming exemption Under Section 5(1)(xii) of the GT Act (hereinafter referred to as the Act). It was claimed on behalf of the appellant that these two gifts were intended for the future education of the appellant’s son, who was studying in the M.B.B.S. course during the relevant accounting year and that, therefore, the said gifts were exempt Under Section 5(1)(xii) of the Act.
3. The GTO, after referring to the provisions contained in Section 5(1)(xii) of the Act, held that the said provision of law emphasised the following three factors for purposes of the gift to claim exemption and that they must relate to the period ending 31-3-1983 :–
(i) The section starts with the word ‘For the education of …” and does not say ‘for the future education of …
(ii) The details of ‘education’ or the prospectus of ‘education’ which the child is going to take up abroad or elsewhere should be clearly brought to the notice of the Income-tax Officer and he must be satisfied.
(iii) ‘The circumstances of the case’, i.e., the conditions or the mode or the cost of education, the child is going to take up should also be placed before the Income-tax Officer and the same should be satisfied.
4. The GTO held that in the present case no such details, as required by the three factors, could be furnished, but that it was simply stated that the gifts were made for the future education of the child. The GTO was of the opinion that the gift, as defined in the Statute, was not intended for an unknown object relevant to an indefinite period. He pointed out that the donee had completed his M.B.B.S. course in the year 1986 and had gone abroad in the year 1987 whereas the gifts had been made on 22-6-1982 and 29-3-1983, when the donor himself had no idea of the “education” or “the circumstances of the case”, as defined in the Act. The GTO observed that if the gifts had been made in the year 1986 with the details of prospectus, he would have simply accepted. He held that if it is accepted in principle, as admitted by the appellant, then in all cases gifts could be made for the future education of the boy even when he is reading in a primary school. The GTO posed the questions whether there was no time limit for completion of such assessments and what would be the explanation to the mode of education or circumstances of the case if he had completed the assessment on receipt of the return of gift during the assessment year 1983-84 itself as the gift related to the accounting year 1982-83. The GTO, therefore, concluded that the main intention of Section 5(1)(xii) was to provide help to a son or daughter for education, the details of which was known to the donor during the relevant period and not otherwise and that hence the gift made by the appellant to his son was only in the normal course. The GTO further held that the appellant had gifted a car on 29-3-1983, which was subsequently sold to somebody realising a sum of Rs. 50,000. From this the GTO held that it was clear that the purpose of making of a gift of car itself was not intended for the purpose of education but that it was only meant for the personal use of the donee. The GTO, therefore, held that Section 5(1)(xii) was not at all attracted in the present case and that the entire gift of Rs. 54,942 was chargeable to tax. Accordingly, he completed the assessment on this basis Under Section 15(3) of the Act.
5. The appellant preferred an appeal objecting to this assessment and challenged the findings of the GTO. It was pointed out that the appellant had made the claim for exemption Under Section 5(1)(xii) of the Act in the gift-tax return filed by him for this year by stating that the said gifts were made for educational purposes of his son. It was further pointed out that at the time when the gifts were made in 1983, the donee was already studying in M.B.B.S. course and it was not as if the appellant had no idea at all about the educational course of his son for which the gift was intended. The appellant further contended that the GTO was not justified in making the sweeping statement that the car was meant for personal purpose without appreciating that the car was sold and encashed only to meet the expenses of education.
6. The AAC held that the analysis of the three factors for granting exemption Under Section 5(1)(xii) of the Act mentioned in paragraph 3 of the assessment order were rightly made by the GTO and that he agreed with the said analysis. He then referred to the fact that the details of higher education abroad were not placed before the GTO, and that at a time when the gift was made in 1983, the details of the proposed plan of the future education abroad of the donee, for example, the specific course to be pursued, the foreign stay or the proposed study to be prosecuted and the period of higher education abroad, etc., were not known even to the donor. The AAC held that it was also admitted that the donee completed his M.B.B.S. course in the year 1986 and went abroad only in the year 1987 whereas the stated gift of the car was made on 29-3-1983. He further held that it had not been established as to how the gifted amount was actually utilised for the statedly future education of the donee after the date of gift in question. He further observed that car shown to have been gifted on 29-3-1983 was sold away to somebody and a sum of Rs. 50,000 was realised by the donor. He held that the exact manner of the disposal of the sale proceeds of the car could not be properly explained and proved to link up the gift for the avowed purpose, viz., future education of the appellant’s son. The AAC was of the view that there was no evidence to show that the gift was genuinely for the stated purpose and that the aforesaid car was gifted for the purpose of education of the appellant’s son and such intention was not proved on the facts and circumstances of the case. He, therefore, held that the GTO was justified in refusing the claim of the appellant Under Section 5(1)(xii) of the Act as the gift was not proved to the satisfaction of the GTO as being reasonable having regard to the circumstances of the case for the education of the appellant’s son. He, therefore, upheld the assessment made by the GTO and dismissed the assessee’s appeal. Aggrieved by this order of the AAC, the appellant has come up on further appeal to the Tribunal.
7. Mrs. Meenakshi Krishnaswamy, the learned counsel for the appellant, objected to the findings of the departmental authorities and contended that the entire reasoning and conclusion of the departmental authorities were erroneous and unsustainable on the facts and on a proper reading of Section 5(1)(xii) of the Act. The learned counsel submitted that at the material time, the appellant’s son was a third year M.B.B.S. student, that the appellant apart from making a cash gift, also gifted his Fiat car, which he had purchased sometime during the year 31-3-1977 and that the RC book of this car was also transferred to the name of the appellant’s son. She next submitted that the appellant’s son sold the car during the next accounting year ended 31-3-1984 to one Dr. Sridharacharya for Rs. 50,000 and that the entire amount of Rs. 54,942 was utilised for the further education of the donee when he went abroad after completing his M.B.B.S. course in the year 1986. The learned counsel pointed out that there was no dispute that the donee had gone abroad in the year 1987 to pursue his further studies in Ireland and that all these facts were placed before the departmental authorities in the course of the assessment proceedings and that the inferences and conclusions drawn by the departmental authorities were based on mere suspicion, surmises and conjectures to deny the exemption claimed by the appellant Under Section 5(1)(xii) of the Act. The learned counsel argued that the facts of the case clearly established that the appellant’s son was pursuing his studies in medicine in Madras and that he went abroad after obtaining his M.B.B.S. Degree course in the year 1986, and that the appellant’s intention in making this gift for the purpose of the education of his son was fully established and that, therefore, the appellant was entitled to the exemption claimed by him Under Section 5(1)(xii) of the Act. The learned counsel, therefore, argued that the orders of the authorities below should be set aside and the appellant’s claim for such exemption Under Section 5(1)(xii) should be allowed.
7A. Shri V.D. Gopal, the learned departmental representative, refuted the arguments of the learned counsel by pointing out that there was no contemporaneous evidence of a gift for educational purpose and that the entire case had to be decided only with reference to circumstantial evidence. Shri Gopal argued that the circumstances of the case showed that the appellant had acquired a new car on 31-3-1983 and that he made the gift to his son of the old car with a view to avoid tax on profits Under Section 41(2) of the Act and capital gains on the sale of such car. In other words, the learned departmental representative contended that the sale of the old car was to be through the medium of the appellant’s son to whom the gift was made. He next referred to the fact tha,t the appellant was having substantial income from his profession at the material time amounting to more than Rs. 1.2 to Rs. 1.5 lakhs per year and that he was also having a number of Fixed Deposits and, therefore, as a prudent person, who was anxious to provide for the education of his son, would have normally gifted either cash out of his current income or out of his Fixed Deposits and there was no necessity or occasion for the appellant to make a gift of his old car for this purpose. In this connection, Shri Gopal further submitted that in the year 1983 the appellant’s son must have been studying in the second year o f his M.B.B.S. course and not in the third year. From all these circumstances, Shri Gopal argued that the purpose for which the gift of the car was made by the appellant, as claimed by him, was not established. Shri Gopal further argued that if the appellant had made a declaration before a Notary Public making a cash gift of Rs. one lakh for the higher education of his son, it would have been sufficient compliance with the provisions of Section 5(1)(xii) of the Act to claim exemption in respect of such gift. In the absence of any such declaration the circumstances pointed out by him did not establish that the gift of the car was for the purpose of the education of the appellant’s son so as to entitle him to the benefit of exemption Under Section 5(1)(xii) of the Act. He, therefore, argued that the departmental authorities rightly rejected the appellant’s claim for exemption Under Section 5(1)(xii) of the Act, and that the same should be upheld. In support of his submissions, he relied on the decision of the Andhra Pradesh High Court in the case of N. Durgaiah v. CGT [1975] 99 ITR 477. On the quantum of the gift and the reasonableness of the gift made for educational purposes, the learned departmental representative fairly stated that for pursuing higher studies in a foreign country like England and Ireland, the amount of Rs. 54,942 would hardly be sufficient and, therefore, could be held to be reasonable on the facts and circumstances of the case.
8. We have carefully considered the rival submissions of the parties in the light of the materials placed before us.
9. At the outset we must point out that there is no dispute that the appellant had made gifts to the tune of Rs. 54,942 during the previous year both in cash and in the form of a Fiat car in favour of his son. The dispute raised by the department is only in regard to the appellant’s claim for exemption Under Section 5(1)(xii) of the Act in respect of these gifts as for the education of his son Shri P. Suresh Rao.
10. Section 5(1)(xii) of the GT Act reads as follows :–
5. (1) Gift-tax shall not be charged under this Act in respect of gifts made by any person–
(xii) for the education of his children, to the extent to which the gifts are proved to the satisfaction of the Gift-tax Officer as being reasonable having regard to the circumstances of the case.
This section has been the subject-matter of a number of decisions by various High Courts and the question raised by the Revenue is, therefore, no longer res Integra. In CGT v. Mary Antony [1972] 86 ITR 469, the Kerala High Court held that the deed of gift in the said case used the word “kalakshepam” and that the word had been understood by the Tribunal as including not only the general needs but also the educational needs of the son of the assessee who was studying in a college at that time. The Kerala High Court held that in the context in which the word was used in the document and in the circumstances in which the document was executed, the meaning attributed to the word “kalakshepam” was justified, and that a clarification deed was not a subsequent event but was intended for making clear the document already executed and that a reference to that document was not misplaced. The Kerala High Court further held that as the gift was made partly for purposes of education of the son, it was exempt with reference to that part Under Section 5(1)(xii) of the Act. It would be seen from the facts set out at page 470 of the reports that in the said case the assessee made a gift of a property situated in the town of Ernakulam having an extent of 19 cents with a building thereon in favour of his son on 25-3-1964 and that the assessee’s son was at that time studying in the Loyola College, Madras. The property was valued at Rs. 20,000 in the gift deed, but the GTO valued the gift at Rs. 1,05,200.
11. The next decision is also of the Kerala High Court in the case of CGT v. P.V. John [1977] 108 ITR 225. In this case, the assessee made gifts of his immovable properties to his four children to meet their educational needs by four documents, all dated 1 12-1969. The first child Ranjit was studying in the IVth Standard. The second child Eapen was studying in the S.S.L.C. class. The third child George was studying for B.Sc, and the fourth child Miss Annie John was studying for B.A. The properties that were gifted were valued by the assessee in the gift-tax return at Rs. 1,74,080. The assessee claimed that the entire sum of Rs. 1,74,080 was exempt from gift-tax Under Section 5(1)(xii) of the Act. The GTO accepted the purpose of the gift as in the gift deed, but while allowing the deduction Under Section 5(1)(xii) took into account the income earned by the property gifted. He estimated the value of the gift at Rs. 2,43,500 and after deducting the income from the property during the period necessary for the education of all the donees, allowed deduction of only Rs. 1,03,400 representing the total expenses calculated as allowable, and taxed the balance of Rs. 1,40,100 for the purpose of gift-tax. On appeal, the AAC enhanced the estimated amount required for the educational purposes of all the donees at Rs. 1,69,080 and also reduced the valuation of the gifted property. The AAC held that the income from the gifted properties was not an element forming part of the circumstances of the case to be taken into account for determining the reasonableness of the gift allowable Under Section 5(1)(xii). There was an appeal by the Department against this order of the AAC to the Tribunal who agreed with the AAC and held that gift-tax being levied on the corpus of the gifted property, exemption also related to the corpus of the property and, therefore, the income derived from the gifted property was an irrelevant consideration. This decision of the Tribunal was confirmed by the High Court as right in law.
12. The third decision is the one reported in the case of CGT v. M.S. Rao [1976] 102 ITR 308, which was decided by the Patna High Court. By a document dt. 28-9-1964 the assessee gifted to his son a piece of land with a house standing thereon, the value of which was determined to be Rs. 71,000, for the maintenance and education of Ms son. The “AAC held that this gift was exempt from gift-tax to the extent of Rs. 54,000 Under Section 5(1)(xii) of the Act and the Appellate Tribunal agreed with him. On a reference at the instance of the department, the Patna High Court held that the gift made by a person must be for the education of his child in order to get exemption Under Section 5(1)(xii). that gifts made for the purpose of meeting the expenses of education of the child cannot mean merely the expenses of paying the tuition fees in educational institutions or of purchasing books, that it must mean all necessary expenses connected with the education of the child. However, since in the said case the deed of gift itself recited that the gift was made for the maintenance and education of the child, the Patna High Court held that the word “maintenance” has been used by the assessee in contradistinction to the word “education” and not in relation to the maintenance expenses for prosecuting the studies. Their Lordships held that when the gift was made for purposes of both maintenance and education, it was not correct to say that the entire gift was for the education of the son of the assessee and that it was open to the department to roughly divide the amount of Rs. 54,000, half and half, allocate Rs. 27,000 as gift for education of the son of the assessee, exempt it Under Section 5(1)(xii), and treat the other half as gift for maintenance of the child, which was not entitled to exemption. Therefore, the Patna High Court held that the benefit of Section 5(1)(xii) was applicable to the gift in favour of the son of the assessee to the extent of Rs. 27,000 only.
13. In the case of N. Durgaiah (supra), the question that came up for consideration was whether the value of the properties conveyed by the assessee to his children under the settlement deed dt. 26-3-1962 was liable to gift-tax. The assessee’s claim was that it was a family arrangement, which was negatived by the departmental authorities and was also upheld by the High Court. It is seen from the judgment that for the first time before the AAC the assessee raised a further contention that the gift made to his minor son at the time of the settlement, should be exempt Under Section 5(1)(xii) of the Act as it was intended for his education. Dealing with this contention of the assessee, their Lordships of the Andhra Pradesh High Court held that in order to obtain the exemption Under Section 5(1)(xii), the assessee must establish that the gift was made for the education of his minor son, that the intention of the donor that the gift was for facilitating or providing for the education of his children must normally be gathered from the very terms and recitals of the gift deed, and that there was no specific mention of the fact that the minor son was gifted the house property with a view to provide for his education. As nowhere in the document any such reference had been made nor the same could be gathered from the document in the said case. Their Lordships of the Andhra Pradesh High Court held that the gift was not entitled to exemption Under Section 5(1)(xii) of the Act. This was the case that was relied only the learned departmental representative in support of his contentions before us.
14. The latest decision on the subject is that of the Bombay High Court in the case of K.M. Sheth v. CGT [1988] 170 ITR 406. In that case, the assessee settled on trust certain shares for the benefit of his minor son, aged 2 years at the material time, to absolve himself of his legal obligation to provide food, clothing, residence, education, medical attendance and treatment, and marriage expenses. The assessee claimed exemption Under Section 5(1)(xii) of the Act to the extent the property gifted was referable to the education of his child. While answering the third question referred to them, His Lordship Mr. Justice Sugla held as follows to answer the third question against the assessee and in favour of the Revenue :–
It is true that Section 5(1)(xii) of the Gift-tax Act, 1958, quoted above exempts gift for the education of children to the extent it is proved to the satisfaction of the Gift-tax Officer as being reasonable having regard to the circumstances of the case. However, the case before us does not fall within the meaning and scope of this clause. In the first instance, the settlement in this case is not specifically for the education of the child. It is for a number of purposes such as food, clothing, residence, education, medical attendance and treatment . and marriage expenses. Besides, it is difficult to conceive of any expenditure that would be incurred on a child of 2 years on education. Moreover, the word ‘education’ as used in Clause (xii) does not mean education in the ordinary sense which a father is obliged to arrange for. It means higher or specialised education, whether in India or abroad. The circular of the Department on which Shri Mehta placed reliance by referring to Gulanikar’s Treatise on Law and Practice of Gift-tax and Wealth-tax, 1984 edition, at page 3.114, clearly indicates that for exemption under Section 5(1)(xii), the provision has to be for higher education in India or abroad.
15. When we examine the facts of the present case in the light of the aforesaid decisions, we are satisfied that the appellant’s case fully qualifies for exemption Under Section 5(1)(xii) of the Act. In the gift-tax return filed by him on 19-7-1983 the appellant had claimed exemption Under Section 5(1)(xii) of the Act in respect of the sum of Rs. 49,942 after claiming the exemption of Rs. 5,000 Under Section 5(2) of the Act from the total gift of Rs. 54,942 in the following words in the statement accompanying the return :–
The donee is the assessee’s son who is doing his M.B.B.S. at Madras Medical College, Madras. The gift is intended for higher education abroad.
It would be noticed that the car was gifted by the appellant to his son on 29-3-1983 as could be seen from Annexure-B of Part-II of the return. He had also gifted cash of Rs. 4,942 to his son on 22-6-1982. Together these two amounted to Rs. 54,942 which was shown as the total gift made by the appellant in favour of his son during the previous year. The argument advanced on behalf of the Revenue that there was no contemporaneous evidence of a gift for educational purposes is sufficiently met by these circumstances which indicate the intention of the appellant in making these gifts to his son who was studying in the medical course at the relevant time. It would further be noticed that the claim for exemption Under Section 5(1)(xii) of the Act has been made by the appellant within a period of four months of making the gift to his son in the gift-tax return filed by him which is a verified declaration and a solemn statement filed before the GTO. Therefore, this would constitute contemporaneous evidence of the intention of the donor in making the gift of his car on 29-3-1983 in favour of his son. We have already referred to the fact that the R.C. Book was transferred in favour of the son and that the car was sold by the donee Shri Suresh Rao to one Dr. Sridhar Acharya. This is stated by the assessee’s auditor in his letter dt. 7-10-1986 addressed to the GTO in the following words :–
Further to the discussion in the above case, it is seen that the Car gifted to P. Suresh Rao was purchased by the assessee in the year ended 31-3-1977 for Rs. 33,040. It is a new Fiat Car. P. Suresh Rao is an assessee in File No. 731301-S/VII (3) Madras and he had sold the Car after the accounting year to one Doctor Sridhar Acharya, for Rs. 50,000. It is on this basis the assessee admitted the gift at Rs. 50,000 representing the market value of the Car.
16. On the same day, the auditor has also written another letter to the GTO in which he had explained that the assessee’s son was a student in the Madras Medical College, and that he intended to go abroad for higher education. The donee’s background is also explained in this letter by pointing out that his father, elder brother, uncles and grandfather, all belonged to the medical profession, and that the appellant’s intention was to give the best education possible to his son. This letter reads as under :–
With reference to the discussion the undersigned had with you on 6/10 Rs. 86, we enclose a copy of the Appellate Order in GTA. No. 15/81-82 against your own order in the case of Dr. M. Mohan Rao for 1980-81. Here in the present case assessee’s son is a student in Madras Medical College and intends to go abroad for higher education the cost of which will be not less than the amount gifted. The donee’s elder brother, father, uncles, and grandfather all belong to the Medical Profession, and therefore the assessee comes from a family of Doctors and naturally intends to do the best possible.
The claim Under Section 5(1)(xii) of the Gift-tax Act is perfectly in order.
17. In the light of the above materials and circumstances placed by the appellant before the GTO, we hold that the intention of the appellant in making these gifts to his son are quite clear, namely, that these gifts were intended by him for the higher education of his son abroad. This is further supported by the fact, which is also accepted by the department, that the appellant’s son, who is the donee, had gone abroad for higher education and that the amounts gifted had been utilised for purposes of such higher education.
18. However, it is argued on behalf of the Revenue that these were subsequent events which should not be looked into and that the facts of the case as indicated in the income-tax records of the appellant showed that the gift to the son was used as a medium to avoid tax on profits arising Under Section 41(2) of the Act and capital gains on the sale of the old car of the assessee. In support of this, the learned departmental representative placed before us the depreciation statements filed by the appellant along with his income-tax returns for the three years ending 31-3-82 to 31-3-84. On the basis of these statements, Shri Gopal strenuously urged that the intention of the appellant in making the gift of the old car was not for the purpose of the education of his son but for the purpose indicated by him earlier. We are unable to accept this contention of the learned departmental representative, as we find no justification for such an inference being drawn against the appellant for the mere circumstance that he had purchased a new car during the year ended 31-3-1983 and also in the next year. If once the department accepts the genuineness of the gift of the car made by the appellant to his son, the further question to be considered in the present appeal is whether the appellant is entitled to the exemption claimed by him in respect of such gift Under Section 5(1)(xii) of the Act. We are not concerned in the present appeal with the consequences that emerged from the gift of this car, in the income-tax assessment of the assessee, to hold that for that reason, the appellant’s intention in making the gift was not for the purpose of education of his son.
19. The next argument of Shri Gopal is that the appellant could have made this gift either out of his current income or out of the number of Fixed Deposits which he was having and that there was no need for him to make a gift of his old car. This argument also cannot be accepted, as it is open to the appellant to make a gift of any of his properties both movable and immovable and it is not for us to suggest which item of property an assessee should make as gift in favour of his son, in order to claim exemption Under Section 5(1)(xii) of the Act. It should be seen from the decided cases, which we have already referred to, that the gifts were of immovable properties for children studying in primary schools, high schools and colleges. Further, the reference to the Fixed Deposits by the learned departmental representative is also untenable, as all these Fixed Deposits would mature either in 1984 or 1985 as the dates of maturity of each of the deposits are mentioned in the statement filed along with the income-tax return for the assessment year 1982-83. In other words, what the department wants is, that the assessee should foreclose the Fixed Deposits and incur a loss and then make a gift to his son in order to claim exemption Under Section 5(1)(xii) of the Act. Definitely this is not the requirement or intention of Section 5(1)(xii) of the Act and the said provision of law does not require any such thing to be done by an assessee to qualify for such exemption.
20. Having regard to the entire facts and circumstances of the case discussed above, we hold that the appellant’s claim for exemption Under Section 5(1)(xii) of the Act has to be accepted as there is no dispute about the reasonableness of the gift for the purpose of education in a foreign country for higher studies. In fact, the appellant’s case has passed the stringent test laid down by the Bombay High Court in the latest decision in the case of KM. Sheth (supra). The decision of the Andhra Pradesh High Court in the case of N. Durgaiah (supra), relied on by the learned departmental representative, proceeded on the basis of absence of any recitals in the deed of settlement and, therefore, is inapplicable to the facts of the present case. Accordingly, we accept the contentions of the learned counsel for the appellant and direct the GTO to allow exemption Under Section 5(1)(xii) of the Act, as claimed by the appellant.
21. In the result, the appeal is allowed.