ORDER
George Cheriyan, Vice President (SZ)
1. This appeal is by the Revenue. It relates to the assessment year 1970-71 and arises out of gift-tax proceedings. The gift-tax order as made is very short and it is set out in full as below :-
Proceedings under Section 16 of the Gift-tax Act were initiated in the above case, as it was held in the income-tax proceedings of the assessee that the assessee is not entitled to exemption under Section 11 of the Income-tax Act, as the deed of rectification to the Trust Deed was held to be not valid. The assessee has filed a nil return on 29-6-1979. After discussion of the case with the assessee’s representative, the assessment is made as shown below :-
The assessee has made total donations of Rs. 25,500 during the previous year. A sum of Rs. 10,000 made to Andhra Mahila Sabha is exempt under tection 5(1)(v).
Rs.
Total gifts 25,500
Less : Exemption under Section 5(1)(v) as 10,000
mentioned above ______
15,000
Less : Exemption under Section 5(2) 5,000
______
Taxable gift 10,000
______
Gift-tax thereon 525
______
This should be paid as per demand notice and challan enclosed.
Against the assessment made under the provisions of Section 15(3) read with Section 16, as set out, the assessee appealed and submitted before the AAC that for the assessment year under consideration the assessee was held to be a charitable trust under Section 11 of the IT Act because a re-assessment sought to be made was quashed in appeal. The AAC stated that the re-assessment to income-tax made on 5-8-81 was cancelled by the order of the CIT(A) in ITA No. 185-C/81-82, dt. 15-1-82. He”, therefore, held that no gift-tax assessment could be made on the assessee for the assessment year 1970-71 and cancelled the assessment. The Revenue is in appeal.
2. It is submitted for the Revenue that the AAC failed to appreciate that the trust would not be entitled to exemption under Section 11 of the IT Act and, therefore, the gift-tax charged was in order. It is further contended that the AAC should have seen that the order of the CIT(A) in the case of the assessee for the assessment year 1980-81 holding that the trust would be entitled to exemption under Section 11 was not accepted by the department and an appeal was pending before the Tribunal and further that the AAC should have noted that for the assessement year 1976-77 the matter was pending before the High Court.
3. At the hearing before us it was clarified by the learned counsel for the assessee that for the assessment year 1980-81 the Tribunal had held that the assessee-trust was exempt under Section 11 and the matter was under reference. The learned departmental representative submitted that the matter had gone up to the High Court for the assessment year 1976-77 and the case was reported as Sakthi Charities v. CIT [1984] 149 ITR 624 (Mad.). The Madras High Court has stated that the trust deed was executed on 25-6-68 and there were certain objectives which were considered to be not charitable and a rectification deed was executed on 31-1-69. The ITO had held that the assessee was not entitled to exemption because of the existence of the original offending objectionable clauses and, according to him, the subsequent rectification deed was not valid. During the pendency of the appeal for the assessment year 1976-77 before the Tribunal, the assessee filed a suit under Section 92 of the C.P.C. before the District Judge, Coimbatore, who decreed the suit on 15-4-81 declaring that the offending clauses were void and non est with effect from the date of the trust deed, namely, 25-6-68. The Tribunal held that the deed of rectification dated 31-1-69 was not valid as the trustees did not have any power under the trust deed to revoke or modify any of the objects of the trust originally constituted and accordingly upheld the order of the ITO negativing the claim for exemption under Section 11, for the assessment year 1976-77. The High Court upheld this finding of the Tribunal for the assessment year 1976-77. The Madras High Court also held that the court under Section 92 of the C.P.C. could give a direction which was necessary for the administration of any trust, but it could not in exercise of that power alter the objects of the Trust and even assuming that the District Court had the necessary power to delete the offending clauses, it could not do so with retrospective effect from the date when the original trust deed came into force and consequently, the offending clauses could be held to have been deleted only from the date of the decree and not before. According to the Revenue, therefore, the assessee was not an assessee, which was exempt under the provisions of Section 11 of the IT Act.
4. The learned counsel for the assessee, on the other hand, submitted that Section 45(e) of the GT Act conclusively settled the issue. This provision together with Explanation 3 thereto, which was relevant, read as under :-
45. The provisions of this Act shall not apply to gifts made by –
(e) any institution or fund the income whereof is exempt from income-tax under Section 11 of the income-tax Act.
Explanation 3: For the removal of doubts, it is hereby declared that the exemption admissible under Clause (e) in relation to gifts made by an institution or fund referred to in that clause shall not be denied merely on either or both of the following grounds, namely :-
(i) that, subsequent to the gift, any part of the income of the institution or fund has become chargeable to tax due to non-compliance with any of the provisions of Section 11 of the Income-tax Act ;
(ii) that, under Clause (c) of Sub-section (1) of Section 13 of the Income-tax Act, the exemption under Section 11 of that Act is denied to the institution or fund in relation to any income arising to it from any investment referred to in Clause (b) of Sub-section (2) of Section 13 of the said Act where the aggregate of the funds invested by it in a concern referred to in the said Clause (h) does not exceed five per cent of the capital of that concern.
5. We have considered the rival submissions. The terminology of Section 45 of the GT Act set out above makes it clear that the provisions of the Act shall not apply to the gifts made by an institution or fund the income whereof is exempt from income-tax under Section 11 of the IT Act. The gift-tax is a tax levied annually as seotion 3 of the GT Act, being the charging section, would show. The tax is to be charged for every assessment year commencing on and from the first day of April 1958 in terms of Section 3 subject to other provisions of the Act. The tax is to be in respect of the gifts made by a person during the previous year. ‘Previous year’ has been defined in Section 2(xx). In the present case, since the gift-tax is levied annually one has to look to the assessment order to see whether there is a previous year for income-tax purposes. The previous year is the calendar year ended 31st December, 1969 for the assessment year 1970-71 for income-tax purposes. For that year the assessee had filed a return admitting ‘nil’ income in response to notice under Section 147(a) (originally the claim for exemption under Section 11 was accepted and the assessment was made on nil income). But the ITO did not accept the same and made an assessment on 5-8-81 on a total income of Rs. 4,60,129. That was contested in appeal and the CIT (A) by his order dt. 15-1-82 held that the reopening was bad in law since there was no non-disclosure of any material facts. The effect, therefore, for the assessment year 1970-71 for income-tax purposes is that the assessee was held to be exempt under Section 11. When we come to Section 45(e) of the Gift-tax Act, we have to look to the completed aesessment for the assessment year 1970-71 as it stands today. Since the re-assessment was cancelled by the CIT (A) for the assessment year 1970-71 by his order dt. 15-1-82 and under the original assessment the income of the assessee was exempt under Section 11, the assessee is an institution or fund the income whereof is exempt from incomer-tax under Section 11 of the IT Act. This is the factual position as far as assesment year 1970-71 is concerned. In the subsequent assessment years, the position may be different but we have to consider the provisions of Section 45 (e) assessment yearwise an this being the position for the assessment year 1970-71, no gift-tax assessment can be made. It was stated by the learned counsel for the assessee that as far as she could verify the order of the CIT (A) in the income-tax proceedings for the assessment year 1970-71 was not contested further. In any event, the order of CIT (A) for the assessment year 1970-71 holds the field as at present. The result is no gift for. this year. The order cancelling the assessment as made by the AAC is, therefore, justified and the appeal of the Revenue is dismissed.