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Commissioner of Gift-tax, Bombay City I Vs. Yogendra N. Mafatlal and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberGift-tax Reference No. 2 of 1962
Judge
Reported in(1965)67BOMLR413; [1965]58ITR40(Bom); 1965MhLJ640
ActsGift Tax Act, 1958 - Sections 2, 5(1) and 26(1)
AppellantCommissioner of Gift-tax, Bombay City I
RespondentYogendra N. Mafatlal and anr.
Appellant AdvocateG.N. Joshi, Adv.
Respondent AdvocateN.A. Palkhivala, Adv.
Excerpt:
gift-tax act (xviii of 1958), section 5(1)(v) - initial gifts made for constituting fund for charitable purposes--whether such gifts entitled to exemption--indian income-tax act (xi of 1922), section 12b.;under section 5(1)(v) of the gift tax act, 1958, the initial gifts which are made for the purpose of starting or constituting a fund for the charitable purposes of the kinds specified in the section will be entitled to exemption under it in the same manner in which the subsequent gifts to the fund will be. - maharashtra scheduled castes, scheduled tribes, de-notified tribes (vimukta jatis), nomadic tribes, other backward classes and special backward category (regulation of issuance and verification of) caste certificate act (23 of 2001), sections 6 & 10: [s.b. mhase, a.p. deshpande &..........madhuri yogendra mafatlal trust', and the shares settled under this trust were to constitute the trust fund. in the preamble of the trust deed it was state : 'and whereas the settlors are desirous of setting the said shares on trust for public charitable purposes as hereinafter expressed or contained in these presents and have in pursuance of such desire prior to the execution of these presents delivered the share certificates and duly executed transfer forms in respect of the said shares to the trustees.'4. clause 1 of the trust deed thereafter state : 'in pursuance of the said desire and for carrying out such desire into effect the settlors respectively do hereby grant transfer and assign unto the trustees all those respective shares particularly described in the schedule hereunder.....
Judgment:

V.S. Desai, J.

1. The assessee concerned in this reference has executed trust deeds constituting charitable fund in respect of certain shares possessed by them. The question which arises for consideration i :

'Whether the assessees are entitled to exemption under section 5(1)(v) of the Gift-tax act for the value of the shares transferred as aforesaid ?'

2. The Tribunal has held that the assessees were entitled to exemption as claimed by them and the reference has been made at the instance of the department under section 26(1) of the Gift-tax Act.

3. One of the two assessees had executed a trust deed on the 26th of March, 1959, setting on trust 5 ordinary shares of the Mafatlal Gagalbhai & Co. Ltd., possessed by him. The trust was for the creation of a trust called 'Shri Yogendra Navinchandra Mafatlal and Smt. Madhuri Yogendra Mafatlal Trust', and the shares settled under this trust were to constitute the trust fund. In the preamble of the trust deed it was state :

'And whereas the settlors are desirous of setting the said shares on trust for public charitable purposes as hereinafter expressed or contained in these presents and have in pursuance of such desire prior to the execution of these presents delivered the share certificates and duly executed transfer forms in respect of the said shares to the trustees.'

4. Clause 1 of the trust deed thereafter state :

'In pursuance of the said desire and for carrying out such desire into effect the settlors respectively do hereby grant transfer and assign unto the trustees all those respective shares particularly described in the schedule hereunder written AND ALL the respective estate right title and interest claim and demand of the settlors respectively into upon or out of the said shares TO HAVE AND TO HOLD the said shares unto and to the use of the trustees but upon and subject to the trust's powers and provisions hereinafter declared and expressed of and concerning the same.'

5. The other assessee had similarly executed a trust deed on the 21st of June, 1958, settling 500 ordinary shares on trust for the constitution and creation of a charitable trust fund to be known as 'Shardaben Bhagubhai Mafatlal Public Charitable Trust'. The said trust deed also contained identical recitals in the preamble and clause (1) thereof as in the other trust deed. After the first trust fund was constituted on the 26th of March, 1959, the assessee made another gift of 177 ordinary shares to the fund on the 28th of March, 1959. In the gift-tax assessment of the first assessee for the assessment year 1959-60, the assessee claimed exemption for the value of all the 182 shares, which had been donated by him, viz., the initial five shares donated at the time of the creation of the trust fund and the subsequent 177 shares donated to the trust two days later. In the assessment of the other assessee, she claimed exemption for the value of the 500 shares, which she had gifted under the trust deed for the creation of the fund. In the case of the first assessee, the Gift-tax Officer was willing to allow him exemption in respect of the value of 177 shares, which were donated to the trust after the creation of the trust fund, because, according to him, his gift of 177 shares qualified for exemption under section 5(1)(v) of the Gift-tax Act as being a gift a section 15B of the Income-tax Act applied. In respect of the initial gift of 5 shares, he was of the opinion that the gift in respect of the said shares had been completed and tax attracted to it even before the execution of the trust of the creation of the fund for a charitable purpose. Secondly, according to him, the gift contemplated under section 5(1)(v) was a gift to a charitable fund after the fund had been created and brought into existence. In the present case the gift was made first and the fund was created subsequently as a result of the gift, and the assessee, therefore, was not entitled to any exemption in respect of the value of the 5 shares initially gifted by him. Thirdly, according to him, it is only where a gift is made to an existing charity, fund or institution, which possesses the qualifications specified in section 15B of the Income-tax Act that it is exempted from gift-tax. In the present case, the gift is not to any such fund, which was already there in existence to receive it and it would not, therefore, qualify for exemption from tax. He accordingly disallowed exemption in respect of the value of the initial 5 shares settled in trust by the first assessee. For the same reason he disallowed exemption in respect of the value of the 500 shares donated by the second assessee under the trust deed executed by her. In the appeals to the Appellate Assistant Commissioner against the decision of the Gift-tax Officer in their respective assessment orders, the Appellate Assistant Commissioner held that there was a gift to a fund established for a charitable purpose, which would be covered by the provisions of section 5(1)(v) and would, therefore, be entitled to exemption from gift-tax. He accordingly allowed the appeals of the assessees and modified the orders passed by the Gift-tax Officer. In the appeals preferred by the department against the decision and orders of the Appellate Assistant Commissioner, the Income-tax Appellate Tribunal upheld the orders passed by the Appellate Assistant Commissioner and dismissed the appeals, holding that although the formation of the trust fund and the transfers of the shares to the trust to have been received by the trust fund after it came into existence and consequently, the gifts under the trust fund after it came into existence and so as to qualify for exemption under section 5(1)(v) of the Gift-tax Act. Thereafter, at the instance of the department it has drawn up a statement of the case and referred the question arising out of its order, which we have already stated earlier.

6. Mr. Joshi, the learned counsel who appears for the department, has argued that a gift, which is entitled to exemption under section 5(1)(v) must be a gift to a fund for a charitable purpose, which is already established and in existence at the point of time when the gift is made. It must be a gift to a fund and, therefore, the fund must be already there to receive it. A gift, which is made not to a fund already existing, but which by the gift itself is brought into existence, cannot be said to be a gift to a fund and would not, therefore, qualify for the exemption under section 5(1)(v) of the Gift-tax Act. He points out that the scheme of the Gift-tax Act allowing exemption from tax in respect of gifts and donations made out of property of the assessee for charitable purposes is the same as under the Income-tax Act for exemption of income-tax for donations and gifts of income made for such purposes. Even under the Indian Income-tax Act, donations and gifts of incomes made for charitable purposes or for the purpose of founding charities or charitable purposes are not exempted. It is only gift or donations, which are made to institutions or funds, which satisfy the requirements of section 15B of the Indian Income-tax Act that are exempted. The same is the position under the Gift-tax Act and it is only gifts or donations, which are made to institutions or funds to which the provisions of section 15B of the Income-tax Act apply that are permitted exemption from gift-tax. An examination of the provisions of the trust deeds in the present case will show, says Mr. Joshi, that the shares settled under the said trust deeds constitute or create the charitable trust fund and are not gifts made to a charitable fund. According to Mr. Joshi, therefore, the Appellate Assistant Commissioner and the Tribunal have erred in allowing exemption to the assessee in respect of the value of the shares transferred by them under their respective trust deeds.

7. The main question that is involved in the present case is what, on a proper construction, is the nature and scope of the exemption allowed under section 5(1)(v) of the Gift-tax Act, and that would depend upon what is meant by a gift to any institution or fund established for a charitable purpose, to which the provisions of section 15B of the Indian Income-tax Act apply. 'Gift' as defined in section 2(xii) of the Gift-tax Act means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth. 'Property' under section 2(xxii) includes any interest in property, movable or immovable, and under section 2(xxiv) 'transfer of property' means any disposition, conveyance, assignment, settlement, delivery, payment or the alienation of property, and includes amongst other things, the creation of a trust in property. The settling in trust of a fund as a charitable fund would be the creation of a trust in property and would, therefore, amount to transfer of property. There would, therefore, be a gift within the meaning of the Gift-tax Act if there is a creation of trust in property for a charitable purpose. There can, therefore, be no doubt whatsoever that there has been a gift under the respective trust deeds within the meaning of the Gift-tax Act. The further question to be considered is whether this is a gift to a fund established for a charitable purpose.

8. Now, it seems to us that if the creation of a trust in property for a charitable purpose is a gift for a charitable purpose and if the gift is so made under the trust deed as to belong to a charitable fund, which was created under the trust deed for a charitable purpose, the gift could be said to be made to a fund for charitable purpose within the meaning of section 5(1)(v) of the Act.

9. Mr. Joshi argues that in order to satisfy the provision of section 5(1)(v), the fund must be already in existence at the point of time when the gift is made. The gift, which starts the fund itself, cannot be said to be made to a fund, which is already established and in existence. In other words what the section has intended, according to Mr. Joshi, is that the initial gift, which starts the fund, is not exempted but a gift, which is made the very next moment, after the initial gift has been made and all subsequent gifts, will be entitled to exemption. In other words, the person, who conceives of the idea of a charitable fund and starts it by his initial payment, is not entitled to exemption for his donation while all others, who come in subsequently and augment the fund are given exemption by the statute.

10. We find it difficult to understand why legislature should have looked upon with disfavour the founder of the fund and disentitle him to exemption, which is allowed to others, who donate to the fund. Mr. Joshi says that it is not necessary to look into why the legislature has made a certain provision. What has got to be considered is what the provision made by the legislature is and to give effect to it. If there can be no doubt about what the legislature has intended and the language, which the legislature has used is so clear as to leave no manner of doubt about its meaning, what Mr. Joshi says is undoubtedly right. When, however, the language used by the legislature is capable of more than one interpretation, it would be relevant to consider if one of the constructions suggested leads to a curious or strange result, as to whether any good reason can be found why the legislature should have intended that result. In the absence of any such good reason which can be suggested, the construction which avoids curious or strange results will have to be accepted in preference to the other which yields such results.

11. Now, it seems to us that the intention of the legislature is to allow the exemption in respect of gifts made to institutions or funds, which satisfy certain qualifications, which are laid down in section 15B of the Indian Income-tax Act. In view of that intention it would be reasonable to hold that all gifts made to such institutions or funds are intended to be exempted irrespective of whether any of the said gifts are the initial gifts for starting the fund or the institution or whether they are made subsequent to the starting or establishment of the institution or fund. It may be worthy to note that the language used in section 5(1)(v) is 'to any institution or fund established for a charitable purpose' and not 'to any institution or fund, which has been established...' The interpretation, which Mr. Joshi wants to put upon it, is that 'any institution or fund established' must mean 'any institution or fund, which has been established'. It is possible to construe the expression 'any institution or fund established for a charitable purpose' as meaning any institution or fund, which has for its objects charitable purpose and a gift made to such an institution or to a fund at its very starting can reasonably be regarded as a gift made to an institution or fund established for a charitable purpose within the meaning of the Act.

12. In our opinion, the language of section 5(1)(v) of the Gift-tax Act need not be restricted so as to cover gifts made to an institution or fund subsequent to its being established and not include those that are given at the very inception or commencement of the institution or fund. It may be pointed out that a gift when it is made to a charitable fund adds to it and becomes part of it. The very initial gift by which the fund starts constitutes the part, to which the further gifts are added. All gifts together form the fund, which is augmented by them. If the subsequent gifts, which are parts of the fund itself, are gifts to the fund, the initial gift, which starts the fund itself, could as well be a gift to the fund. Even if we were to take the view that a gift to be exempted under section 5(1)(v) of the Gift-tax Act must be made to a fund after it has come into existence, the trust deeds of a receptacle in which the donation go and donating the gifts to them. In our opinion, therefore, the initial gifts made under the respective trust deeds by the assessees in the present case were rightly held by the Appellate Assistant Commissioner and the Appellate Tribunal as entitled to exemption.

13. Mr. Joshi has argued that the scheme for exemption of gift-tax under the Gift-tax Act is the same as for exemption from income-tax under the Indian Income-tax Act so far as gifts or donations to charities are concerned. He has, therefore, invited our attention to section 15B of the Indian Income-tax Act and has urged that having regard to the provisions of that section there can be no doubt whatsoever that the initial gifts made out of income for the purpose of constituting or crating charitable funds would not be entitled to exemption from gift-tax.

14. We do not want to consider what would be the position under the Indian Income-tax Act, though we are by no means satisfied that the provisions of that section are even prima facie so clear that under the Indian Income-tax Act no exemption of gifts of income for the creation or constitution of a charitable fund will ever be allowed. We do not, however, wish to go into the position under the Indian Income-tax Act in the present case. We are here concerned with the provisions of the Gift-tax Act and having regard to the definitions of the words 'gift', 'property' and 'transfer of property' under the Gift-tax Act and the provision of section 5(1)(v), which allows exemption in respect of gifts to charitable institutions or funds, we are of the opinion that under section 5(1)(v) of the Gift-tax Act, the initial gifts, which are made for the purpose of starting or constituting a fund for charitable purposes of the kinds specified in section 5(1)(v) of the Gift-tax Act would be entitled to exemption under the said provision in the same manner in which the subsequent gifts to the fund would be.

15. In the result, therefore, our answer to the question referred to us is in the affirmative. The department will pay the costs of the assessee.

16. Question answered in the affirmative.


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