1. This is an appeal filed by T.V. Sundaram lyengar & Sons Ltd., against the order of the Commissioner (Appeals), confirming a gift-tax assessment for the assessment year 1968-69.
2. Sundaram Motors (P.) Ltd., since succeeded to by T.V. Sundaram Iyengar & Sons Ltd. had made donations of Rs. 50,000, Rs. 50,000 and Rs. 25,000 to Andhra Pradesh Congress Committee, Mysore State Congress Committee and All India Congress Committee, respectively, during the accounting year relevant to the assessment year 1968-69 under consideration. The GTO brought the same (Rs. 1,25,000) to tax as taxable gifts. The assessee claimed that these were not gifts within the meaning of Section 2(xii) of the Gift-tax Act, 1958 ("the Act"), and that at any rate they were exempt under Section 5(1)(v) or (xiv) of the Act. The contentions were found unacceptable both to the GTO and the AAC. We have heard the parties, who have repeated the stands below.
3. There is a circular of the Central Board of Direct Taxes in No.1-GT, dated 5-1-1960, on the question of donations to political parties. This is published in Taxmann's Direct Taxes Circulars, 1980 edition, vol. 1, pp. 1057-58, and reads as under : A reference is invited to paragraph 12(a) of the 'Instructions on the Gift-tax Act' wherein it was stated that a contribution to the funds of a political party does not satisfy the condition laid down in Section 5(1)(xiv) of the Gift-tax Act. It has since been brought to the notice of the Board that certain companies, public as well as private, have amended their memorandum and articles of association so as to empower them to subscribe or contribute money to public, political or other useful institutions, objects and purposes, and thereafter made donation to political parties. One of such cases, viz., that of the Tata Iron & Steel Co. Ltd. went up to the Bombay High Court  27 Comp. Cas. 604 and the Court held that the alteration made by the company was an alteration aimed to enable the company to carry out its business more efficiently and economically.
The Board is advised that in cases where a gift to a political party is made by a company under the authority of a specific clause in the memorandum and articles of association of the company, the gift has to be held as having been made in the course of carrying on the business of the company and exempted from gift-tax.
The above circular, it has been brought to our notice by the learned departmental representative, has since been withdrawn by Instruction No. 923 in P. No. 329/10/71-GT, dated 9-6-1972, though the Instruction withdrawing the circular does not appear to have been published. At any rate, the circular dated 5-1-1960 was in force during the accounting year under consideration. The requirement of the circular is that the donations should have been made under the authority of a specific clause in the memorandum and articles of association in order that they can be treated as having been made in the course of carrying on the business of the company and, therefore, exempt under Section 5(1)(xiv).
Clause 24 of the objects as specified in the memorandum reads as under : To establish and support or aid in the establishment and support of associations, institutions, funds, trusts, and conveniences, calculated to benefit employees or ex-employees of the company or the dependants or connections of such persons, and to grant pensions and allowances, and to make payment towards* insurance, and to subscribe or guarantee money for charitable or benevolent objects or for any exhibition or for any public, general or useful objects, and to make donations to such persons and in such cases, as the company may think conducive to any of its objects or otherwise expedient.
Hence the power "to make donations to such persons and in such cases, as the company may think conducive to any of its objects or otherwise expedient" is large enough to empower these donations to political parties. It is also not the case of the authorities that there is no such power with the company. In fact, there was also no bat-under the Indian Companies Act against such donations during the relevant year.
In fact, if there had been no power to make such donations, there would be no valid gift to these parties, at all. Hence, it is a case where the donations to these political organisations are authorised by the memorandum and, therefore, to be treated as exempt under Section 5(1)(xiv) in the view expressed by the Central Board of Direct Taxes in its circular dated 5-1-1960, a circular which was undisputably in force during the accounting year. The proposition that a "benevolent" Board's Circular is binding on the ITO is now too well-established by several decisions of the Supreme Court to need any citation. The Kerala High Court in CIT v. B.M. Edward, India Sea Foods  119 ITR 334 (FB) has held that if the circular had been in force on the first day of the assessment year, it should be applied even if such circular is subsequently withdrawn. The assessee is, therefore, entitled to succeed on the basis of circular alone. It is in this view that we consider it unnecessary to deal with the arguments of authorities or the other arguments of the learned counsel questioning the conclusion that there had been no gifts and that, at any rate, such gifts even if they could be so treated, are exempt either under Section 5(1 )(v) or (xiv).