1. In this appeal filed by the revenue following ground is taken: "The Commissioner of Income-tax (Appeals) has erred in law on facts in holding that the expenditure incurred on advertisement in souvenirs is exempt from gift-tax under Section 5(1)(xiv) of the Gift-tax Act.
The assessee has also come up by way of cross-objection taking the following ground: The learned Commissioner of Income-tax (Appeals) erred in law and on facts in upholding the proceedings initiated by the GTO under Section 16(1)(a) of the Gift-tax Act.
2.1 The facts as framed in the order of the Commissioner (Appeals) are reproduced below: This appeal is against the order of the GTO under Section 16(3) read with Section 16(1)(a) of the Gift-tax Act. The facts of the case are that the assessee incurred an expenditure of Rs. 97,000 on advertisement in souvenirs issued by the various political parties.
In the income-tax assessment, the ITO disallowed the expenditure treating the same to be donation. The AAC and the Tribunal partly confirmed the addition treating the same to be in the nature of donation. Since the assessee had not filed any return of gift-tax and in view of the fact that part of the expenditure had been treated as donation, the GTO was satisfied that gift had escaped assessment in terms of provisions of Section 16(1)(a) and, accordingly, after recording his satisfaction, the GTO issued a notice under the said section calling upon the assessee to file the gift-tax return. The assessee filed the gift-tax return on 10-4-1977. After that the GTO fixed up the hearing. The assessee's contentions before the GTO were that the above said expenditure cannot be treated as gift in view of the Circular No. 200 [F. No. 204/29/76-IT(A-II)], dated 28-6-1976. The assessee also relied upon a letter of the Federation of Indian Chambers of Commerce and Industry wherein it has been explained that the Department of Company Affairs had intimated them that the expenditure incurred by companies on advertisement in souvenirs are not donations. These arguments of the assessee were not acceptable because the conditions required in rule 6B according to the GTO, were not satisfied.
Rejecting the contentions of the assessee the GTO held that sum of Rs. 97,000 was liable to gift-tax and, accordingly, he made the assessment.
3. On appeal before the Commissionc of Gift-tax (Appeals), the assessee challenged the assessment on the ground that the GTO had wrongly invoked the provisions of Section 16(1)(a). Reliance was placed on decisions in ITO v. Lakhmani Mewal Das  103 ITR 437 (SC) and Brig. B. Lall v. WTO  127 ITR 308 (Raj.). The Commissioner of Gift-tax (Appeals) observed that Section 16(1)(a) of the Gift-tax Act, 1958 ('the 1958 Act') was in pan materia with Section 147(a) of the Income-tax Act, 1961 ('the 1961 Act') and, therefore, the cases applicable under the 1961 Act were equally applicable under the 1958 Act. However, he rejected appeal of the assessee on this ground by holding in the present case that the GTO had got information from the income-tax records and, therefore, his belief that there was omission on the part of the assessee to file the return was well based and, therefore, proceedings were correctly initiated.
4. The assessee also took alternative ground that the gift was exempt under Section 5(1)(xiv) of the 1958 Act. Reliance was placed on CBDT's Circular No. 200 [F. No. 204/29/76-IT(A-II)], dated 28-6-1976 [see Taxmann's Direct Taxes Circulars, Vol. 1, 1980 edn., p. 213] in the matter of advertisements in souvenirs. This plea was accepted by the Commissioner of Gift-tax (Appeals) by holding that provisions of Section 37 of the 1961 Act in respect of disallowance of expenditure for certain reasons were different from the language of Section 5(1)(xiv).
5. Before us, on behalf of the revenue, it was submitted that circular relied upon by the assessee was not operative in the assessment year 1971-72. Besides, on page 517 of the Law and Practice of Wealth-tax and Gift-tax by Mr. V. Balasubramanian, 4th edition, it was stated that whether the requirements of Section 5(1)(xiv) have been satisfied or not is a mixed question of fact and law as decided in the case of V.O.Markose v. CIT  98 ITR 504 (Ker.). He further relied upon the decision in the case of C.K. Krishnankutty Nair, Olesha Ayurveda Vaidyasala v. CGT  110 ITR 541 (Ker.) regarding conditions by stating that no nexus with the advertisement was proved in this case by the assessee. While replying, it was also stated that regarding consideration, the finding of the Tribunal in the income-tax proceedings for the assessment year 1971-72 was a relevant factor to be considered.
6. The learned Counsel for the assessee submitted that the revenue had not disputed that expenditure was in connection with cost of advertisement appeared in the souvenir of the political parties as resulted in the bills and also the receipts. He drew our attention to pages 1 to 5 of the compilation wherein it was stated that amount was in respect of cost of advertisement appeared in the souvenirs. Besides, while filing the income-tax return also in Part IV of the return, it was stated that advertisement in souvenir included advertisement in souvenir of political parties, as per page 16 of the paper book. Even this fact is not disputed by the revenue. Besides, the circular of 1976 is clarificatory in nature as could be seen from the contents of the circular and, therefore, was applicable to all pending assessments. He also drew our attention to page 14 wherein for the assessment year 1977-78 in the assessee's own case the Tribunal had allowed advertisement in souvenir of political parties and also submitted that there was the necessary finding in respect of the expenditure incurred.
While referring to the definition of 'gift' as per Section 2(xii) of the 1958 Act, it was submitted that there was no voluntary payment by way of gift and, therefore, the gift was outside the purview of the definition. If the Tribunal has disallowed part of the advertisement, it was on the basis of a certain yardstick and, therefore, that finding cannot be applied to the provisions under the 1958 Act. According to him, even under Section 5(1)(xiv), the payment must be a gift first which was not the case as could be interpreted from commentary on Income-tax Law by Chaturvedi and Pithisaria, pages 1425 and 1426 reproduced on page 6 of the paper book.
7.1 While arguing on cross-objection filed by the assessee, the learned Counsel submitted that reopening was invalid because basic information was there as per the records of the ITO and usually the gift-tax assessments are completed by the same person. Therefore, Section 16(1)(a) was not the correct section to be applied for reopening but Section 16(1)(b) should apply. If it is done that way, the proceedings would be found illegal, having been time barred.
7.2 In reply, the learned departmental representative submitted that this was not the case of reopening of the assessment which is different from asking the assessee to file gift-tax return when the gifts have escaped assessment. Therefore, Section 16(1)(a) was justifiably invoked.
8.1 We have considered the submissions and also the materials to which our attention was drawn.
8.2 We are in agreement with the Commissioner of Gift-tax (Appeals) and find that phraseology of Section 37(1) of the 1961 Act is quite different. The governing principle for disallowance under the said section is altogether different from that applied to while claiming exemption under Section 5(1)(xiv) which requires that gift should be made bona fide, in the course of business and for the purpose of business. In this view of the matter, the disallowance under the 1961 Act would still be entitled to exemption under this clause while interpreting even Circular No. 200 of 28-6-1976. It is also interesting to note that there is also a Circular No. 1-GT, dated 5-1-1960, (effective in relevant year) [see Taxmann's Direct Taxes Circulars, Vol. 1, 1980 edn. (p. 1057)]--which contains that where a gift to a political party is made by a company under the authority of memorandum of association it has to be held as having been made in the course of carrying on the business of the company and is, therefore, exempted from gift-tax. This was issued subsequent to the decision of the Bombay High Court in the case of Jayantilal Ranchchoddas Koticha v. Tata Iron & Steel Co. Ltd.  27 Com. Cas. 604 in the matter of donations to political parties where alteration to memorandum to such effect was aimed at to enable the company to carry out its business more efficiently and economically and the decision was in favour.
8.3 Even assuming for a moment as per the finding of the Tribunal in the assessment year 1971-72 that the advertisements were in the nature of donations, let us consider whether gift-tax liability was attracted or not. The finding of the Tribunal in the order dated 29-4-1975 vide para 6 is as under: We have given our anxious consideration to the contention of both the parties. Looking to the magnitude of the amounts paid to the political parties, we are of the view that dominant motive of the assessee was of making the donation to the political parties. The assessee is no doubt at liberty to give advertisement in many souvenirs but the amount paid should be reasonable. From the facts given, we feel that the substantial portion of the amounts did partake of the nature of the donations. It is no doubt true that some portion thereof is also on account of advertising the goods.
Therefore, having regard to all the facts of the case, we hold that one-fourth of such expenses is on account of advertisement and the rest is on account of donations paid to the political parties. On this basis, the amount which can be allowed as advertisement expenses comes to Rs. 24,250. The disallowance made by the ITO is, accordingly, reduced by Rs. 24,250.
Therefore, such finding was only on the basis of facts given. In the assessee's own case in subsequent year for the assessment year 1977-78, the Tribunal allowed full deduction of Rs. 50,000 spent by way of advertisements in souvenirs of various Pradesh Congress Committees, vide order dated 23-7-1983. Therefore, it cannot be said that the finding in the assessment year 1971-72 was conclusive proof so as to attract the gift-tax liability in the absence of any specific and clear deeming provisions in the 1958 Act. Because of such types of advertisements, hardship was caused to business community is a fact even recorded in the Board's Circular No. 200 dated 28-6-1976. The revenue's contention that in the assessment year 1971-72 the circular was not there is without any substance because when a circular is issued to remove hardships, it cannot be gainsaid that it will not apply to existing hardships. Therefore, the GTO was in error in issuing notice under Section 16(1)(a).
8.4 Since we are on this point of disallowance of part of the expenditure on advertisements in souvenirs of political parties, we would like to touch upon one more aspect in connection with attracting liability under the 1958 Act. Accepting for the sake of argument that advertisements given in souvenirs of political parties partake, to major extent, as is the case under appeal, the character of donation, can it at all be said that such types of donations are withoutfany consideration After all, how does an assessee developmental attitude in favour of giving donations or gifts. Such attitude can originate either because of natural love and affection towards donee or from a charitable instinct. Both these possibilities are extinct in types of donations under consideration. After all businessmen will not spend moneys for a song. Consideration, either in praesenti, or expected, is always there. Therefore, such donations are always with strings. If need be, donors would not hesitate in twisting arms of recipients.
Motive can also be attributed to said gift in case the recipient parties come in power. Who can afford to invite the wrath of executives in administration in this mixed economy, such as ours, with controls necessitating sanctions and permissions For the sake of personal saintly philosophy of those in management, the company's interest cannot be exposed to vagaries of political torpedos. Therefore, such types of donations should not be equated with gifts under the Act. Any attempt to do so would only lead to frustrating tendency of straightforward businessmen who choose to remain away from frightful shadows . of political power. In many cases such donations are given not to support any political party but to void and ensure annihilation or possibility of stepmotherly ill-treatment by the parties which might eventually form the Government. On this reasoning also our view that such gifts are bona fide for the purpose of business get further fortified. Because as held by the Kerala High Court in C.K.Krishnankutty Nair, Olesha Ayurveda Vaidyasala's case (supra) and in the case of CGT v. G. Shanmugam  118 ITR 890 (Mad.) that gift under Section 5(1)(xiv) would be exempt if two conditions, namely, gifts made in the course of business and made bona fide for 'the purpose of business are satisfied. All the varied circumstances, not only commercial expediency, are required to be considered. It is not necessary to prove that gift has resulted in advantage. Even gifts made to preserve capital assets of business would be exempt under this section. We, therefore, do not find any infirmity with the order of the Commissioner of Gift-tax (Appeals).
9. In the result, the appeal filed by the revenue is dismissed and cross-objection filed by the assessee is allowed.