High Court affirms exemption for gifts to trusts created on same day

The High Court of Calcutta ruled in favor of the assessee, affirming the entitlement to exemption under section 5(1)(v) of the Gift-tax Act. The Court held that the gift made to an existing trust on the same day as its creation fell within the provisions of the Act and was eligible for exemption. The decision aligned with the precedent set by the Bombay High Court, establishing that gifts made for charitable purposes, even at the inception of a trust, qualified for exemption.

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Issues:
Interpretation of section 5(1)(v) of the Gift-tax Act, 1958 regarding exemption for gifts made to charitable trusts.

Analysis:
The case involved a gift of Rs. 1 lakh made by the deceased assessee to a trust, Lira Raja Sahayak Trust, which was created on the same day as the gift. The Gift-tax Officer initially disallowed the exemption claimed by the assessee under section 5(1)(v) of the Gift-tax Act, stating that the gift was made first and the trust fund was created subsequently. The Appellate Assistant Commissioner, however, allowed the appeal of the assessee, citing a decision of the Bombay High Court and holding that the time of gift in relation to the constitution of the trust fund was not specified in the Act. The Tribunal upheld this decision, emphasizing that the gift was actually encashed in the trust's account. The Revenue appealed this decision before the High Court of Calcutta.

The High Court referred to the decision of the Bombay High Court in CGT v. Yogendra N. Mafatlal, where it was held that even initial gifts made for charitable purposes would be entitled to exemption under section 5(1)(v) of the Gift-tax Act. The High Court reasoned that a gift made to an institution or fund at its inception could be considered a gift made to a fund established for a charitable purpose. The Court also noted decisions from other High Courts following the Bombay High Court's ruling.

The High Court found that the gift in question was given to an existing trust or institution, as evidenced by the issuance of the cheque in the name of the trustees on the same day the trust was created. The Court held that the gift fell within the provisions of section 5(1)(v) of the Gift-tax Act and was entitled to exemption. Additionally, the Court relied on the authority of the Bombay High Court's decision in Yogendra N. Mafatlal's case to support the exemption claim. The High Court answered the question in favor of the assessee, affirming the entitlement to exemption under section 5(1)(v) of the Gift-tax Act.

The judgment was delivered by Judge Dipak Kumar Sen, with agreement from Judge Mrs. Monjula Bose.

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