Business-authorised donations to political parties treated as exempt from gift-tax under the governing departmental circular.

Donations by a company to political parties were treated as made under authority of a specific clause in its memorandum of association, bringing them within the then-operative CBDT circular that treated such gifts as made in the course of business and exempt from gift-tax. On that basis, the donations fell within the exemption under section 5(1)(xiv) of the Gift-tax Act, 1958, and were not taxable gifts. The departmental view to the contrary was rejected.

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Issues: Whether donations made by the assessee to political parties constituted taxable gifts under the Gift-tax Act, 1958, or were exempt on the basis that they were authorised by the company's memorandum and articles of association and covered by the departmental circular then in force.

Analysis: The donations were made during the relevant accounting year in pursuance of a power contained in the memorandum of association permitting donations to such persons and in such cases as the company considered conducive to its objects or otherwise expedient. On that footing, the donations fell within the scope of the CBDT circular dated 5-1-1960, which stated that a gift to a political party made under authority of a specific clause in the memorandum and articles of association was to be treated as having been made in the course of carrying on the business of the company and exempt from gift-tax. The circular was in force during the accounting year, and a subsequently withdrawn circular continued to govern the assessment year concerned. The departmental authorities' contrary view was therefore rejected.

Conclusion: The donations were exempt under section 5(1)(xiv) of the Gift-tax Act, 1958, and could not be brought to gift-tax as taxable gifts.

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