1998 (10) TMI 32 - HC - Income Tax

Summary

Issues:
Interpretation of provisions of section 5(1A) of the Gift-tax Act, 1958 regarding charitable donations made during the month of Ramzan and their religious intent.

Analysis:
The High Court of MADRAS addressed the issue of whether charitable donations made during the month of Ramzan by a limited company, headed by a Muslim managing director, were exempt from gift-tax liability. The donations varied from Rs. 25,766 to Rs. 53,552 annually from 1972-73 to 1978-79, with each individual gift being less than Rs. 100. The Gift-tax Officer initially treated these donations as religious gifts, but the Commissioner and the Tribunal disagreed, granting exemption under section 5(1)(v) and (vi) of the Act.

The Revenue contended that the donations had a religious nature, citing section 5(1A) of the Act which excludes gifts of a wholly or substantially religious nature from charitable purposes. However, the Court noted that the purpose of the gift should be determined by the recipient's expected use, not the giver's intent. Gifts for religious festivals or rituals qualify as religious gifts, but mere charitable donations during a holy period do not automatically have a religious intent.

The Court emphasized that the company's charitable gifts during Ramzan did not indicate a religious purpose, as there was no evidence that the recipients were religious individuals or that the funds were for religious activities. The gifts aimed to alleviate hardship, not promote religion. Therefore, the gifts were deemed exempt from tax, and the Tribunal's decision in favor of the assessee was upheld. The judgment favored the assessee, ruling against the Revenue's claim.