Law:

Section:

Section 5(1)(v) of the Gift-tax Act, 1958 - Exemption - Donation to charitable institution or fund - Assessee issued cheque for an amount in name of trustees - Trust was created on same date on which cheque was issued - Subsequently, cheque was realised in name of trust - Whether merely because trust was not in existence before amount was gifted to trust, exemption under section 5(1)(v) could not be denied - Held, yes FACTS The assessee, during his lifetime made a gift to the trustees of a trust by a cheque dated 27-8-1963. The said trust was also created on the same day. In the gift tax proceedings, the assessee contended that as the said trust was a charitable trust whose income was exempt form income-tax under section 11 of the Income-tax Act, 1961, the gift made in favour of the said trust was exempt form gift-tax under section 5(1)(v). The GTO did not accept the contention of the assessee and held that the gift was made first and the trust fund was created subsequently out of the gift and, therefore, the assessee was not entitled to the exemption claimed and that only where a gift has been made to an existing charitable fund or institution, the question of exemption from gift-tax would arise. On appeal, the AAC held that initial gifts made to the trust were also entitled to exemption. He held further, in any event, the gift in the instant case was made subsequently in the account of the trust. The appeal of the assessee was allowed and the gifted amount was directed to be excluded in computing the gift-tax to be paid by the assessee. The Tribunal upheld the order of the AAC. It also noted that the gift which was made by way of a cheque was actually encashed on 23-9-1963, but did not record any finding on the same. On reference : HELD The gift made by the assessee was not found to have been given for constituting the trust fund. The cheque was issued in the name of the trustees. On the same day, the trust came into existence. Therefore, it must be presumed that the gift was being given to and could only be accepted by an existing trust or an institution. The cheque was encashed in the bank account of the trust subsequently. These facts were sufficient to…

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