Satish Chandra, J. - (1.) ON 9th June, 1957, Maharaja Pateshwari Prasad Singh of Balrampur settled a large number of properties on trust in consideration of natural love and affection which the Maharaja had towards his wife, Maharani Raj Lakshmi, and to effectuate his desire of settling immovable properties and securities, etc., to ensure that the said Maharani may lead comfortable life befitting her dignity and status. The trustees were the Maharaja himself, the Maharani aforesaid and Shri J.K. Munshi. The trustees were charged with the obligation of paying taxes and other dues, etc., out of the trust assets and to pay the balance of the income of the trust assets to the said Maharani Raj Lakshmi for and during her lifetime. After her death the assets of the trust were to revert to the Maharaja if he was alive or to the charitable trust mentioned in the document. The properties and securities mentioned in the trust deed were valued at Rs. 20,31,500.
(2.) IN proceedings under the Gift-tax Act for the assessment year 1958-59, the Gift-tax Officer valued the properties involved in the trust at Rs. 22,52,553. He granted an exemption of Rs. 10,000 under Section 5(2) of the Act and brought the value of the remaining property to tax. On appeal, the Appellate Assistant Commissioner of Income-tax gave some relief. The Maharani took the dispute to the Tribunal. The Tribunal held that the provisions of Section 5(1)(viii) of the Gift-tax Act had been ignored by the departmental officers as the gift in this case was in favour of the assessee's wife. A sum of Rs. 1,00,000 would, in any case, be exempt from taxation. In this view, the Gift-tax Officer was directed to modify the assessment accordingly. At the instance of the department the Tribunal has referred the following question of law for opinion of this court. " Whether, on the facts and in the circumstances of the case, the assessee was entitled to exemption of Rs. 1,00,000 ? "
(3.) PRECISELY the same question arose before the Bombay High Court in Commissioner of Gift-tax v. G.G. Morarji, [1965] 58 ITR 505, 510, 511, 512, 513 (Bom). The Bench of the Bombay High Court observed: "And this brings us to the relevant provisions of the Gift-tax Act. This Act has been enacted in the year 1958 by Parliament to provide for levy of gift-tax. The charging section is Section 3 and it provides: ' 3. Subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on and from the 1st day of April, 1958, a tax (hereinafter referred to as gift-tax) in respect of the gifts, if any, made by a person during the previous year (other than gifts made before the 1st day of April, 1957), at the rate or rates specified in the Schedule.' Under the charging section, thus, gifts made after the 1st April, 1957, are chargeable to tax under Section 3 subject to the other provisions contained in the Act. The charge is on the person making the gift in respect of the gifts made by him. Sect-ion 5 provides that gift-tax shall not be charged under this Act in respect of certain gifts described in Clauses (i) to (xvi) of Sub-section (1) thereof. The material clause, viz, Clause (viii), as it stood at the material time, reads : ' (viii) to his or her spouse, subject to a maximum of rupees one lakh in value in the aggregate in one or more previous years.....' ;