1960 (9) TMI 97 - HC - Income Tax

Court rules charity sums received by company not taxable income

AGRA BULLION EXCHANGE LTD. Versus COMMISSIONER OF INCOME-TAX

The High Court held that the charity sums of Rs. 26,903 and Rs. 6,040 received by the assessee company were not its income liable to tax. The court ... - Issues Involved:1. Whether the sums of Rs. 26,903 and Rs. 6,040 received by the assessee company for charity were its income liable to tax.Issue-wise Detailed Analysis:Issue 1: Whether the sums of Rs. 26,903 and Rs. 6,040 received by the assessee company for charity were its income liable to tax.The assessee company, incorporated in 1946, was engaged in facilitating transactions in gold and silver through licensed traders and brokers. One of the objects of the company, as per its memorandum of association, was to 'contribute for charitable and other purposes out of the profits of the company.' The company maintained a trading hall where traders paid amounts due for commission, brokerage, charity, and differences. Rule 49 of the company's rules specified charges for transactions, including a charity charge of one anna per transaction, which was to be allocated as per the board's discretion.For the assessment year 1948-49, the Income-tax Officer computed the company's income at Rs. 56,209, including Rs. 26,903 received for charity. Similarly, for the assessment year 1949-50, the income included Rs. 6,040 received for charity. The company did not include these charity amounts in its profit and loss account but noted in the balance sheet that Rs. 42,000 was deposited in fixed deposits for the Agra Bullion Charitable Eye Hospital Trust.The Income-tax Officer taxed the charity amounts, a decision upheld by the Appellate Assistant Commissioner. The Appellate Tribunal, however, had a split decision: the Accountant Member opined that the charity sums were not taxable income, while the Judicial Member disagreed. The President of the Tribunal sided with the Judicial Member, leading to the tax being upheld.The High Court was asked to determine whether these charity sums were taxable income. The court noted that the amounts paid for charity were not meant for the company itself but were to be spent on charitable purposes as per the company's rules. The company acted as a conduit for these funds, which were not treated as its income in its accounts. The court emphasized that the initial character of the receipts was crucial, and the amounts earmarked for charity did not accrue as the company's income. The court distinguished this case from others where profits were directed to charity but initially accrued to the assessee.The court concluded that the sums of Rs. 26,903 and Rs. 6,040 were not the company's income liable to tax, answering the question in the negative. The assessee was entitled to costs of Rs. 300, and the Department's counsel's fee was fixed at the same amount.Question answered in the negative.