2005 (2) TMI 852 - HC - Income Tax

Court rules charity collections not taxable income, maintains deductions under section 80-G

Commissioner of Income-tax, Rohtak Versus Duttom Enterprises

The High Court held that the sum collected by the assessee on account of charity did not constitute the assessee's income for taxation purposes. Relying ... - Issues:1. Whether the sum collected by the assessee on account of charity constitutes the assessee's income for the purpose of taxationRs.Analysis:The case involves a registered firm engaged in the wholesale business of wine. The firm filed a return declaring income and claimed deductions on account of charity. The Assessing Officer treated the entire amount collected on account of charity as revenue receipt and added it to the total income of the assessee. However, the Tribunal, after considering the facts and circumstances, held that the amount collected for charity did not constitute the assessee's income. The Tribunal based its decision on the premise that the money collected for charity did not come into the hands of the assessee as income, as it was specifically collected and disbursed for charitable purposes. The Tribunal also cited relevant Supreme Court judgments to support its decision, emphasizing the distinction between revenue receipts and amounts specifically collected for charity.In a similar case, the Supreme Court in CIT v. Tollygunge Club Ltd. held that amounts collected for charity were impressed with an obligation in the nature of trust and were diverted before becoming part of the income of the recipient. The Court emphasized the creation of a trust for charitable purposes and the obligation on the recipient to apply the funds solely for those purposes. This legal principle was reiterated in CIT v. Bijli Cotton Mills (P.) Ltd., where the Court clarified that amounts earmarked for charity were not trading receipts but payments meant for charitable purposes only. Additionally, in CIT v. Modipon Ltd. (No. 1), the Delhi High Court upheld the view that receipts on account of charity did not constitute business income.Based on the legal precedents and principles established in the aforementioned cases, the High Court answered the question referred by the Tribunal in favor of the assessee and against the revenue. The Court concluded that the sum collected by the assessee on account of charity did not constitute the assessee's income for taxation purposes. Consequently, the addition of the amount collected for charity was deleted, leading to the withdrawal of deductions allowed under section 80-G. The reference was disposed of in line with the Court's findings and the established legal principles regarding amounts collected for charitable purposes.