Diversion of income at source: amounts earmarked for a charitable trust were not taxable as the recipient's professional income.

Money received subject to an enforceable obligation to apply it to a specific charitable trust was treated as diverted before it became the recipient's income. The High Court applied the principle that an amount earmarked from the outset for a trust, and held in a fiduciary capacity for that purpose, does not constitute taxable professional income in the hands of the individual recipient. On that basis, the disputed receipt was held to fall outside the assessee's taxable income and to have been received on behalf of the trust.

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Issues: Whether the sum of Rs. 32,500 received by the assessee in connection with the criminal defence brief was his professional income taxable in his hands, or whether it was received on behalf of a charitable trust and therefore not taxable as his individual income.

Analysis: The arrangement under which the amount was paid showed that the money was given for charitable purposes on the express condition that a public trust would be created. The amount was received with that specific obligation attached, and the assessee held it in a fiduciary capacity for the intended trust. On that footing, the sum never became his income in the ordinary sense, but was earmarked for the trust from the outset. The decision applied the principle that what is diverted before it reaches the recipient as income is not taxable as his income.

Conclusion: The amount of Rs. 32,500 was not taxable professional income of the assessee, but was received on behalf of a trust.

Final Conclusion: The reference was answered in favour of the assessee, and the disputed amount was held to fall outside his taxable professional income.

Ratio Decidendi: Where money is received subject to an enforceable obligation to apply it to a specific charitable trust, it is diverted before it becomes the recipient's income and is not taxable as his income.

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