Statutory earmarked receipts for developmental work were not taxable income where funds remained tied to the same purpose.

Receipts collected by the council from sugar mills for a statutorily earmarked developmental purpose were held not to constitute income under section 2(24) because the funds were required to be used for road construction and other developmental work, with unspent amounts carried forward for the same object. As the amounts were neither diverted, distributed as profit, nor applied to any non-statutory purpose, their character did not change into taxable income. The council's status as a local authority was not determinative of the tax result. The addition was therefore unsustainable, and the first appellate authority's finding was upheld in favour of the assessee.

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Issues: Whether the receipts collected by the council from sugar mills were taxable income under section 2(24) of the Income-tax Act, 1961, and whether the assessee's status as a local authority was determinative.

Analysis: The receipts were found to be commissions collected for a specified developmental purpose under the governing sugarcane regulatory framework. The funds were required to be used for construction of roads and other developmental work, with unspent amounts carried forward for the same purpose. There was no finding that the amounts were diverted, distributed as profit, or used for any object other than the statutory developmental activity. On that basis, the character of the receipts was not that of income within section 2(24), and the objection regarding local authority status did not affect the result.

Conclusion: The addition was unsustainable and the finding of the first appellate authority was upheld in favour of the assessee.

Ratio Decidendi: Amounts received for a statutorily mandated, earmarked developmental purpose and retained for that same purpose do not assume the character of taxable income merely because they are collected and accounted for by the recipient.

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