1978 (11) TMI 1 - SC - Income Tax

Dharmada amounts not taxable; upheld as trust for charity. Compulsory levy remains charitable. Revenue's appeal dismissed.

Commissioner of Income-Tax (Central), New Delhi Versus Bijli Cotton Mills Pvt. Limited

The Supreme Court upheld the High Court's decision that the dharmada amounts collected by the assessee-company were not taxable as income but were held in ... Whether a gift to dharmada is void on grounds of vagueness or uncertainty ? Whether because of the compulsory nature of the levy the impugned amounts charged to the customers and received by the assessee could be regarded as a part of the price or a surcharge on the price as contended by the counsel for the revenue ? Held that:- A gift to dharmada or dharmadaya both in common parlance as well as by the customary meaning attached thereto among the commercial and trading community cannot be regarded as void or invalid on account of vagueness or uncertainty, and it is, therefore, clear that when the customers or brokers paid the impugned amounts to the assessee earmarking them for dharmada it must be held that these payments were validly earmarked for charitable purposes. Thus right from inception these amounts were received and held by the assessee under an obligation to spend the same for charitable purposes only, with the result that these receipts cannot be regarded as forming any income of the assessee. It is true that without payment of dharmada amount the customer may not be able to purchase the goods from the assessee but that would not make the payment of dharmada amount involuntary inasmuch as it is out of his own volition that he purchases yarn and cotton from the assessee. The dharmada amount is, therefore, clearly not a part of the price, but a payment for the specific purpose of being spent on charitable purposes. It is true that the assessee did not keep these amounts in a separate bank account but admittedly a separate dharmada account was maintained in the books in which every receipt was credited and payment made thereout on charity was debited and the High Court has clearly found that these amounts were never credited in the trading account nor were carried to the profit and loss statement. Having regard to this position, it seems to us clear that the Tribunal's finding that no trust could be said to have been created by the customers in respect of the impugned amounts will have to be regarded as erroneous. Appeal dismissed. Issues Involved:1. Whether the amounts realized by the assessee-company from its customers as dharmada during the assessment years 1951-52, 1952-53, and 1953-54 are liable to be taxed as its income under the Indian Income Tax Act, 1922.Detailed Analysis:1. Nature of Dharmada Payments:The core issue is whether the amounts collected as dharmada by the assessee-company from its customers are taxable as income. The assessee-company, incorporated in 1943, carried on the business of manufacturing and selling yarn and cotton, and collected dharmada amounts from its customers, which were shown in a separate column in the bills and credited to a 'dharmada account.' The company claimed that these amounts were held in trust for charitable purposes and hence not taxable as income.2. Tribunal's Findings:The Tribunal rejected the assessee's claim on two grounds:- The amounts could not be regarded as held under a trust for charitable purposes due to vagueness and uncertainty.- The realizations partook the character of trading receipts.3. High Court's Ruling:The High Court, following the decision in Agra Bullion Exchange Ltd. v. CIT, held that the amounts realized as dharmada were not the income of the assessee but were held in trust for charitable purposes. It pointed out that the amounts were never treated as trading receipts, nor credited to the trading account or profit and loss statement.4. Revenue's Contentions:The revenue argued that:- The compulsory nature of the dharmada levy made it part of the consideration or price for the goods, thereby making it a trading receipt.- A gift for dharmada is void for vagueness and uncertainty, hence the amounts could not be regarded as 'property held under trust or other legal obligation for charitable purposes.'5. Assessee's Arguments:The assessee contended that:- The initial character of the receipt was important, and the amounts were paid for dharmada (charity) and received as such.- The concepts of dharma and dharmada are distinct; while a gift to dharma may be void for vagueness, a gift to dharmada is not, as it is invariably regarded as a gift for charitable purposes by commercial custom.6. Supreme Court's Analysis:The Supreme Court analyzed two aspects:- Whether the receipts were trading receipts.- Whether the earmarking for dharmada created a valid trust or obligation for charitable purposes.The Court noted that a gift to dharmada, both in common parlance and by commercial custom, is regarded as a gift for charitable purposes and is not void for vagueness or uncertainty. It referred to the Full Bench decision of the Allahabad High Court in Thakur Das Shyam Sunder v. Addl. CIT, which recognized the custom of collecting dharmada amounts for charitable purposes.7. Compulsory Nature of Dharmada:The Court held that the compulsory nature of the levy did not alter the character of the receipts. Drawing a parallel with the Tollygunge Club case, where a surcharge for charity was not considered part of the price for admission, the Court concluded that the dharmada amounts were not part of the price or a surcharge but payments for charitable purposes.8. Tribunal's Factual Aspects:The Court rejected the Tribunal's findings that no trust was created by the customers, noting that:- The compulsory nature of the levy did not make the payments involuntary.- The customers, whether literate or illiterate, knew the payments were for charitable purposes due to the customary levy.- The discretion in spending the dharmada amounts did not affect the obligation to utilize them for charitable purposes.- The separate dharmada account maintained by the assessee indicated that the amounts were not trading receipts.Conclusion:The Supreme Court confirmed the High Court's conclusion that the dharmada amounts were validly earmarked for charitable purposes and could not be regarded as the assessee's income chargeable to income-tax. The appeals were dismissed with costs.