1978 (10) TMI 84 - AT - Income Tax

Charity collections not business income, ITAT decision upheld.

The ITAT Madras-C upheld the AAC's decision to delete the addition of charity collection amounts to the business income for the assessment year 1971-72. ... Charity collections held on trust - conduit or trustee principle - voluntary payments not forming part of trading receipts - distinction between sale price and separate charity collection - application of principles in CIT v. Tollygunge Club Ltd regarding earmarked charity collectionsCharity collections held on trust - conduit or trustee principle - voluntary payments not forming part of trading receipts - Whether amounts collected separately and earmarked for charity in sales and purchase vouchers formed part of the assessee's taxable business income or were held as trust/conduit and not assessable - HELD THAT: - The Tribunal examined specimen sale and purchase vouchers and found the collections were recorded at uniform rates and paid as independent amounts over and above (or separate from) the price of the commodity. The payers were aware that these sums were not part of the sale or purchase price and the payments were not shown to be compulsory or linked to the trading transactions. On these facts the assessee acted merely as a conduit for voluntary collections earmarked for charitable purposes. Applying the principles laid down in the cited Supreme Court authority concerning earmarked charity collections, the amounts were impressed with an obligation in the nature of a trust and therefore did not constitute the assessee's trading receipts or income. [Paras 3]The deletion by the AAC of the addition of the charity collections is upheld and the amounts are not assessable as the assessee's income.Final Conclusion: The Revenue's appeal is dismissed; the Tribunal upholds the AAC's deletion of the addition, holding the separately collected charity amounts to be voluntary payments held on trust/conduit and not the assessee's taxable income. Issues:- Addition of charity collection amounts to business income for assessment year 1971-72.- Whether charity collections made while selling yarn and purchasing cotton should be included in the assessee's income.Analysis:The case involved an appeal by the Revenue against the order of the AAC of Income-tax deleting the addition of Rs. 7,665 made in the reassessment for the assessment year 1971-72. The Income Tax Officer (ITO) had added amounts related to charity collections made while selling yarn and purchasing cotton to the business income assessed originally. The AAC, considering the manner of dealing with the charity collections, found that they did not form part of the trading account of the assessee. The AAC relied on a previous Tribunal order and a Supreme Court decision to support the assessee's position. The Revenue appealed this decision before the ITAT Madras-C.Upon hearing both parties and examining the sales and purchase vouchers, the ITAT observed that the charity collections were made at uniform rates and were voluntary payments for charitable purposes. The ITAT concluded that these amounts were not compulsory and were separate from the sale or purchase transactions. The ITAT noted that the collections were to be used for charitable purposes and were not part of the assessee's income. Referring to the Tribunal order and the Supreme Court decision, the ITAT upheld the AAC's decision, stating that the amounts collected were impressed with an obligation in the nature of trust for charities and thus should not be considered as part of the assessee's income. Consequently, the appeal of the Revenue was dismissed, affirming the order of the AAC.