Charitable surcharge diverted at source under trust was excluded from taxable income as non-beneficial receipt.

A surcharge collected on admission tickets for local charities was treated as diverted at source under a trust created for the charitable object, so it never became the assessee's beneficial income. The Court distinguished cases where income is first received as trading income and only later applied to charity, and found that the resolution and ticketing arrangement earmarked the surcharge for a specified charitable purpose with direct credit to the charity account. On those facts, the surcharge was not taxable as the assessee's income, and any uncertainty in the wording of the charitable object did not defeat the trust where the beneficiary and purpose were otherwise ascertainable.

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Issues: Whether the surcharge collected on admission tickets for local charities formed part of the assessee's taxable income for the assessment year 1960-61, or whether it was diverted before accrual by a trust created for the charitable object.

Analysis: The decisive question was whether the surcharge, when collected, ever became the assessee's income. Income tax is chargeable only on income that accrues or is received as income; if by a legally enforceable arrangement the money is diverted before it reaches the assessee beneficially, it does not form part of taxable income. The resolution and ticketing arrangement showed that the surcharge was imposed for local charities, the receipts were credited directly to the charity account, and the amount was not treated as the assessee's trading receipt. The Court distinguished cases where money is first received as income and only later applied to charity, and held that on the facts a trust was created in respect of the surcharge. The purposes and beneficiary were identified, and the trust property was sufficiently ascertainable notwithstanding the future receipt of the fund. Any uncertainty in the expression used for the charitable object would not defeat the trust if otherwise valid, and the cy-pre s principle would apply where necessary.

Conclusion: The surcharge did not constitute the assessee's taxable income and was excluded from assessment in favour of the assessee.

Ratio Decidendi: Where a surcharge is collected under an arrangement that creates a trust for charity before the amount becomes the assessee's beneficial income, the receipt is diverted at source and is not taxable as the assessee's income.

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