1969 (1) TMI 7 - HC - Income Tax

Assessee, a manufacturer collected a percentage of the sale price towards charity but not spent that amount towards charity - Are the collections towards charity, the income of the assessee - Tribunal have not applied their mind as to whether the collections were contributed voluntarily and with a view to creating a trust - intention of the giver is important to decide whether the contributions would form part of the income of the assessee - case remanded

Summary

Issues:
1. Whether the amount collected by the assessee for charity constitutes part of the assessee's income for the assessment year 1962-63.

Analysis:
The judgment delivered by the High Court of Madras involved a dispute regarding the treatment of an amount collected by the assessee for charity during the assessment year 1962-63. The assessee, engaged in the business of manufacturing and selling washing soaps, collected half a per cent of the sale price from regular stockists and labeled it as for Mummoorthy Vinayagar Charity. The total collection amounted to Rs. 2,270, but there was no evidence that this amount was actually spent on charity. The Tribunal, contrary to the revenue's stance, held that this amount should not be considered as part of the assessee's income for the year. The Commissioner of Income-tax brought up the reference challenging this decision.

The High Court analyzed the nature of the collection and emphasized the importance of the intention behind the contributions. It was noted that the collection was made specifically from regular stockists of the soaps, at a fixed rate, and was separately mentioned in the bills for charity purposes. The court deliberated on whether the contributories intended the collection to be a gift to the charity, forming a trust for that purpose. The crucial aspect was determining whether the contributions were voluntary and intended as a gift, or if they were part of the consideration for the sale. The court highlighted that the creation of a trust involves a voluntary transfer of ownership to the trustee for a specific purpose.

The High Court criticized the Tribunal for not adequately considering whether the contributions were made voluntarily with the intention of creating a trust. The court emphasized that the intention of the contributors, especially considering their religious beliefs, was crucial in determining the nature of the collections. Due to the Tribunal's failure to address these essential factors, the court ruled in favor of the revenue, indicating that the collections should be considered as part of the assessee's income. However, the court refrained from making a definitive decision on whether the amount collected formed part of the income, highlighting the need for a more thorough examination based on the essential elements discussed.

In conclusion, the High Court directed the Tribunal to reconsider the matter, taking into account the observations made in the judgment. The Tribunal was instructed to reassess the case in light of the factors related to the voluntary nature of contributions and the intention behind the collection for charity. The court made no order as to costs in the particular circumstances of the case, leaving the final decision on the treatment of the collected amount subject to a more detailed examination by the Tribunal.