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TMI Blog1960 (9) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... incorporated was to contribute for charitable and other public purposes out of the profits of the company. We have underlined the words out of the profits of the company . 3. For the assessment year 1948-49 (previous year financial year 1947-48), the assessee company's income was computed by the Income- tax Officer at ₹ 56,209, including a sum of ₹ 26,903 said to have been received by the assessee company for the purposes of charity. A copy of the Income?tax? Officer's order is annexure A and forms part of the case. The balance sheet and profit and loss account for the year ended March 31, 1948, form part of the case. They are not printed in order to reduce the cost of printing. The assessee company is, however, directed to produce the copies thereof at the hearing of the reference by the High Court. It will be noticed that the assessee company in its profit and loss account did not include the money said to have been received by it for the purposes of charity. it will also be noticed that in the balance sheet there is a foot-note to the effect that ₹ 42,000 stand deposited in fixed deposit with banks in respect of the Agra Bullion Charitable Ey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... success. A copy of the Appellate Assistant Commissioner's order is annexure B and forms part of the case. The assessee company thereupon appealed to the Appellate Tribunal. The appeals were heard by Messrs. Dalal (Accountant Member) and Samarth (judicial Member). The Accountant Member was of opinion that the sum received on account of charity was not liable to tax whereas the judicial Member was of a contrary opinion. The matter, was then referred to the President under section 5A(7) of the Indian Income-tax Act. The President heard the case and he agreed with the judicial Member. A copy of the Tribunal's order is annexure C and forms part of the case. 8. It will be noticed that the attempt made by the assessee company, claiming exemption under section 4(3)(1) of the Act, was given up before the President and also the attempt made on the basis of a certain paragraph in the Income-tax Manual. 9. The question at issue was whether the sums received by the assessee company on account of charity in accordance with rule 49 was its income, and this question was answered in the affirmative by the Tribunal. 10. The question of law that, therefore, arises is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 56,209 including a sum of ₹ 26,903 said to have been received by the assessee company for the purposes of charity. (2) The assessee company in its profit and loss account did not include the money said to have been received by it for the purposes of charity. (3) In the balance sheet there is a footnote to the effect that ₹ 42,000 stand deposited in fixed deposit with banks in respect of the Agra Bullion Charitable Eye Hospital Trust out of charity contributions made by trading members as per decision of the directors. (4) For the assessment year 1949?50, the assessee company's income was computed at Rs. io,652 including a sum of ₹ 6,040 said to have been received on account of charity. (5) The assessee company has a trading hall where licensed traders (trading members) do business through licensed brokers. In fact the assessee company acts as a clearing house. The orders of the Income tax Officer and the Appellate Assistant Commissioner have been appended to the statement of the case and made part of it. The Income tax Officer subjected to tax the amounts received for charity from the ?trading members. On appeal the tax was upheld by the Appellate Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eto. . It is not even suggested that any part of the brokerage charges or difference money could be retained by the assessee company for itself. These amounts have not been treated as income of the company by the income tax authorities. The only other amount received by the assessee company was for charity at the rate of one anna per barcha. This amount had to be spent according to the rules of the company and the resolution of the board relating to their expenditure. As is evident from rule 49 quoted above one fourth of this amount could be spent on miscellaneous items of charity but three fourths bad to be spent in accordance with the resolution of the board. Learned counsel for the Department has conceded that substantial amounts have been spent on the eye hospital run by the assessee. It is not suggested that any part of the collections made for charity have been appropriated by the assessee company for its own use. Learned counsel for the Department, however, contended that if the money received for charity was not spent away on charitable purposes forthwith and formed part of the balance in hand the use of that money was available to the assessee company. This argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment for the assessee but was definitely a payment for charity and was only entrusted to the assessee company for proper expenditure. We were referred to a decision of this court in Chamber of Commerce, Hapur v. Commissioner of Income-tax*. That was a case where the Chamber of Commerce had claimed the exclusion from its total income of amounts spent on charity in accordance with one of its objects. The court held: That the assessee was not a charitable institution within the meaning of the Income-tax Act and was not exempt from tax as such on its income, so the assessee was not entitled to claim exemption in respect of any money which it might have elected to spend on charity. The facts of that case are quite different from those of the case now before us and the answer given to the question referred in their case affords no guidance to us. Another case to which we have been referred by learned counsel for the Department is Commissioner of Income-tax v. Vyas and Dhotiwala [1959] 35 I.T.R. 55, 58, 60. That was a case where the assessee, an association of persons, undertook to carry on the business of distributing cloth according to a scheme evolved by the Deputy Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned that the view taken by the income-tax authorities had compelled the assessee to discontinue collecting the amounts for charity. Learned counsel for the assessee also said that this was correct. This unfortunate result appears to be due to a misapprehension about the initial character of the receipts. It appears that among the objects of the assessee company is an object which empowers the company to spend its profits on charitable objects. This object is wholly irrelevant to the question that has been raised in this case. The amounts claimed to be exempted were not parts of the assessee's profits; nor does the company contend that the amounts cannot be taxed because they have been spent on charity by the assessee out of its own profits. As mentioned above, the dispute relates to the initial character of the receipt itself and is as to whether the amount paid by the trading members earmarked for charity was the assessee's income at all. We are, therefore, of opinion that the question referred to this court should be answered in the negative and that the sums of ₹ 26,903 and ₹ 6,040 in question were not income of the assessee. The assessee is entitled to it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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