9911796707
TMI Blog1973 (4) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... a commission agent carrying on its business in Shahjahanpur. It claims that in the district of Shahjahanpur there is a long standing custom according to which the commission agents charge on every transaction of sale of goods worth Rs. 100, a sum of 15 paise from the person to whom goods are sold and 10 paise from the person whose goods are sold through them as dharmada. This charge is over and above the commission which a commission agent is entitled to receive from both the parties. Dharmada so collected is a customary levy which is realised and credited by the commission agent in a separate account known as dharmada account. This amount is held by them on trust to be utilised specifically and exclusively for charitable purposes. During the accounting year, relevant to the assessment year 1970-71, the petitioner received and credited a sum of Rs. 2,400 in its dharmada account. The Income-tax Officer, Shahjahanpur, treated this receipt as the petitioner's income and brought it to tax. Being aggrieved by the order of the Income-tax Officer, the petitioner filed a revision before the Commissioner of the Income-tax, U.P., Lucknow, which was rejected on January 15, 1972. The Addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presumed that in this case the parties which in the relevant accounting year entered into transactions through the petitioner were aware of the trading custom and they paid dharmada to the petitioner with the knowledge and understanding that the amount so paid by them was to be credited to the fund which had already been opened by the petitioner for purposes of charity. As pointed out by the Supreme Court in the case of Commissioner of Income-tax v. Shoorji Vallabhdas and Co., income-tax is a levy on income. No doubt the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt, but the substance of the matter is the income. If income does not result at all there cannot be a tax even though in book-keeping an entry is made about hypothetical income which does not materialise. Where income has in fact been received and is subsequently given up it remains the income of the recipient, even though given up and the tax with regard to it is payable. Where, however, the income can be said not to have resulted at all there is obviously neither accrual nor receipt of income even though an entry to that e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to both the parties, viz., the one paying dharmada and the other receiving the same, that it was being received by the petitioner for being credited to an already existing fund for charity. Accordingly, when this amount reached the petitioner it did not in truth reach him as its income. Learned counsel for the revenue placed strong reliance on the case of Commissioner of Income-tax v. Thakar Das Bhargava. In that case what had happened was that an assessee who was an advocate was originally reluctant but later on agreed to defend certain accused persons in a criminal trial on condition that he would be paid a sum of Rs. 40,000 for creating a public charitable trust. When the trial was over the assessee was paid a sum of Rs. 32,000 and he created a trust in respect of that amount by executing a trust deed. In the circumstances, the Supreme Court held that the sum of Rs. 32,000 received by the assessee was his professional income. At the time when the assessee received the amount no trust or obligation in the nature of a trust was created. When the assessee created a trust by executing the trust deed he applied a part of his professional income for purposes of that trust. It was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of charity and not for performing or rendering any specified services to the persons who made the contribution. Learned counsel for the revenue then relied upon the case of Kanpur Agencies Private Ltd. v. Commissioner of Income-tax. In that case the assessee who was the sole selling agent of a cotton mills realised from the purchasers, on each bale of goods, some amount towards charity and the same was collected and credited in a separate account in the assessee's books which was styled as Marwari charitable account. The Tribunal found that although the amount was realised by the assessee from its customers apparently on the ground of charity and although the amount was credited to the account " Marwari Charitable Society ", the disbursement of the amount was entirely within the discretion of the assessee and the assessee was not bound to devote any amount to the Marwari Charitable Society. It was held that the amount having been realised by the assessee from its customers as a part of and in connection with the sale transactions must be treated as its business income. It will be seen that in that case the Tribunal did not accept the case of the assessee that the amount reali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to pay the same, the Supreme court came to the conclusion that the amount collected under the head " sales tax " was really the income of the assessee. This decision does not lay down that each and every receipt, during the course of a business transaction, must necessarily be the income of the recipient. It emphasizes that in each case the true nature and the quality of the receipt has to be considered. As pointed out earlier, the case of the petitioner that in the district of Shahjahanpur, dharmada is a customary levy which is to be necessarily spent for purposes of charity has not been controverted in the present case. That being so, the fact that dharmada was being collected and credited to an account reserved for charity clearly shows that it was never intended to be the income of the recipient. Moreover, the custom is not that the petitioner is required to spend on charity some amount from out of its income whether or not it recovered the same from its constituents. In view of the aforesaid discussion, we agree with the proposition laid down in the case of Agra Bullion Exchange Ltd. v. Commissioner of Income-tax, wherein it has been held that a receipt earmarked as chari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a great deal of latitude is permitted and the rule is that, provided there is a clear intention to make a gift for charity, the trust is not allowed to fail for uncertainty. The theory upon which the rule rests is that in the case of charitable trusts, charity in the abstract is to be taken to be the object and the specific purpose to which the fund or the income of the fund may be applied constitute only the mode of administering the trust. Indefiniteness as regards the specification of the objects is, therefore, regarded only as an indefiniteness in regard to the manner in which the trust will be administered. So, if a clear intention to create a trust in favour of charity is discernible, defects in the mode prescribed or absence of any such prescription does not invalidate the trust. The defect is taken as attaching to a matter which is not essential. It has, therefore, been held that a trust deed barely creating a trust for charities without specifying any charities at all is valid. The court in such cases can always intervene and choose appropriate charities which it considers proper although it will always pay regard to the wishes of the trustee in so far as they are ascertai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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