9911796707
TMI Blog1995 (7) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... s income of Rs. 16,35,320. The Income-tax Officer made certain additions and computed the total income of Rs. 26,37,223. One of the major items of dispute is the inclusion by the Income-tax Officer, of a sum of Rs. 3,87,832 being the net collection for three days of racing, on March 4, 1972 ; March 5, 1972 and March 12, 1972. The assessee's claim was that it conducted races for two days on March 4 and 5, 1972, for the benefit of the Chief Minister's Relief Fund and on March 12, 1972, for the benefit of the Beggars' Rehabilitation Fund and the net collections were passed over to those funds and there was diversion of income, even before accrual, by means of an overriding title, created in favour of those funds and so the amount cannot be brought to tax in the hands of the assessee. As against the order passed by the Income-tax Officer, an appeal was filed before the Appellate Assistant Commissioner (AAC). Before the Appellate Assistant Commissioner, two additional grounds were raised. Since they are legal issues, additional grounds were accepted. In the additional grounds, the first point involved is with reference to the surplus in the Race Club Accident Fund being treated as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officers had been empowered under different rules to make the collection and deposit it into the fund directly. The accounts of the fund were maintained separately and the income of the fund need not be included in the hands of the assessee-club. The assessee-club had no power to deal with the said money. It was decided altogether by a different body under a separate set of rules and guidance. Here also the Appellate Assistant Commissioner held that there was diversion of income by overriding title. In the light of the above facts, the Appellate Assistant Commissioner held that the surplus of the accident fund should not be treated as the assessee's income. The aggrieved Department went on appeal before the Appellate Tribunal. The Appellate Tribunal, agreeing with the reasons given by the Appellate Assistant Commissioner, held that the races on the aforesaid three days were conducted for the benefit of the Chief Minister's Relief Fund and for the Beggars' Rehabilitation Fund and the income derived on the races conducted on those three days shall not be the assessee's income. According to the Appellate Tribunal, there was diversion of income, even from its source and the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts were not paid as promised. The decision rendered by this court in the case of the same assessee in the earlier assessment years (Madras Race Club v. CIT [1985] 151 ITR 675 (Mad)) would apply on all fours, to the facts arising in the present assessment year under consideration also. Learned standing counsel also placed reliance on the decision reported in CIT v. Sitaldas Tirathdas [1961] 41 ITR 367 (SC). Learned standing counsel also drew our attention to the latest decision of the Supreme Court in Moti Lal Chhadami Lal Jain v. CIT [1991] 190 ITR 1 (SC). In this context, reliance was also placed on the decision reported in CIT v. Vyas and Dhotiwala [1959] 35 ITR 55 (SC). It was, therefore, pleaded, that the Tribunal was not correct in holding that the amounts collected during the abovesaid three days do not form part of the income of the assessee. On the other hand, learned counsel appearing for the assessee submitted that even though there is no direct Government order for contributing the fund to the abovesaid two clubs, there was some oral understanding that the Race Club would contribute three days' net collections to the abovesaid two funds. It was represented to the au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not exceed Rs. 7 lakhs and if the Race Club earns more than Rs. 7 lakhs, there was no obligation on the part of the Race Club to part with the excess amount. Therefore, there was no obligation in the earlier year to contribute as per the directions given by the Government. Hence, it was submitted that the decision rendered by this court in Madras Race Club v. CIT [1985] 151 ITR 675, which related to the earlier year's assessment order would not be applicable for the present assessment year, since the facts are different. For these reasons, it was submitted that the Tribunal was correct in holding that there was diversion of income by overriding title in the present assessment year under consideration. We have heard the rival submissions. The points for consideration are whether there has been diversion of income at source by overriding title and whether the income for those three days is not taxable at the hands of the assessee or whether the amounts were handed over to the funds only by way of contribution by the assessee after earning the income. The dispute is with regard to the inclusion by the Income-tax Officer of a sum of Rs. 3,87,832 being the net collection for three d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lished in the newspapers stating that the races are going to be conducted on those three days on behalf of the abovesaid two funds. In the annual report also, for the year ending March 31, 1972, the Race Club had pointed out that the collection during those three days were meant for charities. The net amount collected during those three days were handed over to the abovesaid two funds by way of cheques presented to the Chief Minister in person. Thereafter, the entertainment tax also was waived by the Government. Now, we have to consider whether on those facts, it can be said that there is diversion of income by overriding title. The two tests for the application of the rule of, diversion of income by overriding title were succinctly stated in the decision of the Supreme Court in the case of CIT v. Sitaldas Tirathdas [1961] 41 ITR 367 (SC) as under (see [1991] 190 ITR 1, 10) : " We are of the opinion that this contention cannot be accepted. As we have pointed out earlier, the right given to the college to sue the company is only the right to recover part of the amount which has already accrued to the assessee. The creation of a charge in favour of the college does not make any d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full rights to recover the sum of Rs. 10,000 by recourse to the court and the college shall have a first charge on the property. For the assessment year 1967-68, it was claimed that the sum of Rs. 10,000 was the income of the college and hence not part of the appellant's income on the ground that the sum of Rs. 10,000 had got diverted by overriding title to the college and ceased to be the appellant's income. On these facts, while answering the question whether on a proper construction of the lease deeds dated May 3, 1960, and May 5, 1962, and accompanying facts and circumstances of the case, the sum of Rs. 10,000 is the income of the assessee and not that of Chhadami Lal Jain Degree College, the Supreme Court held as under : " Affirming the decision of the High Court, that the appellant family's agreement with the company was only that Rs. 10,000 out of the rent due should be paid directly to the college. This was only a mode of application of the income of the family which made no difference to its liability to pay tax on the entire rent of Rs. 21,000 which had accrued to the family. Nor did the fact that the college had been given a right by the four-party agreement to sue for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Government. The Secretary to the Home Department wrote back to the secretary, Madras Race Club, Madras-32, on March 3, 1972, stating that the Government agreed to the programme of dates of the races for the Chief Minister's Relief Fund and the Beggars' Rehabilitation Fund as proposed. On March 3, 1972, the officiating secretary wrote to the Tamil Nadu Government asking for exemption from the payment of entertainment tax and surcharges for those three days. The Additional Secretary to the Government had communicated the order on April 18, 1974, that the Government waived the collection of entertainment tax due in respect of the races held on the three days. The Race Club notified the dates to the racing public and its members pointing out that the races will be held on the said dates on behalf of the abovesaid two funds of the Government. Wide publicity was given in the publications of the race club and in the newspapers pointing out that the races conducted on the said three days will be on behalf of the two funds stated above. The annual report of the race club for the year ending March 31, 1972, also pointed out under the head "Charities" during the year under review tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government for handling over the collection to the abovesaid two funds. The race club conducted races for three days for the benefit of and on behalf of the abovesaid two funds. Therefore, the right to receive the abovesaid three days' collection was vested in the hands of the abovesaid two funds even before the collection reaches the hands of the assessee-club and before the commencement of races the beneficiaries are known that the collections were earmarked for the benefit of the beneficiaries, viz., the abovesaid two funds. If the abovesaid three days' collections were not paid to the said two funds, the beneficiaries under the said two funds can claim the said collections from the race club. For all these reasons, we hold that there is a diversion of income by overriding title, and the three days' collections are payable to the beneficiaries of the abovesaid two funds other than the one entitled to it. Accordingly, the abovesaid three days' collection cannot be considered to be the income of the assessee-club. Before us, learned standing counsel for the Department relied on a decision of this court in Madras Race Club v. CIT [1985] 151 ITR 675 in the case of the same assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, it did not appear that the contributions were ab initio earmarked or subjected to any legal obligation for application to specified charities. Consequently, the Tribunal was right in its view and the net amounts received were assessable. " According to the facts arising in the case of the same assessee for the assessment years 1969-70 and 1970-71, the resolution of the general body meeting of the race club only authorised the committee of management to spend amount on certain charities. Such authorisation was not a mandatory one and such resolution does not specifically say that the race club should spend the amounts on charities. There was a discretionary power with the committee of management to spend or not to spend on charity. The beneficiaries in those years were the Madras Cricket Association and the Madras Race Club Charitable Trust. In respect of the other three days, i.e., March 19, 22 and 29 of 1970, there was not even any resolution. In the assessment years 1969-70 and 1970-71, though the assessee claimed that the resolutions were passed much earlier to the conduct of the races, no evidence was produced to support this version with reference to the claim made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1977] 107 ITR 776 (SC), we hold that the Tribunal was correct in coming to the conclusion that the three days' collection cannot be assessed in the hands of the assessee-race club. Accordingly, we answer the question referred to us in the affirmative and against the Department. The second question relates to surplus in the Race Club Accident Fund. There was a surplus of Rs. 7,733 in the said fund. The Income-tax Officer followed the prior year's order and had pointed out that there was no obligation imposed on the trust to disburse the fund and such disbursement was purely discretionary. The Income-tax Officer treated this surplus as income of the assessee-company. On appeal, the Appellate Assistant Commissioner considered all the facts and had held that this is a separate fund and cannot be treated as income of the assessee. On further appeal, the Appellate Tribunal confirmed the order passed by the Appellate Assistant Commissioner. This fund was created under the Madras Race Club Rules of Racing on the 1st of April, 1966. The Scheme was for providing benefits to the jockeys injured while riding. At every race meeting, the owner of a horse running in the event was to pay a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X
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