TMI Blog1978 (11) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... regarded as forming any income of the assessee. It is true that without payment of dharmada amount the customer may not be able to purchase the goods from the assessee but that would not make the payment of dharmada amount involuntary inasmuch as it is out of his own volition that he purchases yarn and cotton from the assessee. The dharmada amount is, therefore, clearly not a part of the price, but a payment for the specific purpose of being spent on charitable purposes. It is true that the assessee did not keep these amounts in a separate bank account but admittedly a separate dharmada account was maintained in the books in which every receipt was credited and payment made thereout on charity was debited and the High Court has clearly found that these amounts were never credited in the trading account nor were carried to the profit and loss statement. Having regard to this position, it seems to us clear that the Tribunal's finding that no trust could be said to have been created by the customers in respect of the impugned amounts will have to be regarded as erroneous. Appeal dismissed. - C.A. 1328 OF 1973 - - - Dated:- 7-11-1978 - P. N. BHAGWATI. and V. D. TULZAPURKAR. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e executants were trustees and it will be utilised by them for altruistic, religious or charitable purposes. During the previous year (being the calendar year 1950) relevant to the assessment year 1951-52, the total amount received by the assessee-company in the "dharmada account" as aforesaid amounted to Rs. 21,898; similarly, during the previous year (being the calendar year 1951) relevant to the assessment year 1952-53, the company collected from its customers a sum of Rs. 17,242 on account of dharmada and a sum of Rs. 904 for the same purpose from the brokers and interest was also credited to this account amounting to Rs. 4,010 while during the previous year (being the calendar year 1952) relevant to the assessment year 1953-54, the assessee received a sum of Rs. 19,490 as dharmada from its customers and a sum of Rs. 4,578 was also credited on account of interest in the "dharmada account". In the assessment proceedings for the assessment years 1951-52, 1952-53 and 1953-54, the assessee claimed that the aforesaid amounts lying to the credit of the "dharmada account " were held in trust by it and were earmarked for charity and as such they were not its income from business liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court the dispute related to the initial character of the receipt itself and the question was whether the amounts paid by the customers earmarked for charity were the assessee's income at all and following an earlier decision of a Division Bench of that very court in the case of Agra Bullion Exchange Ltd. v. CIT [1961] 41 ITR 472 (All), the High Court held that the impugned amounts were never the income of the assessee at all and that the assessee was merely acting as a conduit pipe or clearing house for passing on the amounts to the objects of charity. It took the view that the Tribunal erred in holding that the levy for dharmada was in the nature of a surcharge on the price charged for sale of yarn and cotton and that in its opinion the fact that it was a compulsory levy ipso facto did not impress the same with the character of a trading receipt. The High Court pointed out that the amounts realised by the assessee on account of dharmada were never treated as trading receipts or as a surcharge on the sale price which was evident from the fact that such realisations were never credited to the trading account nor shown in the profit and loss statement for any year. It furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position he sought to support the Tribunal's finding that no trust could be said to have been created by the customers on the basis of certain factual aspects--(a) the customers paid the amounts not voluntarily but out of compulsion, (b) the customers being illiterate did not appreciate that they were paying the amounts with a view to create trust, (c) there was no control over the assessee as regards the manner in which and the time when it should spend for dharmada, and (d) the assessee did not keep these amounts in a separate bank account--separate from its business assets. lie, therefore, urged that no trust of these realisations could be said to have been created and as such these realisations were rightly regarded by the Tribunal as part of the assessee's trading receipts liable to be included in its assessable income. On the other hand, counsel for the assessee contended that it was the initial character of the receipt in the hands of the assessee that was important, that the amounts when paid by the customers, over and above the price for the goods purchased from the assessee, were paid for dharmada (i.e., for charity) and were received by the assessee as such; in other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In other words, if the legal obligation to spend the same for charitable purposes is void and, therefore, non-existent, the receipts or the realisations may have to be regarded as trading receipts in the hands of the assessee. That being the position, in our view, the approach adopted by the High Court to determine the question at issue cannot be regarded as correct. As pointed out earlier, the High Court approached the question from the angle of deciding whether the impugned amounts realised by the assessee could be regarded as the profits and gains of the business carried on by the assessee under s. 10(1) of the Act, impliedly suggesting that a claim for exemption for such amounts under s. 4(3)(i) of the Act was unnecessary or irrelevant and that the dispute merely related to the initial character of the receipt itself and following the decision in Agra Bullion Exchange case [1961] 41 ITR 472 (All), it held that the amounts in question which were paid by the customers earmarked for charity were riot trading receipts and were never the income of the assessee at all. It is clear that while making this finding the High Court assumed that the customers while paying these amounts ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to how it was to be applied. However, in a later Bombay case, namely, the Advocate-General of Bombay v. Jimbabai [1917] ILR 41 Bom 181; [1915] 31 IC 106, Beaman J. felt that in this country dharma did mean roughly and almost invariably in the cases which had come up for legal decisions just "charity" and nothing else and observed: "It is true that an Oriental's idea of charity might be a little wider and looser than that of Lord Eldon, particularly amongst the lower and more illiterate classes of Hindus and Muhammadans. But a liberal use of the convenient doctrine of cypres, which is surely elastic enough to reach almost anything which judges wish to reach, might have validated the technical defects, and cured the infirmity." It may be stated that with a view to give effect to the popular concept of the word dharma a bill was introduced (being Bill No. 10 of 1938 published in the Gazette of India, Part V, dated 17-9-1938), but it was presumably dropped as it fell under "religious and charitable endowments" in List II of the Government of India Act, 1935, which was a provincial subject. Thereafter, the State of Bombay enacted Bombay Public Trust Act being Act No. XXIX of 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; the former means either law, or virtue or legal duty or moral duty but the latter only means an endowment or gift for religious or charitable purpose. Similarly, if the expression dharma is compared with the expression dharmarth it will be clear that the former is indefinite and equivocal while the latter has only one meaning, namely, anything given for charitable or pious purpose. The Marathi expression dharmakhaten means the head of accounts under which pious or charitable gifts are entered. From the above discussion it appears to us clear that though there is some justification for holding that a gift to dharma simpliciter would be invalid on ground of vagueness and uncertainty, a gift to dharmada (dharmadaya) would be definite, the object being certain, namely, for religious or charitable purposes. In common parlance, therefore, the expression dharmada or dharmadaya cannot be said to be vague or uncertain and as such a gift to dharmada (dharmadaya) would not be invalid for vagueness or uncertainty. Counsel for the revenue, however, strongly relied upon the decision of the Bombay High Court in Devshankar Naranbhai v. Moti Ram Jageshvar [1893] ILR 18 Bom 136, where that court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income of an assessee, its real nature and quality had had to be considered and if it was received under a custom, the answer to the question depended on the nature of the obligation created by the custom. The assessee's specific case was that in the district of Shahjahanpur there was a custom according to which the commission agents realised dharmada from their constituents and spent the same on charity and this specific case was not controverted by the revenue, presumably because the revenue was aware that such a custom did obtain in the trading community. It was contended on behalf of the revenue that the ownership of the fund realised by way of dharmada rested entirely in the assessee who was free to spend the amount according to his own discretion, and, therefore, the assessee's position, qua the dharmada account was not that of a trustee. Rejecting this contention the Allahabad High Court observed thus: "We are unable to accept the submission that as the ownership of the amounts credited to the dharmada account vest in the petitioner and it enjoys some discretion with regard to its disposal it cannot be said that its position is that of a trustee. The question whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a gift to dharmada or dharmadaya both in common parlance as well as by the customary meaning attached thereto among the commercial and trading community cannot be regarded as void or invalid on account of vagueness or uncertainty, and it is, therefore, clear that when the customers or brokers paid the impugned amounts to the assessee earmarking them for dharmada it must be held that these payments were validly earmarked for charitable purposes. In other words, right from inception these amounts were received and held by the assessee under an obligation to spend the same for charitable purposes only, with the result that these receipts cannot be regarded as forming any income of the assessee. The next aspect requiring consideration is whether because of the compulsory nature of the levy the impugned amounts charged to the customers and received by the assessee could be regarded as a part of the price or a surcharge on the price as contended by the counsel for the revenue ? In our view, this question is covered by the decision of this court in Tollygunge Club's case [1977] 107 ITR 776 (SC). In that case, the respondent-club conducted horse races with amateur riders and charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce or a surcharge on price of goods purchased by the customers. The amount of dharmada is undoubtedly a payment which a customer is required to pay in addition to the price of the goods which he purchases from the assessee but the purchase of the goods by the customer would be the occasion and not the consideration for the dharmada amount taken from the customer. It is true that without payment of dharmada amount the customer may not be able to purchase the goods from the assessee but that would not make the payment of dharmada amount involuntary inasmuch as it is out of his own volition that he purchases yarn and cotton from the assessee. The dharmada amount is, therefore, clearly not a part of the price, but a payment for the specific purpose of being spent on charitable purposes. The two decisions on which reliance was placed by counsel for the revenue, namely, Poosarla Sambamurthi's case [1956] 7 STC 652 (AP) and Pandaria Pillai's case [1973] 31 STC 108 (Mad) are clearly distinguishable and inapplicable to the facts of this case inasmuch as both the decisions were rendered under sales tax legislation where the question that was required to be considered was whether the realisat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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