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TMI Blog1973 (4) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... ission 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 Additional Commissioner held that the amount in dispute was received by the petitioner during the course of business transaction and was undoubtedly its trading receipt; the ownership in the funds vested entirely in the petitioner, who was free to spend the amount according to its own discretion. In the circumstances, the Income-tax Officer was justified in treating the amount of dharmada received by the petitioner as its trading receipt and in including it in its income. The petitioner then filed the present writ petition before this court contending that the amount of dharma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 effect might in certain circumstances have been made in the books of account. The question, therefore, that arises for consideration is whether if while entering into business transactions through the petitioner, various parties made contribution to its dharmada fund, such contributions constituted the petitioner's income. In the case of Commissioner of Income-tax v. Sital Das Tirath Das, the Supreme Court laid down the principle for determining as to when and in what circumstances receipt of an amount by an assessee can be considered to be his income for the purposes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 further observed that mere desire on the part of the assessee to create a trust from out of the monies paid to him neither created a trust nor did it give rise to any legally enforceable obligation. Judgment of the Supreme Court makes it clear that, according to it there was no trust in existence for and on behalf of which the money had been received by the assessee. Its judgment might well have been otherwise if it could be shown that there was a trust already in existence and the sum of Rs. 32,000 had been received by the advocate concerned for being credited to that fund. Rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 realised by the assessee from its customers had necessarily to be spent on charity. According to the findings arrived at in that case, the amount had been realised by the assessee for its own purposes and it had full discretion to spend the amount for any purpose whatsoever. The amount was not held in trust by the recipient and there was no binding obligation on it to apply the same for charitable purposes. In the case before us, however, the amount has been realised for the purposes of a fund reserved for charity. The facts of this case cited by the learned counsel for the revenue are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 charity by the person making the payment does not accrue as an item of income to the assessee. In respect of the amounts given for charity, the assessee could be likened to a conduit pipe through whom the amounts pass. The decision of a Division Bench of the Calcutta High Court in the case of Commissioner of Income-tax v. Tollygunge Club Ltd. fully supports the view taken by us. Learned counsel for the revenue then relied upon the observations made by the Additional Commissioner in his order dated 15th January, 1972, where he mentioned that the petitioner could not he held to be a trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ascertainable from the language of the deed. Accordingly, even if some discretion was given to the petitioner to spend the amount deposited with it on a charity of its own choice, it does not mean that either no trust was created or the trust so created was invalid. In our opinion the finding recorded by the Additional Commissioner of Income-tax merely means that the petitioner was free to apply the trust fund on a charity of its own choice. It does not mean that the petitioner could, if it so liked, appropriate the amount credited to dharmada account for its own purposes. After all, if dhar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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