TMI Blog2001 (11) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant portion reads thus: "36. The stewards of the club may impose any fine not exceeding Rs.10,000." Rule 37(a) and (k) reads thus: "37. In addition to any other powers conferred upon them by these rules the stewards of the club have power at their discretion: (a) To grant, withdraw and suspend licences to officials, trainers, jockeys and others, to refuse, or cancel entries. (k) They may at any time remove or modify any disqualification, or remit any penalty." Rule 84 of the rules of racing is in Part X, which deals with jockeys' and riders' licences, etc., and it reads thus: "84. (i) No person shall ride in any race under these rules until he shall have obtained the permission of the stewards of the club to do so except as provided for in rule 85. (ii) No person, who has ridden or who wishes to ride for fee or reward shall, except with the permission of the stewards of the club, ride in any race until he shall have obtained a jockey's licence from the stewards of the club. Such licence must be applied for annually with full name and address at the office of the club, and shall only remain in force for the season. (iv) Any person who shall employ a jockey in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposed under these rules shall, on realisation, be remitted to the secretary of the club, (i) a fund shall be kept under the name of the benevolent fund for the relief of trainers, jockeys, apprentices, riding boys and other dependants. The fund shall be under the charge of the stewards of the club and shall be administered by them in their discretion. There shall be credited to such fund: (a) all fees received by the club on account of licences granted to trainers, jockeys and apprentices; (b) unless otherwise provided or directed by the stewards of the club, all fines imposed under these rules and received by the secretary of the club; (c) such other sums as the stewards of the club may from time to time determine." On April 1, 1978, a trust was created under a registered deed. Thereafter, rule 175 was recast. That rule, which is captioned as "the benevolent fund and fines", now, reads as under: "175. (i) A trust named 'The Madras Race Club Benevolent Fund' has been formed on April 1, 1978, for the relief of trainers, jockeys, apprentices, riding boys, stable employees and their dependants. This fund shall be maintained with the object of providing assistance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Race Club, the Tribunal was right in holding that the receipts by way of fines, licence fees, etc., got diverted by reason of overriding title to the benevolent fund constituted by the club?" Learned counsel for the assessee submitted that the view taken by the Tribunal is the correct view and that view is supported by the decisions of the apex court in the case of CIT v. Tollygunge Club Ltd. [1977] 107 ITR 776 and in the case of CIT v. Bijli Cotton Mills (P.) Ltd. [1979] 116 ITR 60, as also by the decision of the Karnataka High Court in the case of CIT v. Bangalore Turf Club Benevolent Fund [1984] 145 ITR 323. Counsel further submitted that the decision of this court in the case of CIT v. Salem Co-operative Sugar Mills Ltd. [1998] 229 ITR 285, also supports the stand of the assessee. The Supreme Court in the case of CIT v. Tollygunge Club Ltd. [1977] 107 ITR 776 dealt with the case of an assessee, which was a social and sports club and which conducted horse races with amateur riders and collected the charge as also a surcharge from those seeking admission to witness the races. The surcharge had been levied by the assessee in terms of a resolution which it had passed by wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... selling yam, such amount having been shown in the bills issued to the customers in a separate column headed "dharmada", can be regarded as the income of the assessee or as to whether by overriding title, that amount of "dharmada" had stood diverted for the purpose of being applied for charity. The court rejected the argument for the Revenue that the collection of "dharmada" was a result of compulsory levy by the seller and formed part of the consideration for the goods sold and therefore, that amount was includible in the income of the assessee. The court examined the true nature or character of the receipts as to whether they constituted a part of the price received by the assessee and as to whether the realisations are properties held under trust for a charitable purpose. The court held that the "dharmada" was not part of the price for the goods and that "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 court reaffirmed the law laid down in the case of Tollygunge Club Ltd. [1977] 107 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alore Turf Club. The Revenue had only sought to tax the amounts credited to the benevolent fund in the hands of the trustees in the status of a body of individuals. The court observed that it is not in dispute that the sums collected by the BTC are not treated as part of the total income of the BTC in its assessment. The court also observed immediately thereafter that "the BTC is therefore not the owner of the said income since there is an overriding title created in favour of the fund under the rules framed by the BTC. These sums are thus in the nature of voluntary contributions received by the assessee and earmarked for being utilised for the benefit of the specified persons. The stewards administered the fund in their absolute discretion. They hold property, receive income and administer the fund as an independent entity. These contributions, in our opinion, are sufficient to subject them to tax as a body of individuals". Though the stand taken by the Revenue before us in relation to this assessee is at variance with the stand that was taken before the Karnataka High Court in relation to the includibility of similar amounts in the income of the Bangalore Turf Club, we are req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by any of those, who become liable to the payment of licence fees, penalties or fines, by way of voluntary contribution from them to the benevolent fund. The amounts are not paid by them with the intention that it be a contribution to the charitable or benevolent fund. The race club itself is under no statutory compulsion to earmark or divert any part of its income for the benefit of the jockeys, apprentices, stable boys, etc. The race club was under no statutory obligation to create a trust fund for their benefit. The fact that the club has done so and had done so with the best of intentions, does not on that score result in what is actually the income of the club, a part of which has been applied for benevolent purposes by having those amounts credited to the benevolent fund, becoming the income of the benevolent fund even at the inception. The income which the benevolent fund receives is by way of the amounts which the race club has allowed to be credited to that fund, the amounts so allowed by the club to be so credited being the amounts which it has collected from the jockeys, trainers and others, who are required to take out licences. and pay licence fees and the penalties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, which was made in the background of the position admitted by the Revenue before the court that the amount credited to the benevolent fund had not been treated by it as forming part of the income of the Bangalore Turf Club. If those observations of the court are to be regarded as having declared the true legal position, we must respectfully express our disagreement. The licence fees, penalties and fines at the time the payments were made by those, who are required to make those payments were, at the time of payment, not regarded by them as amounts, which were earmarked for charity and they did not regard those amounts as having been paid as contributions for a benevolent or charitable purpose. The levy as also the payment was by reason of the regulatory power vested in the assessee-club to regulate racing in accordance with the rules framed by it, non-compliance with which would result in the jockeys, trainers and others being excluded from participating in racing. The levy had direct nexus with their activity as participants in racing and the levies were designed to ensure compliance with the requirement of the rules. There was no earmarking of those amounts for the benevolent f ..... 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