Untwalia, C.J. - (1.) THIS is a reference under Section 66(1) of the Indian Income-tax Act, 1922, made by the Income-tax Appellate Tribunal, Patna Bench, on the following question of law: "Whether, on the facts and circumstances of the case, Rs. 97,685 or a part thereof is taxable as income in the hands of the assessee in the assessment year 1957-58."
(2.) FACTS of the case may be stated in a narrow compass. - The assessee in this case was Janab S. T. Karim of Jamshedpur. He appears to have died during the pendency of the proceedings at some stage and the reference application was filed by his widow, Mehrunissa Begum. Hereinafter in this judgment by the assessee would be meant the original assessee, S. T. Karim. He, by an indenture dated May 6, 1945, created a trust. Various properties were the subject-matter of the trust, including the property styled as "Karimia Mansion" as well as the machinery and furniture of the assessee's cinema house run under the name and style of Jamshedpur Talkies, which was located in Karimia Mansion. In the past, the assessee claimed that the income derived from the running of the Jamshedpur Talkies was the income of the trust and not his. The trust was wholly for charitable purposes and as such the income was exempt from tax under Section 4(3)(i) of The Income-tax Act. The assessee's claim was rejected by the departmental authorities. The Tribunal upheld the rejection of the assessee's claim. It accepted that the trust was created in respect of other properties but did not hold the cinema business to be covered by it. Income of the cinema business, therefore, was taxed in the hands of the assessee. The matter was finally brought on reference to this court, but it was decided against the assessee. In this reference we are concerned with the assessment year 1957-58. The corresponding accounting year of the assessee is the financial year 1956-57. The amount of Rs. 97,685 under consideration formed part of the assessee's collection as entertainment tax in the calendar year 1956, that is, from January 1, 1956, to December 31, 1956. In the first three months the amount of entertainment tax came to Rs. 26,527. In the rest of the nine months he collected entertainment tax to the tune of Rs. 91,158. The assessee had made an application on November 26, 1954, under Section 11 of the Bihar Entertainments Tax Act, 1948 (Bihar Act XXXV of 1948), hereinafter called the Act, praying the Government of Bihar in the Ministry of Finance for exemption from the payment of entertainment tax for a period of two years. A copy of this application is annexure "A" to the statement of the case; and I will have occasion to refer to some portions of it later in my judgment. By order dated March 25, 1957 (annexure "B"), the Commissioner of Commercial Taxes, Bihar, directed the payment of a sum of Rs. 10,000 only on account of the entertainment tax by the assessee for a period of six months with effect from January 1, 1956, and in the same order a sum of Rs. 10,000 was directed to be paid for the other six months commencing from July 1, 1956. Out of the total collection of Rs. 1,17,685, therefore, a sum of Rs. 20,000 directed to be paid by the Commissioner of Commercial Taxes, in exercise of his power under Section 5(2) of the Act, was deducted and the balance of Rs. 97,685 was treated as income of the assessee by the Income-tax Officer. His appeal failed before the Appellate Assistant Commissioner, and he met the same fate in his further appeal before the Appellate Tribunal. On being asked to state a case, the Tribunal has done so and referred the question of law aforesaid for determination by this court. Mr. V. D. Narayan, learned counsel for the assessee, submitted that the sum of Rs. 97,685 collected by him as entertainment tax from the visitors to Jamshedpur Talkies in the year 1956, could not be treated as the assessee's income. In the alternative, he submitted that the sums realised from January 1, 1956, to March 31, 1956, could in no view of the matter be treated as the assessee's income in the financial year 1956-57, relating to the assessment year 1957-58. Mr. Tarkeshwar Prasad, learned counsel for the revenue, submitted that the decision of the Tribunal rested upon the findings of fact recorded by it. The amount in question became and accrued as income of the assessee when the exemption order or the compounding order was passed by the Commissioner of Commercial Taxes on March 25, 1957, which was well within the year in question. It has been rightly taxed as the income of the assessee and no portion of the sum of Rs. 97,685 can escape assessment to income-tax. On the peculiar facts of this case the point for determination is not free from difficulty. The facts are uncommon and are not near enough to those of any decided case in order to enable us to hold tint the ratio of any case squarely covers the instant one. After having expressed my view with reference to the peculiar facts of this case, I shall endeavour to lend support to it by pressing into service the principles of law decided by one or two cases and shall distinguish some of the decisions cited by the learned counsel for the department. The liability to pay entertainment tax under the Act is on the proprietor of an entertainment. In this case, the assessee was the proprietor of the Jamshedpur Talkies. Section 4 of the Act provides that "entertainment tax shall be levied and paid on all complimentary tickets issued by the proprietor of an entertainment for any performance". Method of levy is provided in Section 5. I shall read Section 5 in full: "5(1) Save as otherwise provided by this Act, no person other than a person who has some duty to perform in connection with the entertainment or a duty imposed upon him by or under this Act or any other law, shall be admitted to any entertainment in respect of which entertainment tax is payable under Section 3 or Section 4, except with a ticket or a complimentary ticket in the prescribed form. (2) The State Government may, on the application of the proprietor of any entertainment in respect of which the entertainment tax is payable, permit the proprietor to pay, on such conditions as may be prescribed, the amount of the tax due- (a) by compounding in the prescribed manner the tax payable in respect of such entertainment for a fixed sum ; or (b) in accordance with the results recorded by any mechanical contrivance that automatically registers the number of persons admitted. (3) The provisions of Sub-section (1) shall not apply to any entertainment in respect of which the entertainment tax clue is payable in accordance with the provisions of Sub-section (2)." Under sub-section (1) it would be noticed that no person who wants to enjoy the entertainment is to be admitted except with a ticket or a compli- mentary ticket showing payment of entertainment tax. The compounding under Sub-section (2), strictly speaking, is to be done before realisation of the entertainment tax. Because of such compounding, as provided in subsection (3), the provisions of Section (1) are not to apply. Section 10 of the Act deals with exemption of certain entertainments from payment of tax. If an order under Section 10 is made by the State Government, then no entertainment tax is to fae charged. Section 11 provides for refund in certain cases of the amounts of tax already paid to the State Government. In the instant case, although the application purported tu be unuei Section 11, no order under that Section was made for refund of any entertainments tax already paid. The order contained in annexurc "B" seems to have followed on this very application, as no reference is made in any of the orders to any other application under Section 5(2) of the Act. The order was made in March, 1957, and on the same day, that is, 25th March, for both the halves of the year 1956. The certificate was issued in Form V appended to the Rules framed under the Act. The said form is to used when an application in Form IV is filed. The form of the application read with the provisions contained in the Act would indicate that the compounding agreement, ordinarily and generally, has to be arrived at before realisation of the entertainment tax. But that apart, the order contained in annexure "B" read with the certificate granted in Form V would indicate that on 25th of March, 1957, the order for both the halves of 1956 was passed and the certificate was issued on 26th of March, 1957. It would thus be seen that it was not a compounding order issued strictly in accordance with the provisions of Section 5(2) of the Act. Obviously, it was not an order under Section 10 or Section 11 of the Act. Substantially, it was an order under Section 5(2) as it purported to be, but with this difference that it was made at a time when the entertainment tax had already been collected and collected to the extent of Rs. 1,17,685. The Commissioner of Commercial Taxes, on behalf of the State of Bihar, agreed to take only Rs. 20,000 out of the said sum leaving the balance of Rs. 97,685 to the assessee out of the money which at the time of collection was earmarked as entertainment tax.
(3.) THE statements in the application (annexure "A") were that S. T. Karim had created a trust by a deed of transfer made on the 6th day of May, 1945. He had transferred all his properties to the trust. THE trust was mainly for the establishment of the Central Karimia School. This application was filed on behalf of S. T. Karim as trustee of Karim trust, Karimia Mansion, Jamshedpur Town. In paragraph 5 it was stated that he had spent up all his liquid resources in the construction of the building and was unable to proceed as expeditiously as it was necessary in the interest of the institution and in furtherance of the scheme of the trust. THE petitioner, therefore, approached the Minister of Finance Government of Bihar, as stated in paragraph 7, "for financial aid in the shape of exemption from payment of entertaiment tax for a period 2 years". In paragraph 8, it was stated that the Jamshedpur Talkies formed part of the assets of the Karimia trust, which was a wholly charitable trust and the entire income of the trust was being applied to the Central Karimia School. In the circumstances, the income from the Jamshedpur Talkies, it was claimed, was entitled to exemption from payment of entertainment tax under the Bihar Entertainments Tax Act, 1948. As already stated, exemption under Section 10 was not granted, but, surely, reading the order dated March 25, 1957, in the background of what is stated in the application (annexure "A"), the remission was granted by the Government of Bihar for the purpose of the charitable trust. At the time the money jn question was collected it was not the income of the assessee, as it was collected qua and earmarked for payment of entertainment tax. Question for consideration is : did it become the income of the assessee on the passing of the order dated 25th March, 1957 ? If an order under Section 5(2) of the Act is made before realisation of any amount of entertainment tax by the proprietor of any entertainment, then whatever is realised after such order will be the income of the proprietor of the entertainment. The compounded amount will be allowed as a business expense. In any event, the surplus realised over and above the compounded amount will be the income of the proprietor of the entertainment and any deficit will be his business loss. But the converse is not necessarily true. In this case when the order was made on March 25, 1957, directing charging of Rs. 20,000 only on account of the entertainment tax from the assessee in the year 1956, much larger amount had already been realised. At the time of realisation it was not the income of the assessee. After the passing of the order, it was money in the hands of the trustee for the purposes of the charitable object of the trust. If the assessee was the owner of the money realised in the form of entertainment tax at the time the order dated March 25, 1957, was made, then on the facts and in the circumstancs of this case a constructive or implied trust was created by the assessee, not after accrual of the income to him but before its accrual; rather, the remission was obtained after a declaration that the money will be utilised for charitable purposes. If the surplus amount can be said to belong to the Government as it has been realised as entertainment tax separately and as earmarked, then the Government of Bihar permitted the assessee to make Use of this amount for charitable purpose. In any view of the matter, the amount was impressed with the trust before, in the eye of law, it would be deemed to be an accrual of income to the assessee. The Tribunal has been conscious of this fact that if express conditions would have been laid down under Section 5(2) of the Act, then the money could be treated as belonging to the trust. Such conditions could be laid down under Section 5(2). But reading the order in the context of the facts stated in the application, it is clear that although no express trust was created, a constructive trust or an implied trust surely came into existence on the passing of the order dated March 25, 1957. It is further to be emphasised, as stated in annexure "B" itself, that a copy of the certificate in Form V was forwarded to S. T. Karimia Trust, Karimia Mansion, Jamshedpur, and not to the assessee in his individual capacity. The two cases which are nearest to the point at issue and which were relied upon by learned counsel for the assessee are Commissioner of Income-tax v. Tollygunge Club Ltd., 1971 79 ITR 179 and Thakur Das Shyam Sundar v. Additional Commissioner of Income-tax, 1974 93 ITR 27 [FB]. The former is the decision of the Calcutta High Court which has been followed in the latter by the Allahabad High Court. On the facts of the Calcutta case it was held that the surcharge on entrance tickets to the running of gymkhana racing was a surcharge realised in trust in respect of the subject for which it was created, and it was not an act of applying a part of the income after it had been received as such. It was, therefore, held that the Tribunal was right in holding that the assessee's receipts from the surcharge levied on the admission tickets for purposes of charity could not be included in the assessee's taxable income. In the Allahabad case, certain amount was being charged by the dealer as dharmada, according to the custom prevalent in the market. It was obligatory on him to spend that amount exclusively on charity. The collections were earmarked for charity. Although the assessee was a legal owner of the amount, it was held that it was not a part of his income, because he was under an obligation to spend the money on charity before it could be said to be a part of his income. ;