V. D. Tulzapurkar, J. - (1.) These three appeals are preferred on certificates of fitness granted by the Allahabad High Court under S. 66-A of the Indian Income Tax Act, 1922. They raise a common question whether the amounts realised by the assessee-company from its customers as and for 'Dharmada' during the three assessment years 1951-52, 1952-53 and 1953-54 are liable to be taxed as its income under the Act and the question arises in the following circumstances.
(2.) The assessee is a private limited company having been incorporated in the year 1943. It carries on the business of manufacturing and selling yarn. Right from the inception it used to realise certain amounts on account of 'Dharmada' (charity) from its customers on sales of yarn and bales of cotton. The rate was one anna per bundle of 10 lbs. of yarn and two annas per bale of cotton. In the bills issued to the customers these amounts were shown in a separate column headed 'Dharmada'. The assessee did not credit the amounts of 'Dharmada' so realised by it in its trading account but it maintained a separate account known as the 'Dharmada Account' in which realisations on account of 'Dharmada' were credited and payments made out were debited from time to time. It appears that at a meeting of the Board of Directors of the assessee-company held on January 15, 1945, the Board passed a resolution that the moneys standing in the 'Dharmada Account' be treated as trust fund of which Lala Nawal Kishore and Lala Ram Babulal, two Directors of the company, be the trustees and it was further declared that all the money realised in future by the company on sale of yarn from the purchasers at the rate of one anna per bale or such rate as may be decided in future be handed over to the trustees for being utilised in such altruistic, religious and charitable purposes as may be decided upon by them, and that the trustees shall in particular utilise such funds for the advancement of education and the alleviation of misery and sickness of the public in general as it thinks fit. Subsequently, on October 3, 1950 the said two Directors executed a Deed of Declaration of Trust wherein it was stated that a sum of Rs. 85,000 had accumulated in the charity fund maintained by the trustees and it was declared that the amount did not belong to any individual but it was trust money of which the executants were trustees and it will be utilised by them for altruistic, religious or charitable purposes.
(3.) 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 liable to tax and in support of this contention reliance was placed upon the resolution passed by the Board of Directors on January 15, 1945 and the Deed of Declaration of Trust dated October 3, 1950. The Income-tax Officer rejected the contention and added the said amounts to the assessable income of the assessee-company in all the years. The appeals before the Appellate Assistant Commissioner at the instance of the assessee-Company proved unsuccessful. Further appeals to the Appellate Tribunal also proved futile. Before the Tribunal it was contended on behalf of the assessee that each customer who paid the 'Dharmada' amount was a settlor of the trust, that there were as many settlors as there were customers and that the assessee had received these amounts under an obligation to utilise the same for charity, it was pointed out that the resolution of the Board of Directors dated January 15, 1945 was merely a confirmation of the fact that the amounts were held in trust by the assessee and that the deed dated October 3, 1950 was merely a declaration of the acceptance of the trust by the two trustees mentioned therein; in other words, it was contended that the customers of the assessee created a trust by paying the amounts as 'Dharmada' and the amounts having been earmarked for charitable purposes only they were not the assessee's income liable to tax. The Tribunal negatived the claim of the assessee on two grounds, first, that the amounts in question could not be regarded as having been received or held by the assessee under a trust for charitable purposes, the trust being void for vegueness and uncertainty and, secondly, that the realisations partook of the character of trading receipts. At the instance of the assessee the matter was carried to the High Court by way of two References, Income-tax Reference No. 329/1964 being in relation to the amounts concerned in the two assessment years 1951-52 and 1952-53 and Income-tax Reference No. 454/1965 being in relation to the amount concerned in the assessment year 1953-54. In the former Reference the High Court approached the question not from the angle of deciding whether the assessee could claim exemption from tax under S. 4 (3) (i) of the Act in respect of the impugned amounts but whether the impugned amounts could be regarded as the profits or gains of the business carried on by the assessee under S. 10 (1) of the Act; in other words, in the opinion of 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. Commr. of Income Tax, (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 compulsory levy ipso facto did not impress the same with 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 profits and loss statement for any year. It further observed that it was well-known that the "Dharmada:was a customary levy prevailing in certain parts of the country and where it was paid by the customers to a trading concern the amount was not paid as a price for the commodity sold to the customer. In this view of the matter the High Court answered the questions in favour of the assessee and against the Revenue. Following this decision, the High Court answered the question raised in the latter Reference also in favour of the assessee. The Commissioner of Income Tax, Delhi (Central), New Delhi has challenged the aforesaid view of the High Court before us in these appeals.;