T.P. Mukerjee, J. - (1.) THIS is a reference made by the Delhi Bench "A" of the Appellate Tribunal under Section 66(1) of the Income-tax Act, 1922, hereinafter referred to as "the Act". The statement of the case relates to the assessment years 1951-52 and 1952-53, the corresponding previous years being the calendar years 1950 and 1951, respectively.
(2.) THE assessee is a private limited company. It carries on the business of manufacturing and selling yarn. THE company 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. THE company did not, however, credit the amounts of dharmada so realised by it in its trading account. It maintained a separate account known as the "dharmada account" in which realisation on account of dharmada were credited and payment thereout were debited from time to time. The company was incorporated in the year 1943, and it had been realising amounts on account of dharmada since its very inception. On January 15, 1955, the directors of the assessee-company made a resolution in one of the meetings of the board stating that it was considered desirable that the amounts realised by the company on account, of dharmada should be treated as a trust fund with Lala Nawal Kishore and Lala Rain Babu Lal, directors of the company, as trustees. It was declared that all money realised in future by the company by sale of yarn from the purchasers at 0-1-0 per bundle or such rate as may be decided upon in future, will be handed over to the trustees for being utilised in such altruistic, religious or charitable purposes as may be decided upon by them. Subsequently, in October, 1950, the said directors, viz., Sri Nawal Kishore and Sri Ram Babu Lal, executed a deed of declaration of trust. In this deed 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 executors were the trustees and which would be utilised by them for altruistic, religious or charitable purposes. During the two previous years under reference, the company received Rs. 21,898 and Rs. 17,242 on account of dharmada. The company credited a sum of Rs. 4,010 to the same account in the calendar year, 1951 as interest. The company also credited another sum of Rs. 904 which was the amount collected from the brokers on account of dharmada,
(3.) IN the assessments of the assessee for the assessment years 1951-52 and 1952-53, the INcome-tax Officer added the aforesaid amounts as the income of the assessee. The INcome-tax Officer rejected the claim of the assessee that the amounts were held in trust by it and were earmarked for charity and, therefore, they were not its income from business liable to tax The assessee appealed to the Appellate Assistant Commissioner against, such additions, but the appeals were unsuccessful. An appeal to the Tribunal similarly proved futile. It appears that one of the contentions put forward on behalf of the assessee before the Appellate Tribunal was that the amounts in question were held in trust for charitable purposes. It was argued on behalf of the assessee that the constituents of the assessee created a trust by paying the amounts for dharmada and the amounts having been earmarked for being spent for charitable purposes only, they were not the assessee's income liable to tax. The Tribunal, however, repelled the contentions of the assessee and observed as follows: "The amount that was paid always bore a fixed ratio to the amount of the cost or the price which a constituent had to pay. The amount was something like a levy that was imposed by the assessee. It is clear beyond doubt that the constituents had no option. It is of fundamental importance that a trust should be a voluntary divestment of the property by the settlor. The settlor must of himself do away with, his domain over the property and see that the ownership is vested in the trustee. The levy that was imposed by the assessee was something like a surcharge on the price or was in the nature of a premium. It has the character of a receipt. Though the amount might not have been collected as price of the goods sold, nevertheless its characteristic was that of a premium over the cost price. The domain over the property always remained with the assessee. The assessee had the opportunity to spend the amount for whatever purpose he liked. IN the circumstances, it is difficult to say that a valid trust had been created." Holding as above, the Tribunal confirmed the assessments made by the Income-tax Officer.;