Judgment

V. D. TULZAPURKAR, J. :- 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. Furth