Holding

Amounts collected as Dharmada and maintained in a separate account for genuine charitable purposes are not liable to be included in the assessee's income, and the question must be referred to the Tribunal under Section 256(2) of the Income Tax Act.

Summary

The Commissioner of Income Tax challenged Amritsar Transport Company Private Limited for including amounts collected as "Dharmada" in a separate account in its business income. The company argued that the levy, collected at Rs.1 per bilty, was a customary charitable contribution distributed among the labourers' poor relatives and for marriage expenses, and therefore not part of its trading receipts. The Income Tax Officer treated the entire amount as assessable income, but the Appellate Assistant Commissioner and the Tribunal deleted the addition, accepting the company's contention. The Revenue sought a reference under Section 256(2) of the Income Tax Act to determine whether such amounts constitute revenue receipts. The Supreme Court held that amounts kept in a separate account for genuine charitable purposes are not liable to be included in the assessee's income and directed that the question be referred to the Tribunal under Section 256(2). Consequently, the appeals were allowed, setting aside the High Court order and directing the Tribunal to state the question for the High Court’s opinion.

Issues considered

Whether amounts collected as "Dharmada" and kept in a separate account for charitable purposes are assessable as revenue receipts under Section 256(2) of the Income Tax Act, 1961.
Whether the Tribunal was correct in holding that such amounts are not assessable to tax as revenue receipts.

Legislation cited

Income Tax Act, 1961s. 256(2)

Subjects

Income TaxSection 256(2)Charitable receiptsRevenue receiptAssessable incomeDharmadaTransport businessTax law

Judgment

\
1
A COMMISSIONER OF INCOME TAX (CENTRAL), LUDHIANA
ETC. ETC.
v.
AMRITSAR TRANSPORT COMPANY PRIVATE LIMITED AND
ANR. "'(

B
MARCH 31, 1993

[B.P. JEEVAN REDDY AND N. VENKATACHALA, JJ.] _..

Income tax Act, 1961:
c
Section 256(2)-Assessee col/ecti11g amounts forchariry-W11ether to be )r
added as revenue receipts-Question fit to be refe"ed co High CourHJirec-
tio11 co Tribu11a/.

The question involved in these appeals was whether the amounts
D collected for spending on charity and kept in a separate account for
Dharmadha could be included in the business income of the assessee. The
explanation that these amounts were distributed among the poor relatives
of the labourers and to the girls in their families at the time of marriage,
was not accepted by the Income-tax Officer as a charity. He added the \-
E entire dharmadha amounts to the business income of the appellant-asses-
sees. On appeal the Appellate Assistant Commissioner deleted the said

F
additions, .and the Tribunal confirmed the deletions. Revenue filed ap-
plications before the High Court for reference. The High Court having
dismissed the ·applications, Revenue preferred the present appeals con-
tending that the assessees were using the amounts collected in the name
of dharmadha for business purposes. .....
·-
Allowing the appeals, this Court,

HELD: 1. So far as the inclusion of amounts collected as Dharmada
which are kept in a separate account and are utilised for charitable
G purposes is concerned, there can be no dispute that they are not liable to
',-{
be included in the income of the assessee .. The Revenue's case is that
though collected in the name of Dharmada, these amounts were neither
meant for any charitable purpose nor were they spent on charitable
purposes. In these circumstances, the High Court ought to have directed
H the Tribunal to state the question under Sec.256(2) of the Income tax Act,
874
C.I.T. v. AMRITSAR TRANSPORT CO. [REDDY, J.J 875
(",
1961, as to whether such amounts could be assessed to tax as revenue A
receipts. The Tribunal is directed lo do so. (877 A-C]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3522(NT)
of 1979.

From the Order dated 24.1.1979 of the Punjab and Haryana High B
Court in Income Tax Case No.50 of 1978.

- WITH

(C.A. NOS. 2456(NT)/78, 5987-88(NT)/90,!368(NT)/82,1549-
57(NT)/93 & 1558(NT)/93. C
~ G. Vishwanatha Iyer, C. Ramesh, T.V. Ratnam and Ayyam Pcrumal
for P. Parmeswaran for the Appellants.

C.S. Aggarwal for B.V. Desai for the Respondents.
D
The Judgment of the Court was delivered by

B.P. JEEVAN REDDY, J. Civil Appeal No.2456(NT) of 1978.

This appeal is preferred against the judgment and order of the
Punjab and Haryana High Court dismissing an application filed by the E
Revenue under Section 256(2) of the Income Tax Act. The question which

-
the Revenue wanted to raise reads thus:

"Whether on the facts and in the circumstances of the case,
the Tribunal was right in holding that the receipt of
Rs.1,38,577 realised @l per bilty per customer througb F
the bills and credited to a separate account called
'DHARM<\DA' was not assessable to tax a<; revenue receipt?'1

The case of the Revenue briefly stated is to the following effect: the
aSsessee is a private Ltd. company engaged in the businc~s of transport.
During the accounting period ending January 31, 1970 rclevam to the G
assessment year 1970-71, ·the respondent collected an amount of
y· Rs.1,38,577 on account of DHARMADA. The Income Tax Officer called
upon the respondent- assessee to explain why the said amount should not
be treated as its trading receipt. The respondent's case was that accqrding
to the custom prevailing in the transport business, he two collected Re.I H
876 SUPREME COURT REPORTS [1993) 2 S.C.R.
A per bilty for spending on charitable purposes. He stated that out of this --<
amount collected, a major portion was spent on charity and that the
balance of Rs.8,871 was carried over in the separate account kept for
DHARMADA. His case was that this amount was never credited to his
income acr~unt and it always constituted a distinct account. This ·explana-
tion was not accepted by the Income Tax Officer who included the said "(
B
amount of Rs.1,38,577 in the business income of the respondent. On
appeal, the Appellate Assistant Commissioneraccepted the respondent's

C
contention and deleted the said addition. The Tribunal confirmed the
same. However, says the counse~ the true state of affairs is disclosed from
the assessees' own letter extracted in the assessment order. When called
upon to explain the collection of the said amount and its purpose, the
assessee submitted a reply in writing stating as under:
--
"It is customery in the Transport business to collect/charge
DHARMADA, at the rate of Re.1 per Bilty. Not only this
but also all the Transport Companies, charge/collect this
D 'customery Dhar.mada.

2. This amount is meant for distribution to the poor
relatives of labourers working in the business premises and
also to give at the time of marriages of girls in their
E families. This is just to get full cooperation from them.

F
3. The company has nothing to do with this collection as
it has to distribute the same."

It is thus evident, says the counsel for the Revenue, that the amount
though collected in the name of Dharmada was neither meant for charity
nor was it ever spent on charitable purposes. Distribution of the said money ""·
-
among the "poor relatives of the labourers working in the business premises
(of the assessee) and also to give at the time of marriages of girls in their
families" cannot be called a charitable purpose. Indeed, according to the
G respondent, himself these amounts were distributed among them with a
view "to get full cooperation from them." A<:cording to learned counsel, the
assessee is really using the money collected in the name of Dharmada for ~
his own business purposes. In the above circumstances, say the counsel, the
High Court ought to have directed the Tribunal to state the aforesaid
H question under Sec.256(2) of the Act.
' ,//

C.I.T. v. AMRITSAR TRANSPORT CO. [REDDY, J.] 877

So far as inclusion of amounts collected as Dharmada which are kept A
in a separate account and are utilised for charitable purposes is concerned,
there can be no dispute that they are not liable to be included in the income
of the assessee vide C.l. T. v. Bijli Cotton Mills (P) Ltd., 116 I.T.R. 60 but
the Revenue's case herein is that though collected in the name of Dhar-
y mada, these amounts were neither meant for any charitable purpose nor B
were they spent on charitable purposes. In support of the same they rely
upon the aforesaid written reply of the respondent-assessee itself.

- In our opinion this was a proper case where the High Court ought
to have directed the Tribunal to state the said question under Section
256(2) of the Act. We do not think it necessary to say more than this on C
this occasion, lest it may prejudice the case of the parties at the hearing of
the reference.

The appeal is accordingly allowed, the judgment and order of the
High Court is set aside and the application filed by Revenue under Section
256(2) is allowed. The Tribunal shall state the aforesaid question for the D
opinion of the High Court under Section 256(2) of the Act. No order as
to costs.

CIVIL APPEAL N0.3522(NT)/79, 1368(NT)/82, 5987-88 (NT)/90
AND S.L.P. (C) No.8353/85. E

These appeals and Special Leave Petition pertain to the very same

- assessee who is the respondent in Civil Appeal No.2456(NT) of 1978. For
the reasons given hereinabove, leave is granted in S.L.P. (C) No.8353 of
1985 and all these appeals are allowed in the same terms as the appeal
No.2456(NT) of 1976. F

S.L.P. (C) NOS.3257-3265 OF 1979.

The facts in these Special Leave Petitions are identical to the facts
in Civil Appeal No.2456(NT) of 1978, though the assessee is different. The
assessee too is engaged in transport business. No separate argument is G
addressed in these matters. Leave granted in all these Special Leave
Petitions. For the reasons stated in the judgment in Civil Appeal
No.2456(NT) of 1978, these appeals too are allowed and the Tribunal is
directed to state the following question for the opinion of the High Court
under Section 256(2) of the Act. H
'\ ___,
_

\
·-
878 SUPREME COURT REPORTS [1993) 2 S.C.R.

A 'Whether on the facts and in the circumstances of the case,
the Appellate Tribunal is right in law in holding the sums
of R~.5506, Rs.26,039, Rs33,385, Rs.49,634 and Rs:S7,902
charged in 'billies' in the assessment years 1967'68 to
1971-72 are not assessable to tali: as revenue receipts.'

B No costs.

G.N. Appeals allowed.