Commissioner of Income Tax, Pune vs E.H. Kathawala and Company

Desai, J.—The question referred to us by the Income Tax Appellate Tribunal, Pune Bench, is as under :

"Whether, on the facts and in the circumstances of the case, the sum of Rs. 7,894, being the collections made by the assessee on account of charity through sale bills, was liable to be assessed as income of the assessee liable to tax ?"

The assessee, inter alia, carried on commission business in jaggery and collected an amount of Rs. 7,894 from various parties with which it dealt. The same was included in the sale bills. According to the ITO, since they were collected from the purchasers and included in the sale bills, they were sale proceeds, and he added the amount as per Instruction No. 169. This instruction is referred to in the order of the ITO (annex."A"). The assessee carried the matter to the AAC, and before the AAC it succeeded in having the additions deleted. The AAC found that the payments were made voluntarily by the constituents. The AAC also accepted the contention that they did not constitute part of the sale proceeds. When the matter was carried by the ITO before the Income Tax Appellate Tribunal, the Tribunal observed that the facts were analogous to those involved in the decision of the Allahabad High Court in Bijli Cotton Mills Ltd. Vs. Commissioner of Income Tax,

Counsel have pointed out that the decision of the Allahabad High Court in the above case is now confirmed by the Supreme Court in Commissioner of Income Tax (Central), New Delhi Vs. Bijli Cotton Mills (P.) Ltd.,

In the said case, the Supreme Court has rejected the argument which was raised on behalf of the Commissioner that (i) the compulsory nature of the payment; (ii) the fact that the assessee had some discretion as regards the manner in which, and the time when the amount of the dharmada should be spent, or (iii) the fact that the assessee did not keep the amounts in a separate bank account, were not material and could not be availed of by the department for treating them as revenue and not as charitable collections.

In our case, the only reason given by the ITO cannot be accepted. However, we are of the opinion that it would have been better if the Officer had collected some further data regarding how the assessee had dealt with the amounts whether in the present assessment year or in subsequent assessment years, if a large amount has been collected. This information would ensure that amounts collected ostensibly for charity are in fact utilised for charitable objects and are not taken to or mixed up in any way with the trading account or the profit and loss account. The reason given by the ITO is clearly erroneous and not in accordance with the decision of the Supreme Court in Commissioner of Income Tax (Central), New Delhi Vs. Bijli Cotton Mills (P.) Ltd., . Merely because the amount is collected through sale bills will not make it part of the assessable income of the assessee. The Supreme Court has also dealt with the nature of collections made for dharmada purposes, but we are not obliged to go into that aspect in this matter.

In the result, the question referred to us is answered in the negative and in favour of the assessee. Parties to bear their own costs.