COMMISSIONER OF INCOME TAX (CENTRAL), LUDHIANA ETC. ETC. vs. AMRITSAR TRANSPORT COMPANY PRIVATE LIMITED AND ANR.

CIVIL APPEAL No. 3522/1979Supreme Court[1993] 2 S.C.R. 87431 March 1993Bench: 2 JudgesAuthor: B.P. JEEVAN REDDY, N. VENKATACHALA5 pages
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What were the facts?

The assessee, Amritsar Transport Company Private Limited, collected amounts labelled 'Dharmada' at a rate of Rs. 1 per bilty. The Income Tax Officer treated these collections, totaling Rs. 1,38,577 for the assessment year 1970-71, as revenue receipts and added them to the assessee's business income. The assessee contended that these amounts were customary in the transport business, collected for charitable purposes, distributed among poor relatives of labourers and for marriages of girls in their families, and kept in a separate account. The Appellate Assistant Commissioner deleted the addition, and the Tribunal confirmed this deletion. The Revenue filed applications before the High Court for reference under Section 256(2) of the Income Tax Act, 1961, which were dismissed. The Revenue then appealed to the Supreme Court, arguing that the Dharmada amounts were used for business purposes.

What did the Supreme Court hold?

The Supreme Court held that the High Court ought to have directed the Tribunal to state the question under Section 256(2) of the Income Tax Act, 1961, for the opinion of the High Court. The Court noted that while amounts collected as Dharmada and utilized for charitable purposes are not liable to be included in the income of the assessee, the Revenue's case was that these amounts were neither meant for nor spent on charitable purposes. The Court found that the assessee's own written reply indicated that the distribution was among 'poor relatives of labourers' and for 'marriages of girls in their families' with a view 'to get full cooperation from them,' which raised a question of fact and law as to whether these constituted charitable purposes and were genuinely spent as such. The Court set aside the High Court's order and allowed the Revenue's application, directing the Tribunal to state the question for the High Court's opinion. The appeals were allowed, and the Tribunal was directed to state the question for reference.

What were the issues?

1. 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 realized at Rs. 1 per bilty per customer through the bills and credited to a separate account called 'Dharmada' was not assessable to tax as revenue receipt? (Question of law, turning on Section 256(2) of the Income Tax Act, 1961). Assessee's contention: The amounts collected as Dharmada were customary in the transport business, meant for charitable purposes (distribution to poor relatives of labourers and for marriages of girls in their families), kept in a separate account, and not part of business income. Revenue's contention: The amounts collected in the name of Dharmada were neither meant for charitable purposes nor were they spent on charitable purposes. The assessee was using these amounts for its own business purposes. The High Court ought to have directed the Tribunal to state the question for reference.

Which sections of the Income-tax Act were involved?

Section 256(2)

AI-generated summary — verify with the full judgment below

\ 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 added as revenue receipts-Question fit to be refe"ed co High CourHJirec- )r 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 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- F tendi

The order continues below.

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