COMMISSIONER OF INCOME TAX, (CENTRAL) DELHI, NEW DELHI vs. BIJLI COTTON MILLS (P) LTD., HATHRAS DISTT., ALIGARH

CIVIL APPEAL No. 1328/1973Supreme Court[1979] 2 S.C.R. 24107 November 1978Bench: 2 JudgesAuthor: P.N. BHAGWATI, V.D. TULZAPURKAR16 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the impugned realisations made by the assessee from its customers for 'Dharmada' were entirely earmarked for religious or charitable purposes and therefore could not be regarded as the assessee's income chargeable to income tax. The Court found that a gift to 'Dharmada' or 'Dharmadaya', in common parlance and among the commercial community, cannot be regarded as void or invalid due to vagueness or uncertainty. These payments were validly earmarked for charitable purposes from the inception, creating an obligation for the assessee to spend them solely for such purposes. The Court distinguished this from sales tax cases where the issue was turnover. The Court confirmed the High Court's finding that the amounts were not part of the price or a surcharge on the price, but payments for specific charitable purposes, and thus not trading receipts. The Tribunal's finding that no trust was created was deemed erroneous. The appeals were dismissed.

What were the facts?

The assessee, Bijli Cotton Mills (P) Ltd., collected amounts labelled 'Dharmada' from its customers on sales of yarn and cotton bales. These amounts were listed separately on bills and credited to a distinct 'Dharmada' account, not included in the trading account. The company's Board of Directors created a trust to utilize these funds for religious and charitable purposes. For assessment years 1951-52, 1952-53, and 1953-54, the Income Tax Officer added these 'Dharmada' collections to the assessee's taxable income. Appeals to the Appellate Assistant Commissioner were dismissed. The Appellate Tribunal held the trust void for vagueness and the realisations as trade receipts. The High Court, however, ruled that the amounts were never the assessee's income, as the company acted as a clearing house for the trust, and the compulsory levy did not make it a trade receipt.

What were the issues?

1. Whether the amounts realized by the assessee from its customers under the head 'Dharmada' could be regarded as the assessee's income chargeable to income tax, considering Section 10(1) of the Indian Income Tax Act, 1922? The assessee contended that these amounts were collected for charitable purposes and held in trust, thus not forming part of its income. The revenue argued that the realisations were a compulsory levy and part of the consideration for goods sold, and that the 'Dharmada' trust was void for vagueness and uncertainty. 2. Whether a gift to 'Dharmada' is void for vagueness and uncertainty? The assessee argued that 'Dharmada' is a customary levy for charitable purposes and not vague. The revenue maintained that 'Dharmada' is too uncertain to form a valid trust.

Which sections of the Income-tax Act were involved?

Section 10(1),Section 66-A

AI-generated summary — verify with the full judgment below

.. 241 COMMIS.SIONER OF INCOME TAX, (CENTRAL) DELHI, A NEW DELHI v. BULI COTTON MILLS (P) LIB., HATHRAS DISTT., ALIGARH November 7, 1978 [P. N. BHAGWAT! AND V. D. TuLZAPURKAR, JJ.] Indian Income Tax A.ct. 1922 s. ~(3)(i) & s. 10(1)-Assessee colleoted moneys on sale of goods und~r t.he htad "D/larmada"-Kept the amount in a separate account-Created a trust-Utilised the fnoney for charitable purposes- --.--- Whether amount realised cowld be regarded as assessee's income-"Dhannadci' C Trust whether void as Val?Ut Qnd uncertain. ; ·-'\ Words & Phrases-"D•armada"-meaning of.

The assessee reali3ed certain amounts of money on account of Dharmada (charity) from its customers on sale of yarn and bales of cotton which was its principal business.

The amounts so realised were shown in a separate column headed '"Dharmada" in the bills issued to customers.

Without taking them into its trading account, the assessce, credited these amounts to a separate account known as "Dhrmada" account. The Board of Directors of the company created a trust and declared that all moneys standing in the "Dharmada Account", and realised on this account in future should be treated as trust fu

The order continues below.

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