Commissioner of Income Tax, New Delhi
Vs. Bijli Cotton Mills (P) Ltd., Hathras., Aligarh  INSC 225 (7 November
CITATION: 1979 AIR 346 1979 SCR (2) 241 1979
SCC (1) 496
Indian Income Tax Act. 1922 s. 4(3)(i) &
s. 10(1)- Assessee collected moneys on sale of goods under the head
"Dharmada"-Kept the amount in a separate account-Created a
trust-Utilised time money for charitable purposes-Whether amount realised could
be regarded as assessee's income- "Dharmada" Trust whether void as
vague and uncertain.
Words & Phrases-"Dkarmada"
The assessee realised 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 assessee, credited these
amounts to a separate account known as "Dharmada" 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 fund and utilised by the trustees for such
religious and charitable purposes as may be decided by them.
For the assessment years 1951-52, 1952-53 and
1953-54 the Income Tax officer addled the amounts realised under the head
"Dharmada" to the assessable income of the assessee.
The assessee's appeals to the Appellate
Assistant Commissioner were dismissed. On further appeal the Appellate Tribunal
held that the trust was void for vagueness and uncertainty and that the
realisations partook of the character of trade receipts.
On reference, the High Court held that the
amounts were never the income of the assessee, that the assessee was merely
acting as a clearing house for passing the amount to the trust, that the fact
that it was a compulsory levy did not make it a trade receipt, that
"Dharmada" was a customary levy prevailing in some parts of the
country and where it was paid by the customers to a trading concern, the amount
was not paid as a price for the commodity sold to the customer.
In appeal to this Court it was contended on
behalf of the Revenue that the realisations being a compulsory levy, they must
be regarded as a part of the consideration or price of the goods purchased by
the buyers and that gift for "Dharmada" was void for vagueness and
Dismissing the appeals,
HELD: 1. The impugned realisations made by
the assessee from in customers for ''Dharmada'' being entirely earmarked for
religious or charitable 242 purposes would not be regarded as the assessee's
income chargeable to income tax. [256F]
2. A gift to the "Dharmada" or
"Dharmadaya" both in common parlance as well as the customary meaning
attached thereto among the commercial and trading community cannot be regarded
as void or invalid on account of vagueness or uncertainty. When the customers
or the brokers paid the impugned amounts to the assessee earmarking them for
"Dharmada" these payments were validly earmarked for charitable
purposes. In other words right from the inception these amounts were received
and held by the assessee under an obligation to spend the same for charitable purposes
only, with the result that these receipts could not be regarded as forming
income of the assessee.
[253H-254B] Though there is some
justification for holding that a gift to "Dharma" simpliciter would
be invalid on grounds of vagueness and uncertainty, a gift to
"Dharmada" would be definite, the object being certain viz., for
religious or chartiable purposes. In common parlance the expression
"Dharmada" or "Dharamadaya" cannot be said to be vague or
uncertain and as such a gift to "Dharmada" (Dharmadaya) would not be
invalid for vagueness or uncertainty. [251 E-F]
3. While the word "Dharma" is
indefinite and equivocal, the word 'Dharmadaya" is quite definite. The
former means either law or virtue or legal duty or moral duty, the latter means
an endowment or gift for religious or charitable purpose. Similarly while the
expression "Dharma" is idefinite and equivocal the expression
"Dharmarth" has only one meaning viz., anything given for charitable
or pious purposes. [251C-D]
4. Apart from the fact that the concept of
"Dharmada" or "Dharmadaya" in common parlance means
anything given in charity or for religious or charitable purposes among the
trading or commercial community in various parts of this country, a gift or
payment for "Dharmada" is by custom invariably regarded a gift to
charitable purposes. [252C]
5. Since a gift or payment for
"Dharmada" is by commercial or trading custom invariably regarded as
a gift for charitable purposes there is no question of there being any
vagueness or uncertainty about the object for which such gift or payment has to
be utilized. 
6. Since the realisations are not a part of
the price or surcharge on the price but payments for a specific purpose of
being spent no charitable purposes, they cannot be regarded as trading receipts
of the assessee. [255g]
7. The amount of "Dharmada" is a
payment which a customer is required to pay in addition to the price of the
goods which he purchases from the trader but the purchase of the goods by the
customers would be the occasion and not the consideration for the
"Dharmada" amount taken from the customer. Al though without payment
of "Dharmada" amount the customer may not be able to purchase the
goods, but that would not make the payment of "Dharmada" involuntary
inasmuch as it is out of his own volition that he purchases the goods from the
trader. The "Dharmada" amount is, therefore, not a part of the price
but a payment for the specific purpose of being spent on charitable purposes.
8. Even if the assessee had not kept these
amounts in a separate bank account, A admittedly a separate "Dharmada
Account" was maintained in the books of the assessee in which every
receipt was credited and payment made out on charity was debited. The High
Court had clearly found that all these amounts were never credited in trading
account nor carried over to profit and loss statement. [256E] Commissioner of
Income-tax, West Bengal v. Tollygunge Club Ltd.,  107 ITR 776; followed.
Agra Bullion Exchange Ltd. v. Commissioner of
Income Tax,  41 ITR 473, Ranchordas v. Parvatibai, 26 IA 71;
Devshankar v. Moti Ram, ILR 18 Bom 136;
Thakur Das Shyam Sunder v. Additional Commissioner of Income-tax, U.P. &
Anr.,  93 ITR 27; Commissioner of Income-tax, Amritsar v. Gheru Lal Bal
Chand, 111 ITR 134, Advocate General of Bombay v. Jimbabai, ILR 41 C Bom. 181;
Chaturbhuj Vallabhdas v. Commissioner of Income-tax, 14 ITR 144 referred to.
Poosarla Sambamurthi v. State of Andhra, 7
STC 652; N.
S. Pandaria Pillai v. State of Madras, 31 STC
Prof. Wilson's Glossary of Judicial and
Molesworth's Dictionary (Marathi-English)
Second Edition (1975) referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
Nos. 1328 and 1329/73 & 2059/71.
(From the Judgments and orders dt. 18.11.69
and 21.1.70 of the Allahabad High Court in Income Tax-Reference Nos.
320/64 and 454 131 of 1965).
T. A. Ramachandran and A. Subhasini for the
C. S. Agarwal, R. A. Gupta, S. K. Jain and K.
C. Dua for the respondent in CA 2059/71.
C. S. Agarwal, R. A. Gupta, S. K. Jain, G. S.
Chatterjee and K. C. Dua for the respondent
in CA 1328- 1329/73.
The Judgment of the Court was delivered by
TULZAPURKAR, J.-These three appeals are preferred on certificates of fitness
granted by the Allahabad High Court under ss. 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 l`or 'Dharmada' during the three
assessment years 1951-52, 195253 and 1953- 54 are liable to be taxed as its
income under the Act and the question arises in the following circumstances.
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 reales
certain amounts 244 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 realisation 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 think fit.
Subsequently, OH 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.
During the previous year (being the calendar
year 1950) relevant to the assessment year 1951-52, the total amount received
by the asses see-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. 4578 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
ear-marked for charity and as such they were not its income from business
liable to tax and in support of this contention reliance was 245 placed upon
the resolution passed by the Board of Directors on January A 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. Further appeals to the Appellate Tribunal also proved futile.
Before the Tribunal it was contended on behalf of the assessee that each
customer who paid the 'Dharmada' amount was a settlor of the trust, that there
were as many settlors as there were customers and that the assessee had
receive(' these amounts under an obligation to utilise the same for charity; it
was pointed out that the resolution of the Board of Directors dated January 15,
1945 was merely a confirmation of the fact that the, amounts were held in trust
by the assessee and that the deed dated October 3, 1950 was merely a
declaration of the acceptance of the trust by the two trustees mentioned therein;
in other words, it was contended that the customers of the assessee created a
trust by paying the amounts as 'Dharmada' and the amounts having been
ear-marked for charitable purpose only they were not the assessee's income
liable to tax. The Tribunal negatived the claim of the assessee on two grounds,
first, that the amounts in question could not be regarded as having been
received or held by the assessee under a trust for charitable purposes, the
trust being void for vagueness and uncertainty and, secondly that the
realisations partook of the character of trading receipts. At the instance of
the assessee the matter was carried to the High Court by way of two References,
Income- tax Reference No. 329/1964 being in relation to the amounts concerned in
the two assessment years 1951-52 and 195753 and Income-tax Reference No.
454/1965 being in relation to the amount concerned in the assessment year
1953-54. In the former Reference the High Court approached the question not
from the angle of deciding whether the assessee could claim exemption from tax
under s. 4(3) (i) of the Act in respect of the impugned amounts but whether the
impugned amounts could be regarded as the profits or gains of the business
carried on by the assessee under s. 10(l) to the Act; in other words in the
opinion of the High Court the dispute related to the initial character of the
receipt itself and the question was whether the amount paid by the customers
ear-marked for charity were the assessee's income at all and following an earlier
decision of a Division Bench of that very Court in the case of Agra Bullion
Exchange Ltd. v.
Commissioner of Income tax,(l) the High Court
held that the impugned amounts we never the income of the assessee at all and
that the assessee was merely acting as a conduit pipe or clearing house for
passing on the amounts (1) (1961) 41 I.T.R. 472.
246 to the objects of charity. It took the
view that the Tribunal erred in holding that the levy for 'Dharmada' was in the
nature of a surcharge on the price charged for sale of yarn and cotton and that
in its opinion the fact that it was a compulsory levy ipso Facto did not
impress the same with the character of a trading receipt. the High Court
pointed out that the amounts realised by the assessee on account of 'Dharmada'
were never treated as trading receipts or as a surcharges on the sale price
which was evident from the fact that such realisations were never credited to
their trading account nor shown in the profits and loss statement for any year.
It further observed that it was well-known that the "Dharmada" was a
customary levy prevailing in certain parts of the country and , where it was
paid by the customers to a trading concern the amount was not paid as price for
the commodity sold to the customer. In this view of the matter the High Court
answered the questions in favour of the assessee and against the Revenue.
Following this decision, the High Court answered the question raised in the
latter Reference also in favour of the assessee. The Commissioner of Income
Tax, Delhi (Central), New Delhi has challenged the aforesaid view of the High
Court before us in these appeals.
Counsel for the Revenue raised a two-fold
contention in support of these appeals. In the first place he contended that
since the realisation or recovery of 'Dharmada' amounts by the assessee from
each of its customers was a compulsory levy such payments from the customers'
point of view must be regarded as a part of the consideration or price for the
goods purchased by them to from the assessee. He urged that such compulsory
levy would be in the nature of a premium or surcharge on the price and as such
will have to be regarded as a trading receipt. In that behalf reliance was
placed upon two decisions, one of the Andhra Pradesh High Court in Poosarla
Sambamurthi v. State of Andhra,(') and the other of Madras High Court in N. S.
Pandaria Pillai v. The State of Madras,(1) where similar amounts charged by the
assessee as and by way of 'Dharmam' in the former case and 'Mahimai' in the
latter case were held to be part of the price includible in the taxable
turnover of the assessee. Secondly, he contended that it is well-settled that a
gift for 'Dharma' or 'Dharmada' is void for vagueness and uncertainty and,
therefore, when the 'Dharmada' amounts were paid by the customers and received
by the assessee these amounts could not be regarded as "property held
under trust or other legal obligation for charitable purposes" within the
meaning of s. 4(3) (i) of the Act and in this behalf strong reliance was placed
upon the meanings given to the expressions (1) 7 S.T.C. 652.
(2) 7 S.T.C. 108.
247 Dharma' and 'Dharmada' in Prof. Wilson's
Glossary of Judicial & Revenue Terms, the decision of the Privy Council in
Ranchordas v. Parvatibai(ll) and the decision of the Bombay High Court in
Devshankar v. Moti Ram.(2)Apart from this legal position he sought to support
the Tribunal's finding that no trust could be said to have been created by the
customers on the basis of certain factual aspects-(a) the customers paid the
amounts not voluntarily but out of compulsion, (b) the customers being
illiterate did not appreciate that they were paying the amounts with a view to
create trust, (c) there was no control over the assessee as regards the manner
in which and the time when it should spend for 'Dharmada' and (d) the assessee
did not keep these amounts in a separate bank account-separate from its
business assets. He therefore, urged that no trust of these realisations could
be said to have been created and as such these realisations were rightly
regarded by the. Tribunal as part of the assessee's trading receipts liable to
be included in its assessable income.
On the other hand, counsel for the assessee
contended that it was the initial character of the receipt in the hands of the
assessee that was important, that the amounts when paid by the customers, over
and above the price for the goods purchased from the assessee, were paid for
'Dharmada' (i.e. for charity) and were received by the assessee as such; in
other words, the receipts from the inception were impressed with the obligation
to spend the same only on charitable objects. He contended that the two
concepts of 'Dharma' and 'Dharmada' were distinct from each other and though a
gift to 'Dharma' may be void on grounds of vagueness and uncertainty, a gift to
'Dharmada' would not be void inasmuch as the concept of 'Dharmada' was not
vague or uncertain especially when a gift to 'Dharmada' was by commercial or
trading custom invariably regarded as a gift to charitable purposes, and in
this behalf strong reliance was placed by him upon Full Bench decision on the
Allahabad High Court in Thakur Das Shyam Sunder v. Additional Commissioner of
Income-Tax, U.P. and Another(2) and the decision of the Punjab Haryana High
Court in Commissioner of Income-tax, Amritsar v. Gheru Lal Bal Chand('), where
such customary meaning of 'Dharmada' among the trading community has been
judicially recognised. He further urged that the compulsory nature of the
payment, did not affect or alter the initial character of the receipts which
were earmarked for charity and, therefore such receipts could not be regarded
as trading receipts, (1) 26 I.A. 71.
(2) I.L.R. 18 Bom. 136.
(3) (1974) 93I.T.R. 27.
(4) 111 I.T.R. 134.
248 not being any part of the price nor even
a surcharge on the price. I n support of his contentions counsel strongly
relied upon the decision of this Court i n Commissioner of Income-tax, West
Bengal v.Tollygunge Club Ltd.(1).
Having regard to the rival contentions noted
above, it seems to us clear that. there are two aspects that are required to be
considered fol determining the question raised in these appeals but in a sense
the two aspects are so inter-related that they would represent the two sides of
the same coin. The one aspect is what is the true nature or character these
receipts, whether they constitute a part of the price received by the assessee
while effecting sales of yarn or cotton and are, therefore, trading receipts of
the assessee ? The other aspect is whether these realisations are property held
under trust or other legal obligation for charitable purposes or not ? And this
depends upon whether the ear-marking of these payments for 'Dharmada' creates a
valid trust of obligation to spend the same only on charitable objects ? But in
the facts and circumstances of the case it is obvious that these receipts would
not be trading receipts only if at the time these are received they are held
under a trust or other legal obligation to spend the same for charitable
purposes. In other words if the legal obligation to spend the same for
charitable purposes is void and, therefore, non-existent the receipts or the
realisations may have to be regarded as trading receipts in the hands of the
assessee. That being the position, in our view, the approach adopted by the
High Court to determine the question at issue cannot be regarded as correct. As
pointed out earlier, the High Court approached the question from the angle of
deciding whether the impugned amounts realised by the assessee could be
regarded as the Profits and gains of the business carried on by the assessee
under s. 10(l) of the Act, impliedly suggesting that a claim for exemption for
such amounts under s. 4(3) (i) of the Act was unnecessary or irrelevant and
that the dispute merely related to the initial character of the receipt itself
and following the decision in Agra Bullion Exchange case (supra) it held that
the amounts in question which were paid by the customers ear-marked for charity
were not trading receipts and were never the income of the assessee at all It
is clear that the while making this finding the High Court assumed that the
customers while paying these amounts had validly ear-marked them for charity.
Since the Revenue had specifically raised a dispute that the receipts of
'Dharmada would neither create a valid trust nor a valid legal obligation to
spend the same for charitable purposes, 'Dharmada' being a vague and uncertain
concept, the High Court could not, in our (1) (1977) 107 I.T.R. 776.
249 view, come to the finding that these
realisations were not trading receipts unless it further found that ear-marking
for 'Dharmada was a valid ear-marking for charity. In our view, therefore, both
the aspects of the question are required to be considered for the purpose of
arriving at a correct decision thereon.
Therefore, the first question that arises for
our consideration is whether a gift to Dharmada' is void on grounds of
vagueness or uncertainly ? The answer to this question will depend upon what is
the true meaning of the expression 'Dharmada' and is the concept of 'Dharmada'
as vague or uncertain as the concept of 'Dharma' ? The two allied concept of
'Dharma Anna Dharmada' will have to the considered together. It is true that as
early as in 1899 the Privy Council in Runchordas Vandrawandas C. and others v. Parvatibhai
and others (Supra) declared a bequest or a gift to 'Dharma' (Dharm) simpliciter
to be void, the concept being vague and uncertain and in that behalf the Privy
Council relied upon the meaning of that expression given in Prof. Wilson's
Glossary of Judicial and Revenue Terms, where the expression is stated to mean
'law, virtue legal or moral duty'" derived from the Sanskrit verb 'Dhri'
meaning 'to hold', that which keeps a man in the right path. Accepting the
aforesaid meaning of the expression 'Dharma', the Privy Council observed thus:
"In Wilson's Dictionary
"Dharam" is defined to be law, virtue, legal or moral duty .. The
object which can be considered to be meant by that word are too vague and
uncertain for the administration of them to be under any control." By this
decision the Privy Council gave its impramatur to the view which prevailed in
the Presidencies of Bombay and Calcutta for the past 50 years that gifts to
'Dharma' simpliciter were invalid. The reason for the decision was the
oft-quoted principle that all charities were the special care and under the
direct control of the Court of Equity and that the Court must refuse to accept
as "charity" any gift which by reason of the vagueness in which it
was expressed left the Court m doubt as . to how it was to be applied.
However, in a later Bombay case, namely, the
Advocate- General of Bombay v. Jimbabai.(3) Beaman, J., felt that in this
country 'Dharma' did mean roughly and almost invariable in the cases which had
come up for legal decisions just "charity" and nothing else and
"It is true that an oriental's idea of
charity might be a little wider and looser than that of the Lord Eldon,
particularly amongst the lower and more illiterate classes of Hindus and (1)
I.L.R. 41 Bom. 181.
17-817 SCI/78 250 Mahomedans; but a liberal
use of the convenient doctrine of cypress which is surely elastic enough to
reach almost anything which Judges wish to reach, might have validated the
technical defects and cured the infirmity." It may be stated that with a
view to give effect to the popular concept of the word 'Dharma' a Bill was
introduced (being Bill No. 10 of 1938 published in the Gazette of India Part V.
dated 17.9.1938) but it was presumably dropped as it fell under "Religious
and Charitable Endowments" in List II of the Government of India Act,
1935, which was a Provincial subject. Thereafter the State of Bombay enacted(l
Bombay Public Trust Act being Act No. XXIX of 1950 which is now in operation in
the States of Maharashtra and Gujarat. By title Explanation to s. 1() it has
been enacted that a public trust created for such objects as "Dharma,
Dharmada, Punyakarya or punyadan" shall not be void only on the ground
that the objects for which it is created are unascertained or unascertainable;
in other words, in the areas where legislation similar to the Bombay Public
Trust Act would be in operation bequests or gifts for religious or charitable
purposes, expressed in terms for "Dharma, Dharmada, Punyakarya, punyadan,
etc." would not fail on ground of vagueness or uncertainty. However, in
areas where such legislation is not in force bequests or gifts to 'Dharma'
simpliciter would continue to be void on ground of vagueness or uncertainty.
In the above context it will be interesting
to point out that in Chaturbhuj Vallabhadas v. Commissioner of Income-Tax(l)
the Bombay High Court has taken the view that where instead of 'Dharma' the
testator used the English word 'Charity' that word without any qualifications
or limitations denoted public charity and as such the bequest was held to be a
valid charitable bequest falling within the definition of "charitable
purposes" in s. 4(3) (i) of the Act.
Turning to the concept of 'Dharmada' ('which
is the same as 'Dharmadaya') the question is whether that concept could be said
to be as vague as the concept of 'Dharma'. In Prof. Wilson's Glossary the
expression 'Dharmada' or 'Dharmadaya' is stated to be the vernacular equivalent
of the Sanskrit expression 'Dharmada' or 'Dharmadaya' and the expression
'Dharmada' is explained thus:
"Dharmadeo, corruptly, Dharmadow, (from
Dan or Daya, donation) An endowment, grant of food, or funds or funds, for
religious or charitable purposes".
(1)14 I.T.R. 144 251 Two other allied expressions,
namely, 'Dharmakhaten' and 'Dharmarth' are explained thus:
"Dharmakhaten, (Marathi) The head of
accounts under which pious or charitable gifts are entered." Dharmarth,
(Sanskrit) Anything given for charitable or pious purposes. " In
Molesworth's Dictionary (Marathi-English), Second Edition, reprinted 1975, the
expression 'Dharmadaya' or 'Dharmadav' is stated to mean "an alms or a
gift in charity".
If the respective meanings of the two
expressions 'Dharma' and 'Dharmada' as given in the above dictionaries are
compared, it will appear clear that that the former is indefinite and equivocal
whereas the latter is quite definite; the former means either law, or virtue or
legal duty or moral duty but the latter only means an endowment or gift for
religious or charitable purpose. Similarly, if the expression 'Dharma' is
compared with the expression 'Dharmarth' it will be clear that the former is
indefinite and equivocal while the latter has only one meaning, namely,
anything given for charitable or pious purpose. The Marathi expression
'Dharmakhaten' means the head of accounts under which pious or charitable gifts
are entered. From the above discussion it appears to us clear that though there
is some justification for holding that a gift to 'Dharma' simpliciter would be
invalid on ground of vagueness and uncertainty, a gift to 'Dharmada'
(Dharmadaya) would be definite, the object being certain, namely, for
religious, or charitable purposes. In common parlance, therefore, the
expression 'Dharmada' or 'Dharmadaya' cannot be said to be vague or uncertain
and as such a gift to 'D-harmada' (Dharmadaya) would not be invalid for
vagueness or uncertainty Counsel for the Revenue" however, strongly relied
upon the decision of the Bombay High Court in Devshankar v. Moti Ram (supra)
where that Court has taken the view that a bequest in favour of 'Dharmada' is
void by reason of uncertainty. After going through the arguments of counsel in
that case and the decision of the Court, it appears to us clear that the Court
has accorded a literal and derivative meaning to the word 'Dharmada' in that
'Dharmada' means property set apart for 'Dharma' and having regard to such
derivative Meaning accorded to that expression, the Court has taken the view
that there is no real distinction between a bequest to be expended on
'Dharmada' and a bequest for 'Dharma'. As against its literal and derivative
meaning, the expression 'Dharmada' (Dharmadaya) in common parlance means, as
mentioned in Prof. Wilson's Glossary and Molesworth's Dictionary, an endowment
or gift for religious or charitable purposes and we are inclined 252 to accept
the latter popular meaning that is invariably accorded by Orientalists to the
expression 'Dharmada' (Dharmadaya) and as such in our view a gift to 'Dharmada'
or payment for 'Dharmada' must be regarded as a gift or payment for religious
or charitable purposes and such a gift or payment would not be invalid for
vagueness or uncertainty.
Apart from the fact that the concept of
'Dhramada' or 'Dhramada in common parlance means anything given in charity or
for religious or charitable purposes, it cannot be disputed that among the
trading or commercial community in various parts of this country a gift or
payment for 'Dharmada' is by custom invariably regarded as a gift to charitable
purposes. In Thakur Das Shyam Sundar v.
Additional Commissioner of Income-Tax U.P.
and Another (supra), a Full Bench decision of The Allahabad High Court, the
question was whether, when the assessee, who carried on business as a
commission agent, charged on every transaction of sale of goods worth Rs. 100/-
a sum of 15 paise from the person to whom goods were sold and 10 paise from the
person whose goods were sold as 'Dharmada' and credited the amounts thus
collected. in a separate 'Dharmada' account which was held by him, to be
utilized specifically and exclusively for charitable purposes, the amounts so
collected by him were liable to be included in his assessable income or not ?
The High Court held that the said amounts were not includible in the assessable
income and were not chargeable to income-tax.
The High Court took the view that in order to
determine whether a particular receipt, by whatever name it was called, was or
Was not the income. Of a4 assessee, its real nature and quality had to be
considered and if it was received under a custom, the answer to the question
depended on the nature of the obligation created by the custom. The assessee's
specific case was that in the District of Shahjahanpur there was a custom
according to which the commission agents realised 'Dharmada' from their
constituents and spent the same on charity and this specific case was not
controverted by the Revenue, presumably because the Revenue was aware that such
a custom did obtain in the trading community. It was contended on behalf of the
Revenue that the ownership of the fund realised by way of Dharmada' rested
entirely in the assessee who was free to spend the.
amount according to his own discretion, and,
therefore, the assessee's position qua the 'Dharmada' account was not that of a
trustee. Rejecting this contention the Allahabad High Court observed thus:
"We are unable to accept the submission
that as the owner, ship of the amounts credited to the 'dharmada' account vests
in the petitioner and it enjoys some discretion with regard to its 253 disposal
it cannot be said that its position is not that of a trustee. The question
whether the position of the petitioner, when he received the amount, was that
of a trustee or not will depend upon the actual custom which obliged the
constituents to pay dharmada. As stated earlier, the petitioner's case that the
amount realised as dharmada has got to be spent on charity has not been
controverted by the respondents.
Under the law relating to trust, legal
ownership over the. trust fund and the power to control and dispose it of
always vests in the trustee. Accordingly, merely because in this case the legal
owner ship over the amount deposited as dharmada vested in the petitioner, it
cannot be said that its position was not that of a trustee. Discretion vested
in a trustee to spend the trust amount over charities will not affect the
character of the deposit." The above Full Bench decision of the Allahabad
High Court, it can fairly be said, amounts to a judicial recognition of the
custom of collecting 'Dharmada' amounts by traders from their customers or
constituents which casts an obligation on the traders to spend the same only on
some charitable purpose. In other words, a gift or payment for 'Dharmada' is by
commercial or trading custom invariably regarded as a gift for charitable
purposes and as such there is no question of there being any vagueness or
uncertainty about the object for which such gift or payment has to be utilized.
Counsel for the Revenue sought to contend that the custom referred to in Thakur
Das Shyam Sunder's case (supra) should be regarded as being prevalent only in
the District of Shahjahanpur from which the case arose. It is not possible to
accept this contention, for, it is common knowledge that such customary levy
for 'Dharmada' is frequently collected by traders from their customers in
several parts of the country. similar custom creating the obligation to spend
the 'Dharmada' amounts exclusively on charitable purposes was invoked or
resorted to by the Punjab & Haryana High Court in the case of Commissioner
of Income- Tax, Amritsar v. Gheru Lal Bal Chand (supra) where the assessee who
carried on business in Districts of Abohar.
Hissar and Malaut in Punjab & Haryana
realised 'Dharmada' amounts from his constituents and the Court held that the
assessee was acting more or less as a trustee of such amounts and as such these
were not includible in his assessable income.
Having regard to the above discussion, we are
clearly of the view that a gift to 'Dharmada' or 'Dharmadaya' both in common
parlance as well as by the customary meaning attached thereto among the commercial
and trading community cannot be regarded as void or invalid on account of
vagueness or uncertainty, and it is, therefore, clear that when the customers
or brokers paid the impugned amounts to the assessee ear-marking them for
'Dharmada' it must be held that these payments were validly ear-marked for
charitable purposes. In other words, right from inception these amounts were
received and held by the assessee under an obligation to spend the same for
charitable purposes only, with the result that these receipts cannot be
regarded as forming any income of the assessee.
The next aspect requiring consideration is
whether because of the compulsory nature of the levy the impugned amounts
charged to the customers and received by the assessee Could be regarded as a
part of the price or a surcharge on the price as contended by the counsel for
the Revenue ? In our view, this question is covered by the decision of this
Court in Tollygounge Club case (supra). In the case the respondent club
conducted horse races with amateur riders and charged fees for admission into
the enclosure of the club at the time of the races; a resolution was passed in
1945 at the general body meeting of the club for levying a surcharge; of eight
annas over and above the admission fees, the proceeds of which were to go to
the Red Cross Fund; this resolution was varied by another resolution dated
January 30, 1950 to the effect that the surcharge should be ear-marked
"for local charities and not solely for the Indian Red Cross"; every
entrant was issued two tickets, one, an admission ticket for admission to the
enclosure of the club, and the other, a separate ticket in respect of the
surcharge of eight annas for local charities; the question was whether receipts
on account of the surcharge were to be treated as the respondent's income for
the assessment year 1960-61; the Appellate Tribunal and the High Court on a
reference held that the respondent's receipts from the surcharge levied on
admission tickets for purposes of charity could not be included in the
respondent's taxable income. On further appeal, this Court held, confirming the
decision of the High Court, that the surcharge was not a part of the price for
admission but was a payment made for the specific purpose of being applied to
local charities. At page 780 of the report this Court has observed thus:
"The surcharge is undoubtedly a payment
which a race gore is required to make in addition to the price of admission
ticket if he wants to witness the race from the Club enclosure, but on that
account it does not become part of the price for add- mission. The admission to
the enclosure is the occasion and not the consideration for the surcharge taken
from the race gore. It is true that but for this insistence on payment of the
255 surcharge at the time of admission to the enclosure, the race-goer might
not have paid any amount for local charities. But that does not render the
payment of the surcharge involuntary, because it is out of his own volition
that he seeks admittance to the enclosure and if he wants such admittance, he
has to pay not only the price of the admission ticket but also the surcharge
for local charities. The surcharge is clearly not a part of the price for
admission but it is a payment made for the specific purpose of being applied to
local charities." On parity of reasoning the 'Dharmada' amounts paid by
the customers cannot be regarded as part of price or a surcharge on price of
goods purchased by the customers. The amount of 'Dharmada' is undoubtedly a
payment which a customer is required to pay in addition to the price of the
goods which he purchases from the assessee but the purchase of the goods by the
customer would be the occasion and not the consideration for the 'Dharmada'
amount taken from the customer. It is true that without payment of 'Dharmada'
amount the customer may not be able to purchase the goods from the assessee but
that would not make the payment of 'Dharmada' amount involuntary inasmuch as it
is out of his own volition that he purchases yarn and cotton from the assessee.
The 'Dharmada' amount is, therefore, clearly not a part of the price, but a
payment for the specific purpose of being spent on charitable purposes. The two
decisions on which reliance was placed by counsel for the Revenue, namely,
Poosarla Sambamurthi's case (supra) and Pandaria Pillai's case (supra) are
clearly distinguishable and inapplicable to the facts of this case inasmuch,as
both the decisions were rendered under sales-tax legislation where the question
that was required to be considered was whether the realisations for 'Dharmam'
(charitable purpose) in the former case or 'Mahimai' (religious purpose) in the
latter case would fall within the definition of 'turnover' as contained in the
concerned legislation and it was held that such realisations were includible in
the assessee's turnover. We do not wish to express any opinion on the
correctness of these decisions. Suffice it to state that these ratio of these
decisions cannot apply to the instant case. Since! the realisation in question
in the present case are not a part of the price or surcharge on the price but
payments for the specific purpose of being spent on charitable purposes, they
cannot be regarded as trading receipts of the assessee.
Dealing with the factual aspects on the basis
of which counsel for the Revenue sought to support the, Tribunal's finding that
no trust could be said to have been created by the customers it will be
apparent from the above discussion that none of the aspects are such as would
lend support 256 to the inference drawn by the Tribunal. We have already dealt
with the alleged compulsory nature of the levy and have pointed out that the
'Dharmada' amounts cannot be said to have been paid involuntarily by the
customers and in any case the compulsory nature of the payments, if there be
any, cannot impress the receipts with the character of being trading receipts.
Further, it is not possible to accept the submission that the customers being
illiterate did not appreciate that they were paying the amounts with a view to
create a trust, especially when it has been found that such payments were made
pursuant,to a custom which obtained in the commercial and trading community;
indeed, being a customary levy the constituents or customers whether literate
or illiterate would be knowing that the additional payment over and above ;he
price were meant for being spent by the assessee for charitable purposes.
Further, the fact that the assessee would be having some discretion as regards
the manner in which and the time when it should spend the 'Dharmada' amounts
for charitable purposes would not detract the position the assessee held qua
such amounts, namely, that it was under the obligation to utilize them
exclusively for charitable purposes. It is true that the assessee did not keep
these amounts in a separate bank account but admittedly a separate 'Dharmada'
account was maintained in the books in which every receipt was credited and
payment made there out on charity was debited and the High Court had clearly
found that these amounts were never credited in the trading account nor were
carried to the profit and loss statement. Having regard to this position, it
seems to us clear that the Tribunal's finding that no trust could be said to
have been created by the customers in respect of the impugned amounts will have
to be regarded as erroneous.
In the result, after considering both the
aspects, we are of the view that the impugned realisations made by the assessee
from its customers for 'Dharmada' being validly ear-marked for charity or
charitable purpose could not be regarded as the assessee's income chargeable to
The ultimate. conclusion of the High Court,
is, therefore, confirmed and the appeals are dismissed with costs.
N.V.K. Appeals dismissed.