The assessee is a private limited company and during the accounting period July 12, 1953, to July 1, 1954, relevant to the assessment year 1955-56, it functioned as the sole selling agent of the Muir Mills Company Ltd.
On the sale of each bale, the assessee realised a sum of six annas towards charity and it is said that that was shown separately in the bijak. It appears that the sums so collected were credited in separate account in the assessees books which was styled as the 'Marwari Society Charitable Account.' During the relevant account year this amount stood at Rs. 9,809. In assessment proceedings for the year 1955-56, the assessee claimed that the amount or Rs. 9,809 was not part of the sale price of the bales sold by it and could not be treated as a part of its income. The Income-tax Officer rejected the claim and included the amount in the income of the assessee.
The assessee also claimed a deduction of a sum of Rs. 9,560 on account of repairs to the premises employed by it for the purpose of its business. The premises did not belong to the assessee. It paid rent in respect of it. The sum of Rs. 9,560 was claimed to have been spent by the assessee on the conversion of some manual latrines into flush latrines and on the replacement of the tiled roofs by cement roofs in some of the labourers quarters The claim of the assessee was laid under section 10(2) (ii) of the Indian Income tax Act, 1922. It was rejected by the Income-tax Officer, who added the amount to the returned income.
In respect of both the claims, the assessee proceeded in appeal to the Appellate Assistant Commissioner and, thereafter, before the Income-tax Appellate Tribunal, but was unsuccessful. At the instance of the assessee, the Tribunal has now referred the following two questions to this court for its opinion.
'1. Whether, in the facts and circumstances of the case, the sum of Rs. 9,809 realised by the assessee from its customers towards charity and credited to the account Marwari Charitable Society was the income of the assessee liable to be included in its total income
2. Whether, in the facts and circumstances of the case, the sum of Rs. 9,560, spent in converting the latrines and the labourers quarters was allowable as a deduction under the provisions of section 10(2) (ii) ?'
As regards the first question, it appears that the same question had been raised by the assessee for the assessment year 1954-55 and before the Tribunal it was conceded on behalf of the assessee that it was entirely at the discretion of the assessee to deal as it liked with the amount collected towards charity and that the amount could be spent according to the pleasure of the assessee. The Tribunal accordingly found that the amount was not held under any trust or binding obligation requiring the assessee to apply that amount to any charitable purpose. When the appeal for the assessment year 1955-56 came on for hearing before the Tribunal, the assessee was unable to place any further material before the Tribunal and to persuade it to a different view.
Shri M. P. Mehrotra learned counsel for the assessee, points out that the Tribunal applied the doctrines of res judicata and declined to go into the question whether the amount of Rs. 9,809 was liable to be included in the income of the assessee for the assessment year 1955-56 it having found against the assessee on a similar claim for the proceeding assessment year. He urges that the doctrine of res judicata cannot be invoked in income-tax proceedings. Upon a perusal of the appellate order before us, we are not satisfied that the Tribunal applied the doctrine of res judicata. What the Tribunal intended to say was that the matter before it appeared to be not different from that arising in the preceding assessment year, and there was no reason why upon the facts and circumstances it should not take the same view in the instant assessment year, specially when there was no fresh or further material before it to warrant a different opinion.
It is clear from the finding of the Tribunal that, although the amount was raised by the assessee from its customers apparently on the ground of charity and although the amount was said to be credited to the account 'Marwari Charitable Society', the disbursement of the amount was entirely within the desecration of the assessee, and the assessee was not bound to devote any part of that amount to the assessee was not bound to devote a part of that amount to the Marwari Charitable Society. It is not a case where the amount was paid by the customers specifically towards a charitable purpose and the amount was held in trust by the recipient so that there was a binding obligation to apply that amount to the charitable purpose. Indeed, Shri Mehrotra states that the case is not one where receipt of the amount results in a trust or enforceable obligation. The plea on the contrary is that the amount did not constitute part of the sale price and, therefore, could not be included in the assessees income. As to that we are clear in our minds that the amount having been realised by the assessee from its customers as part of and in connection with the sale transactions, it must be treated as income from its business. We are satisfied that the Tribunal was right in holding that the amount of Rs. 9,809 was liable to be included in the total income of the assessee.
The assessee relies upon the circumstances that the question framed by the Tribunal assumes that the aforesaid sum of Rs. 9,809 was realised by the assessee from its customers towards charity for crediting to the account of the Marwari Charitable Society. But is seems to us that the language employed by the Tribunal in framing the question as it did was merely by way of description for the purpose of identifying the sum in question. Indeed, it is clear from the finding of the Tribunal that it considered the sum as open to such expenditure as the assessee in its discretion thought fit.
Reliance has been placed by the assessee on a circular issued by the Central Government, New Delhi, directing that payments of this kind should not be treated as income. That circular has not been placed before us. We are not bound by any direction contained in the circular because, in our opinion, the question must be decided upon the requirements of the income-tax law. The Tribunal declined to take that circular into consideration and we think that the Tribunal was plainly right in doing so.
Upon the aforesaid considerations the first question, in our opinion must be answered in the affirmative.
Turning to the second question it appears that the Tribunal has found that the amount of Rs. 9,560 was spent on converting the manual latrines into flush latrines and on replacing the tiled roofs of the labourers quarters by cement roofs. This is not a case where repairs were effected for the purpose of restoring the property to its original condition. It is a case where there was a substantial improvement in the property and a material change was brought about in the property. The manual latrines were replaced by flush latrines and the tiled roofs were replaced by cement roofs. We are unable to hold that the alterations effected by the assessee were made merely to bring about the reinstatement of the property to its original condition. Consequently, it cannot be said that the alterations were merely in the nature of repairs. A case in point is that in Highland Railway Co. v. Balderston (Surveyor of Taxes) and decided by the Court of Exchequer (Scotland) in which the Lord President pointed out in his judgment :
'Then when we come to the question of the alteration of the main line itself, it must be kept in view that this is not a mere relaying of the line after the old fashion; it is not taking away rails that are worn out or partially worn out, and renewing them in whole or in part along with the whole line. That would not alter the character of the line; it would not affect the nature of the heritable property possessed by the company. But what has been done is to substitute one kind of rail for another, steel rails for iron rails. Now that is a material alteration and a very great improvement on the corpus of the heritable estate belonging to the company, and so stated is surely a charge against capital. All that is done, it will be observed from the details given on page 7 with reference to his matter, is to charge the price of the corpus of the rails and chairs. That is say, the weight in addition to what was the original weight to the rails and chairs. That is the whole charge, and that is a charge made entirely for the improvement of the property, the paramount improvement of the property. Now how that can be anything but a charge against capital I am unable to see, certainly, if you build a new House upon you land, that is an addition to the property, an improvement on the property and never becomes a charge against income. Just as little if you build up a railway upon the line which you possess, and which is a different railway and a much more valuable railway, than that which you remove, just as little can that be a charge against income. It is a material improvement in the subject and consequently must from a charge against capital.'
In the circumstances, the claim of deduction under section 10(2) (ii) made by the assessee in the instant case has no force and was rightly rejected by the Tribunal. Learned counsel for the assessee relied upon Commissioner of Income-tax and Excess profits Tax v. Sri Rama Sugar Mills Ltd., Commissioner of Income-tax v. S. B. Ranjit Singh, Humayun properties Ltd. v. Commissioner of Income-tax and Dehri Rohtas Light Railway company Ltd. v. Commissioner of Income-tax, but in the view that we are taking, these case are of no assistance to the assessee.
In our opinion, the second question must be answered in the negative.
The Commissioner of Income-tax is entitled to his costs which we assess at Rs. 200. The fee of learned counsel is also assessed at Rs. 200.