UPADHYA, J. - The question referred for the opinion of this court is :
'Whether in the circumstances of the case the sums of Rs. 26,903 and Rs. 6,040 were the assessee companys income liable to tax ?'
The assessee is a company incorporated in 1946 and appears to have been formed specifically with a view to bring together merchants dealing in gold and silver in Agra. One of the objects of the company, notice by the Income-tax Appellate Tribunal is :
'To contribute for charitable and other purposes out of the profits of the company.'
The assessee company maintains a trading hall where licensed traders (trading members) do business in bullion through licensed brokers. As stated by the Tribunal in the statement of the case the traders pay to the assessee company whatever amount is due from them on account of (1) commission, (2) brokerage, (3) charity and (4) difference. The assessee company has certain rules which are printed and are known to all the members who agree to use the trading hall of the company for their business. Rule 49 provides as follows :
'On transactions of gold and silver, the following charges of the exchange will be made :
Commission ... ... ... ... 0 4 0
Dalali ... ... ... ... 0 15 0
Dharmada (charity)... ... ... ... 0 1 0
i.e., the total charges to be recovered will be Rs. 1-4-0 per parcha on purchase and sale. Out of the money credited on account of charity 1/4th will be spent on miscellaneous item and the balance of 3/4th will be kept in reserve according to the resolution of the board and will be spent in the discretion of the board.'
In the statement of the case the Tribunal says :
'In fact the assessee company acts as a clearing house.'
'The brokerage received by the assessee company is passed on to the brokers through whom transaction were effected.'
Among other facts, the Tribunal has stated the following : (1) For the assessment year 1948-49 the assessee companys income was computed by the Income-tax Officer at Rs. 56,209 including a sum of Rs. 26,903 said to have been received by the assessee company for the purpose of charity. (2) The assessee company in its profit and loss account did not include the money said to have been received by it for the purposes of charity. (3) In the balance sheet there is a foot-note to the effect that Rs. 42,000 stand deposited in fixed deposit with banks in respect of the Agra Bullion Charitable Eye Hospital Trust out of charity contributions made by trading members as per decision of the directors. (4) For the assessment year 1949-50, the assessee companys income was computed at Rs. 10,652 including a sum of Rs. 6,040 said to have been received on account of charity. (5) The assessee company has a trading hall where licensed traders (trading members) do business through licensed brokers.
In fact the assessee company acts as a clearing house. The orders of the Income-tax Officer and the Appellate Assistant Commissioner have been appended to the statement of the case and made part of it. The Income-tax Officer subjected to tax a amounts received for charity from the trading members. On appeal the tax was upheld by the Appellate Assistant Commissioner. When a second appeal was preferred to the Income-tax Appellate Tribunal, Mr. Dalal, the Accountant Member, took the view that the amount received for charity was not the income of the assessee at all. The amount paid by the trading members included commission, brokerage which to the assessee company as its own commission, brokerage which was paid to the assessee company for being passed on to brokers through whom the trading members had transacted business and difference which had to be passed on to person with whom the transactions had been entered into and who were entitled to the amounts. Similarly amounts paid for charity were intended to be spent on charitable objects according to the rules of the company. The amount so paid for charity was not a part of the companys remuneration. Nor was it intended to be paid to the company itself could not be included in the total income of the assessee.
It appears that the assessee had put up an alternative case that even if the amounts collected for charity be considered to be the assessees income it was exempt under section 4 (3) (i) of the Income-tax Act. The Judicial member took the view that the amount was not purposes or other legal obligation, and did not fall within the purview of section 4 (3) (i) of the Act. He, therefore was of opinion that the tax should be upheld. On the difference between the two members the matter was referred to the President of the Tribunal who agreed with the Judicial Member and the tax was upheld. The assessee thereupon applied for a reference being made to this court and the question mentioned above has been referred for the opinion of this court.
From the facts of the case as stated, and as contained in the various orders appended to the statement of the case, it is clear that the amounts paid by the trading members to the company were not all meant for the company itself. The assessee company was entitled to retain for itself only the commission which was paid at the rate of four annas per parcha. The brokerage charges had to be passed on to the brokers through whom the transactions were entered into. The amount of 'difference' money paid had similarly to be passed on to the trading parties entitled thereto. These amounts have not been treated as income of the company by the income-tax authorities. The only other amount received by the assessee company was for charity at the rate of one annas per parcha. This amount had to be spent according to the rules of the company and the resolution of the board relating to their expenditure. As is evident from rule 49 quoted above one-fourth of this amount could be spent on miscellaneous items of charity but three-fourths had to be spent in accordance with the resolution of the board.
Learned counsel for the Department has conceded that substantial amounts have been spent on the eye hospital run by the assessee. It is not suggested that any part of the collections made for charity have been appropriated by the assessee company for its own use. Learned counsel for the Department, however, contended that if the money received for charity was not spent away on charitable purpose forth-with and formed part of the balance in hand the use of that money was available to the assessee company. This argument appears to overlook the fact that the question is not whether the assessee company was in a position to use temporarily some amount received for charity, but whether the amount when received was the income of the assessee company or was an amount received in trust for charitable purposes. From the facts mentioned above and embodied in the various orders appended to the statement sent by the Tribunal it is clear that the amount so received by the assessee company was not its income at all and it had no right to appropriate to its own use any amount collected by it under the rules framed by the trading members as charity. From the accounts of the company and the balance sheet the Tribunal found that the collections made on account of charity were not treated by the company as its own money.
It appears that some confusion did arise before the income-tax authorities and the Appellate Tribunal because of the claim made on behalf of the assessee for an exemption under section 4 (3) (i) of the Income-tax Act.
Section 4 lays down that subject to the provisions of this Act the total income of any previous year of any person includes all income, profits and gains from whatever source derived which are received or are deemed to be received in the taxable territories and in certain cases outside the taxable territories. Sub-section (3) lays down that any income profits or gains falling within the classes mentioned thereunder shall not be included in the total income of the person receiving them. Among such classes of income is mentioned any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes into so far as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories and in the case of property so held in part only for such purpose the income applies or finally set apart for application thereto. The proviso deals with certain exception to this general rule with which we are not concerned in the instant case. This rule would apply to cases where but for this provision the amount would be taxable as the income of an assessee. In the instant case it is evident that the amount was not received by the assessee as its income at all. The payment made at the rate of one annas per transaction by a trading member was not payment for the assessee but was definitely a payment for charity and was only entrusted to the assessee company for proper expenditure.
We were referred to a decision of this court in Chamber of Commerce Hapur v. Commissioner of Income-tax. That was a case where the Chamber of Commerce had claimed the exclusion from its total income of amounts spent on charity in accordance with one of its objects. The court held :
'That the assessee was not a charitable institution within the meaning of the Income-tax Act and was not exempt from tax as such on its income so the assessee was not entitled to claim exemption in respect of any money which it might have elected to spend on charity.'
The facts of that case are quite different from those of the case now before us and the answer given to the question referred in their case affords no guidance to us. Another case to which we have been referred by learned counsel for the Department is Commissioner of Income-tax v. Vyas and Dhotiwala. That was a case where the assessee, an association of persons undertook to carry on the business of distributing cloth according to scheme evolved by Deputy Commissioner, Amraoti. One of the terms of the agreement provided :
'Profits resulting from the scheme shall be utilized for such charitable purpose as may be decided on by the deputy commissioner in consultation with the advisory committee appointed to supervise the scheme'.
The Supreme Court held that on the facts stated the question was not whether income was received or was deemed to be received by the assessee but whether income had accrued to the assessee and the profits from the scheme formed the income of the assessees and that the fact remained, that the working of the scheme produced profits which undoubtedly belonged to the assessees and since the assessees actually made the profits they were liable to be taxed thereon whether commissioner was completely in control of the scheme did not prevent on by them. The court further took the view that the business was not carried on behalf of any religious or charitable institution and the profits of the scheme were therefore not exempt from tax under section 4 (3) (ia). Sarkar, J., in delivering the judgment of the court observed :
'The provision that the profits would be devoted to charity to be decided by the deputy commissioner would indicate that without it the profits would have been utilisable by the assessees. The profits belonged to the assessees and hence the necessity for this agreement so that the assessees might be made to spend them on charity.'
From the above it is evident that in the case before the Supreme Court what was claimed to be exempted were the profits of the assessees. The working of the scheme resulted in profits to the assessees and merely because the assessees were under the agreement obliged to spend it for charity did not taken away from the fact that the profits had accrued to the assessees and were their income within the meaning of the law.
In the instant case the amount earmarked for charity by the trading members of the assessee company never accrued as an item of income to the assessee at all. The amounts were given for charity and the assessee company may be likened to a conduit pipe through whom the amounts passed. In his judgment the Accountant Member of the Appellate Tribunal has mentioned that the view taken by the income-tax authorities had compelled the assessee to discontinue collecting the amounts for charity. Learned counsel for the assessee also said that this was correct. This unfortunate result appears to be due to a misapprehension about the initial character of the receipts. It appears that among the objects of the assessee company is an object which empowers the company to spend its profits on charitable objects. This object is wholly irrelevant to the question that has been raised in this case. The amounts claimed to be exempted were not parts of the assessees profits; nor does the company contend that the amounts cannot be taxed because they have been spent on charity by the assessee out of its own profits. As mentioned above, the dispute relates to the initial character of the receipt itself and is as to whether the amount paid by the trading members earmarked for charity was the assessees income at all.
We are, therefore, of opinion that the question referred to this court should be answered in the negative and that the sums of Rs. 26,903 and Rs. 6,040 in question were not income of the assessee. The assessee is entitled to its costs which we assess at Rs. 300. We fix the fee of learned counsel for the Department at the same amount.
Question answered in the negative.