1. The assessee had joined U.P. Congress Committee sometime in February 1977 as an Editor of its Urdu weekly Jadid Shah. His salary was fixed at Rs. 350 per month. He was promoted as its Editor with effect from July 1977 on a monthly salary of Rs. 553 per month. Earlier to the taking of the above employment also, he was a journalist. At the relevant time he thought of compiling an 'Encyclopaedia of Muslims in India' enumerating therein their achievements, past and present and their contribution to the enrichment pf national life, their tireless efforts in the struggle of India for liberation from foreign yoke and above all, the exemplary spirit of devotion and the strong sense of self-sacrifice that they had displayed in the development of nationalism and national integration. A number of circulars containing the appeal to the public in this regard were also issued by him. With the above purpose he approached a number of persons requesting them to furnish their photographs and events of life together with an amount of Rs. 100 being the charges of blocks, etc. They were also requested to enrol their names as advance subscribers to the Encyclopaedia.
2. A number of Muslims of repute, responded to the appeal of the assessee and sent their contributions to him. We were told that the first contribution was received by him on 10-8-1974. The total contribution in the assessment year 1977-78 amounted to Rs. 46,050. In the subsequent year, i.e., the assessment year 1978-79, there was a further contribution of Rs. 26,000. It was not denied before us that a part of the above amount was also in the nature of donation.
3. The ITO while making the assessments of the assessee for the assessment years 1975-76 and 1976-77 did not take into consideration the above donations or the interest thereon which was earned by the assessee by advancing them to various parties. This question, however, attracted his attention in the assessment years 1977-78 and 1978-79. In the meantime, there was another development. The assessee founded an institute called 'Encyclopaedia Publications and Research Institute'. A memorandum of association and articles of association of this institute were also duly drafted. The object of the institute as appeared from these documents was as under : The main object of the Institute will be to make research regarding the intellectuals and educate the masses about their achievements with a view to induce them to develop similar qualities in themselves and in carrying out the above object, the Institute will devote itself: (a) to collect the bio-data and life sketches of intellectuals in every vocation, profession or walk of life throughout India ; (b) to compile, publish and print an Encyclopaedia of such intellectuals enumerating their achievements, exemplary spirit of devotion and self-sacrifice for uplift of the masses ; (c) to spread useful information about aforesaid intellectuals with a view to infuse similar spirit in the masses ; (d) i. to accept donations and funds and acquire assets, etc., for the above purpose from various donors, who will be issued receipts showing the purpose for which the donation has been made, which will tantamount to absolute divesting of funds by the donors for such purpose ; ii. to accept donations and funds collected by individuals for similar or allied objects in the manner mentioned in (i) above.
The above institute was also registered under the Societies Registration Act, 1860 on 1-8-1980. A certificate to this effect was also issued on 2-8-1980.
4. The ITO in the above orders held that the receipts by the assessee were in the nature of donations. He came to this conclusion on the basis of certain facts. He found that the counterfoils of receipts issued by the assessee, though appearing in the name of Encyclopaedia Publications, did not show the purpose for which the collections were made, as the column relating thereto had been left blank. He admitted that the receipt was signed on behalf of 'Encyclopaedia Publications'.
He also noticed that the assessee had incurred an expenditure of Rs. 3,200 up to the assessment year 1975-76 towards the above purpose. It was stated before him that the collections were towards the cost of the book. This was not accepted by the ITO on the ground that they were not uniform and they differed from person to person. He also observed that the above donations were not exempt in view of the provisions of Section 13 of the Income-tax Act, 1961 ('the Act'). After holding that they were in the nature of donations, he further held that they were the income of the assessee. He also, as a consequence, assessed the interest earned by the assessee on the advances made out of the above amounts. The ITO did not take into consideration either the memorandum of association or the articles of association, or the fact that the institute had been registered under the Societies Registration Act, on the ground that these events had taken place after the end of the accounting years, relevant for the assessment years under consideration.
5. The assessee appealed to the AAC. It was contended before her that simply because the advances were of different amounts from different persons, they could not be treated as donations. It was also submitted that the money was held by the assessee in trust, for the purpose of publishing the Encyclopaedia and, therefore, it was not his income. The AAC first stated that only one life sketch of the persons from whom the amount had been received, has to be published in the Encyclopaedia produced before the ITO but no such forms for subsequent donors had been produced and further the counterfoils of receipts issued showed that the purpose for which the collections had been made were blank, although the receipts were in the name of Encyclopaedia Publications and it was also signed on behalf of the above institute. We may observe here that the assessee also filed some revised balance sheet before the lower authorities to separate the account relating to Encyclopaedia Publications from his personal accounts. The AAC also rejected the assessee's claim observing that no society or trust had been formed and the assessee had full control over the amounts received and he could spend them in any manner he liked. She further observed that the absence of purpose in the receipts issued by the assessee also went to show that the amounts were not in the nature of advances, but that they were in the nature of donations and had been rightly taxed as the income of the assessee.
6. The assessee is now in appeal before us. The learned counsel for the assessee submitted before us that the finding of the ITO that Section 13 applied to the case, clearly went to show that the assessee's case was governed by Section 11 of the Act. According to him, therefore, the amounts even if it were donations could not be treated as the assessee's income. He next submitted that at the most, the assessee had received the amounts as donations but they were in the nature of a gift to him. He contended that in such a situation it was the donor or the person who had made the gift, liable to be assessed. His further submission was that, at the worst, the collections could be treated as cash credits and if that was the situation, they could not be treated as the assessee's income as the assessee had discharged his burden with regard to their sources, meaning thereby that they had been received from the outsiders. His final submission was that in any case collections were in the nature of advances for pre-publication orders of the Encyclopaedia and for entries of life sketches of the persons therein and if this purpose was not achieved, the assessee was bound to re-pay them. He contended that in this situation, the advances could not be treated as the assessee's income, as the assessee was accountable for them, either by supplying the Encyclopaedia, or on its failure to return the amounts. He also submitted that the assessee had never made any specific appeal for any donations which were just incidental to the advances for pre-publication orders and for entries in the Encyclopaedia. He also invited our attention to the fact that the assessee had subsequently transferred the entire amount together with interest to Encyclopaedia Publications. For this purpose, he referred to a transfer deed dated 2-4-1979 executed by the assessee.
The following words in this deed are relevant: I hereby transfer the above advances along with their investments to the aforesaid Institute this second day of April, 1979 and place them at the disposal of the Managing Committee of the Institute for their utilization for the achievement of the object of the Institute.
7. The learned departmental representative, on the other hand, submitted that the entire collection belonged to the assessee and was, therefore, his income. In this connection he referred to a decision of the Allahabad High Court in the case of Addl. CIT v. Ram Kripal Tripathi  125 ITR 408. He also submitted that the assessee was not required to return the amount to anybody nor was he bound to supply any Encyclopaedia.
8. We have given careful thought to the entire matter. We are of the opinion that the collections cannot be treated as the assessee's income under any provision of the Act. Before we proceed further, we may state that the principle enunciated in the case of Ram Kripal (supra) has no application to the present case. In the cited case, the assessee gave discourses on vedanta and for that purpose undertook tours. It was in course of these discourses that he was presented with funds to purchase a car. It was held that the assessee was carrying on a profession within the meaning of Section 28(iv) of the Act and the receipt of the car was a benefit accruing to him and its entire value was taxable in his hands. In the present case, the assessee has not given any discourses. We have already stated in the beginning that his profession is journalism and at the relevant time he was working as an Editor with the U.P. Congress Committee.
9. We have perused the facts of the case. We are of the opinion that the collections made by the assessee consist of two kinds. The first kind related to the advances for supply of Encyclopaedia, as also for making entries of life sketches of different persons. Such amounts, in our opinion, are in the nature of advances for the supply of the publication. If the assessee fails to do so, he is bound to refund the amounts to the subscribers. Whether the subscribers demand the amounts or not is a different question, but that would not make the collections as the income of the assessee. This issue is fairly well settled.
10. The other kind consists of donations. This was also the finding of the ITO. The question for consideration is whether these donations can be treated as the income of the assessee. We are of the opinion that they cannot be so treated. The assessee cannot be held to be carrying on any profession for collection of donations. There cannot be a profession for such purpose. To repeat, we may state that the assessee's profession was working as an Editor of an Urdu weekly. The collection of donations was undertaken by him for the purpose of bringing out an Encyclopaedia. In our opinion, therefore, the donations by themselves cannot be treated as the assessee's income even if the assessee has appropriated a part of those donations or the interest relating thereto for his personal purposes. At the most it could be said that the assessee has misappropriated the amount to this extent, if at all it can be so said. We may make it clear that we are not pronouncing any judgment on this aspect of the matter. Our finding is that the donations or the interest earned on them through advances to parties does not form part of the assessee's income and cannot be taxed in his assessments.
11. We may deal with the above issue from another angle also. It is not denied that subsequently, Encyclopaedia Publications was founded and registered under the Societies Registration Act. It had a set purpose as stated above. The assessee has also transferred the entire amount to this institute vide transfer deed dated 2-4-1979. These facts only go to show that the assessee was working in a fiduciary capacity on behalf of an institute to be founded subsequently. The institute is, therefore, entitled to claim from the assessee the entire collections and the interest. In fact, this is precisely what the assessee had done through transfer deed dated 2-4-1979. We are, therefore, clear in our mind that looked at from either angle neither the collections nor the interest thereon is the income of the assessee. We, therefore, direct the deletion of these amounts from the total income of the assessee for the respective two years.
12&13. [These paras are not reproduced here as they involve minor issues.] 14. In the result, while the appeal for the assessment year 1977-78 is fully allowed, that for the assessment year 1978-79 is partly allowed.