The Judgment of the Court was delivered by
Sabyasachi Mukharji, J.:— The assessee, the Tollygunge Club Ltd., is a company limited by guarantee. It is a social and sporting club and one of its activities is running gymkhana racing, i.e, horse races in which amateur riders take part. It appears that for admission into the enclosures on the race course an admission fee is charged and the member of the public whether he comes on his own or is a guest of the member of the club has to pay not merely an admission fee, but a surcharge of annas eight and two separate tickets are issued in respect of these amounts. The system of levying such a surcharge commenced from the year 1945, in terms of a resolution dated 28th February, 1945, passed at a meeting of the general committee. The relevant extract is as follows:
“13.(c) It was decided to charge a flat rate of Rs. 4-8-0 admission to the races, plus a surcharge of 0-8-0 which will go to the Red Cross fund. The price of admission for officers and other ranks to remain at Rs. 5 (rupees 4-8-0 plus 0-8-0 surcharge) and Re. 1 respectively.”
2. Thereafter, in November, 1950, a further resolution was passed as follows:
“9.(a) Gymkhana.—The following recommendations of the senior steward, Mr. A.R Foster, were approved with effect from the first day of the Spring Meeting 1950:
(i) The present surcharge of 0-8-0 on entrance tickets to be earmarked for local charities and not solely for the Indian Red Cross.”
3. Specimen copies of the tickets are to be found at pages 5-6 of the paper book. One ticket states that the ticket holder has to be admitted and the price is indicated as Rs. 4.50 inclusive of tax. In the body of the said ticket it has been stated that the ticket has been issued subject to the rules and regulations governing the Tollygunge Club Gymkhana Races and also to the Special Condition printed on the back of the ticket. The other ticket states that the surcharge on admission to Tollygunge Gymkhana Races for local charities, Rs. 4-8-0 of the enclosure, it is written on the ticket as surcharge 0-8-0. This reference arises out of the assessment for the assessment year 1960–61, for which the corresponding previous year is the calendar year 1959. The receipts from the surcharge were not credited to the profit and loss account but were credited directly to the charity account. It was not disputed before the income-tax authority that the amount realised by way of surcharge had been disbursed to local charities and a list was filed before the Tribunal showing the charities to which such disbursements had been made. For all the assessment years prior to the assessment year 1960–61 the Income-tax Officer had made no attempt to tax the amount of the surcharge collected as part of the trading receipts of the assessee-company. In making the assessment for the year 1960–61, the Income-tax Officer held that the surcharge levied on the entrance ticket were receipts of revenue nature and could not be excluded from the total income of the assessee merely on the ground that later on it was applied towards charity. He, therefore, included these receipts in the total income of the assessee but allowed rebate under section 15B of the Indian Income-tax Act, 1922, on the amount disbursed for charity in the accounting year.
4. On appeal by the assessee it was held by the Appellate Assistant Commissioner that a person, who wished to gain admittance to the assessee's enclosure on any racing day, had to pay this surcharge, whether he was willing to contribute to the charity or not, and as such the amount of the surchage must be held to be a part of the price charged by the assessee for such admission and it would therefore, be a part of its revenue receipts. The Appellate Assistant Commissioner, in these circumstances, upheld the order of the Income-tax Officer.
5. There was a further appeal before the Income-tax Appellate Tribunal. The Tribunal held that the assessee's receipts from the surcharge levied on the admission tickets for purposes of charity were not the assessee's income and cannot be included in the assessee's total taxable income. The Tribunal, therefore, allowed the appeal and directed that the amount credited to the charity account be deleted from the total income of the assessee.
6. On an application being made under section 66(1) of the Indian Income-tax Act, 1922, the following question has been referred to us:
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee's receipts from the surcharge levied on admission tickets for purposes of charity could not be included in the assessee's taxable income for the assessment year 1960–61?”
7. The main question that requires consideration, therefore, is whether the amounts realised as surcharge from the tickets for the purpose of local charities result in income for the assessee. In this context it is important to bear in mind the following observations of the Supreme Court in the case of Commissioner of Income-tax v. Shoorji Vallahhdas and Co. [1962] 46 I.T.R 144, 148 S.C.:
“Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a “hypothetical income”, which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account.”
8. In the case of Commissioner of Income-tax v. Sitaldas Tirathdas, the Supreme Court had observed that the true test for the application of the rule of diversion of income by an overriding charge, is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, as the Supreme Court noticed but it is the nature of the obligation which is the decisive fact. The Supreme Court also observed that there is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. The Supreme Court further observed that where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and has been since applied. The position, therefore, is an obligation to apply the income in a particular way before it is received by the assessee or before it has accrued or arisen to the assessee results in the diversion of income. An obligation to apply income accrued, arisen or received amounts merely to the apportionment of income and the income so applied is not deductible. This is the principle which has again been reiterated by the Supreme Court in the decision of Commissioner of Income-tax v. Imperial Chemical Industries (India) P. Ltd. [1969] 72 I.T.R Sh. N. 5—Fully reported in [1969] 74 I.T.R 17 S.C.
9. It is, therefore, necessary to examine in this case whether by the resolution referred to hereinbefore, such a course of action was adopted which diversified the amounts before the amounts accrued to the assessee, or in other words which made these amounts not the income of the assessee. It is, therefore, necessary to examine whether the resolution was merely a resolution to apply a part of its income after receipts had become income of the assessee or whether the resolution was of such a nature that a trust in respect of the same was created as a result whereof these amounts had never become income of the assessee. Strong reliance was placed by Mr. B.L Pal, learned counsel for the revenue, on the decision of the Supreme Court in the case of Commissioner of Income-tax v. Thakar Das Bhargava. There what had happened was that the assessee, who was an advocate, had been originally reluctant, but later on agreed to defend certain accused persons in a criminal trial, on condition that he would be provided with the sum of Rs. 40,000 for a public charitable trust which he would create. When the trial was over the assessee was paid a sum of Rs. 32,000 and he created a trust of that amount by executing a trust deed. The question that arose was whether the sum of Rs. 32,000 was the assessee's professional income. It was held by the Supreme Court that the sum of Rs. 32,000 paid to the assessee was his professional income at the time when it was paid to him and no trust or obligation in the nature of a trust was created at that time and when the assessee created a trust by executing the trust deed he applied part of his professional income as trust property. It was further held that the desire on the part of the assessee to create a trust out of the moneys paid to him created no trust; nor did it give rise to any legally enforceable obligation. At page 306 of the judgment the Supreme Court observed:
“It is not stated anywhere that the persons who paid the money created a trust or imposed a legally enforceable obligation on the assessee. Even in his affidavit the assessee had stated that it was agreed that the accused would provide Rs. 40,000 for a charitable trust which I would create in case I defend them, on an absolutely clear and express understanding that the money would not be used for any private and personal purposes. Even in this affidavit there is no suggestion that the persons who paid the money created the trust or imposed any obligation on the assessee. It was the assessee's own voluntary desire that he would create a trust out of the fees paid to him for defending the accused persons in the Farrukhnagar case. Such a voluntary desire on the part of the assessee created no trust, nor did it give rise to any legally enforceable obligation.”
10. It is, therefore, clear that on the facts the Supreme Court found that no trust had in fact been created when the money was received. It was, therefore, the assessee's income. Reliance was also placed on the decision in the case of Hutchinson & Co. (Publishers) Ltd. v. Turner (Inspector of Taxes). There what had happened was that the taxpayers published certain journals for the benefit of a charity and earned substantial profits, which together with other moneys, they paid over to the charity. There had been no written agreement between the taxpayers and the charity, but publication was undertaken on the “distinct understanding” that the profits were to be paid to the charity. It was held by Vaisey J. that there was no enforceable agreement between the taxpayer and the charity and no trust had been created, the profits formed part of the trading profits of the taxpayers and were assessable as such. It was further held that although it might well be that the taxpayers would have suffered in reputation so as to affect their financial position had they not honoured their promise to pay the profits (or a sum equal thereto) to the charity, the moneys paid over could not on that ground be regarded as constituting a proper deduction in computing the taxpayers' profits for the purposes of income-tax. The payments were not moneys expended wholly and exclusively for the purpose of the company's trade, and, therefore, deduction was prohibited by the Income Tax Act, 1918. At page 635 of the judgment Vaisey J. observed:
“I am wholly unable to find any agreement here, whether of agency or otherwise, and I am equally unable to spell out of what was done or said any trust.”
11. It is important to remember in this case that as in the Supreme Court case referred to hereinbefore, that on the facts it was found by the court that no trust had in fact been created and there was no legally enforceable obligation at the time when the money was received by the assessee. Mr. Pal contended that, in the instant case, the position was the same. He further contended that when the people go to the race course buying the tickets they have to pay the surcharge for admission. They do not agree to pay for charities. They merely agree, according to Mr. Pal, to pay the charge for the admission. Mr. Pal further submitted that, therefore, there was no legally enforceable obligation by the racegoer to pay the amounts to local charities. For this proposition Mr. Pal relied on the decision in the case of Chapelton v. Barry Urban District Council. There what had happened was the district council provided deck chairs for persons desiring to use them on the beach. The vacant chairs were stacked up on the beach, and beside them was a notice reading as follows: “Barry Urban District Council. Cold Knap. Hire of Chairs. 2d. per session of 3 hours.” The appellant received two such chairs from the attendant and, upon payment of the fee, two tickets, which he immediately put in his pocket without examination. On the back of the tickets these words were printed: “……The council will not be liable for any accident or damage arising from hire of chair.” The canvas of the chair which the appellant used gave way and he was injured. It was held that the appellant was entitled to assume that all the conditions of hire were contained in the notice near the stack of chairs and was not bound by the condition printed on the back of the ticket. He was, therefore, entitled to recover damages in respect of his injuries. Here the facts are entirely different. Indeed there are no such facts here as were there in the case of Chapelton v. Barry Urban District Council. At least there is no evidence that racegoers do not agree to the condition. Furthermore, it appears that two distinct tickets are issued, one for the surcharge and another for the price for admission. Without these two tickets it was not possible for any one to enter into the races. Therefore, we are of the opinion that it cannot be said that at the time when these tickets were purchased by the public they were not aware that these payments were for the local charities or that payment of these amounts realised by surcharge to the local charities could not be enforced by the racegoers.
12. It is, therefore, necessary for us to examine, in the facts and circumstances of the case, whether any trust was created. Section 6 of the Indian Trusts Act states, subject to the provisions of section 5, which deals with immovable property, a trust is created when the author of the trust indicates with reasonable certainty by any words or act, (a) an intention on his part to create thereby a trust, (b) the purposes of the trust, (c) the beneficiary, and (d) the trust property and transfers the trust property to the trustee. Here the purposes and the beneficiary have been mentioned. The intention has also been expressed. Section 8 of the Indian Trusts Act which deals with the subject-matter states that the subject-matter of the trust will be a property transferable to the beneficiary. The question is, what property is transferable to the beneficiary? Section 5 of the Transfer of Property Act deals with the transfer of property and section 6 deals with what may be transferred.
13. It is true that it has been observed by Bhagwati J. in the judgment of the Supreme Court in the case of Jugalkishore Saraf v. Raw Cotton Co., Ltd. that the words “in the present or in the future”, in section 5 of the Transfer of Property Act, qualify the word “convey” and not the word “property”. But a transfer of property not in existence operates as a contract to be performed in future which is specifically enforceable as soon as the property comes into existence. As the learned editors of the third edition of Halsbury's Laws of England, in volume 38, at page 835, in article 1398, observe, a trust may be declared of a fund contingently on the fund subsequently coming into existence. In this case, therefore, a trust was created.
14. Learned counsel for the revenue contended that the expression “local charities” is vague and uncertain, and as such there could not have been a trust in favour of that. We are unable to agree. Whether the expression, “local charities”, is vague, would depend upon the background of the circumstances under which the resolution was passed. There has been no examination of those circumstances, as this contention was not raised before the Tribunal. Even if the expression be vague, upon which we pronounce no opinion, there will be scope for the application of the doctrine of cy-pres. The trust, if otherwise valid, will not fail on that account. Therefore, the amounts realised as surcharge for charities do not become the income of the assessee. The view we are taking is in consonance with the decision of the Allahabad High Court in the case of Agra Bullion Exchange Ltd. v. Commissioner Of Income-Tax.. In that view of the matter we are of the opinion that the decision of the Tribunal was right and the question referred to this court must be answered in the affirmative and in favour of the assessee. The Commissioner of Income-tax will pay the costs of this reference.
Deb, J.:— I agree.
15. Question answered in the affirmative.