B.K. Mehta, J.
1. The following question is referred to us for our opinion :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amounts collected by the assessee as 'laga receipt' were rightly held to be not includible to its total income under the Act ?'
2. A few facts need be noticed in order to appreciate in proper perspective the contentions urged in respect of the above question. The assessee is a registered firm of six partners having business in cotton with head office at Ahmedabad and branches, amongst various places, at Murkhed within Aurangabad District in Maharashtra. In this branch the assessee used to collect along with the sale price of cotton a sum termed 'laga receipt' at the rate of 8 annas per Rs. 100 of the price of the cotton sold through them. A contention was advanced before the ITO that the amount of laga receipt collected by the assessee was not liable to tax as it was held by way of trust for application to charitable purposes. The ITO was not impressed by this contention and added the amount of laga receipt in each of the years to the assessee's income. Accordingly, for the assessment years 1967-68, 1968-69 and 1969-70, Rs. 3,976, Rs. 5,801 and Rs. 9,408, respectively, were added to the income of the assessee.
3. The assessee carried the matter in appeal before the AAC, who accepted the contention of the assessee and directed that laga receipt be excluded from the taxable income.
4. At the instance of the department, an appeal was preferred before the Tribunal. It was contended in the course of hearing of the said appeal on behalf of the revenue that the assessee retained dominion over the amount collected by it, and no trust was created and, therefore, it amounted to the assessee's income. The Tribunal rejected this contention of the department and confirmed the order passed by the AAC after following the decision of a Full Bench of the Allahabad High Court in Thakur Das Shyam Sunder v. Addl. CIT : [1974]93ITR27(All) . The Tribunal, after setting out the facts of the case before the Full Bench of the Allahabad High Court, quoted the following passage from the said decision (page 35) :
'We are of opinion that in order to determine whether a particular receipt, by whatever name it is termed, is or is not the income of an assessee its real nature and quality has to be considered. If it was received under a custom, the answer to the questions will depend on the nature of obligation treated by that custom. In this case it is not disputed that the petitioner received dharmada under a custom according to which it was obligatory upon it to spend the amount so collected on charity alone. The petitioner had created a fund for that purpose and dharmada collected by it had to be credited to that fund. In the circumstances we are of opinion that the amount so collected was not received by the assessee as its income.'
5. The Tribunal thereafter found, as a matter of fact, as under :
'The facts in this case are identical, and we would hold respectfully, following the decision of the Full Bench of the Allahabad High Court in Takurdas Shyamsunder v. Addl. CIT : [1974]93ITR27(All) , that the Appellate Assistant Commissioner correctly excluded the laga receipt from the income of the assessee for these years.'
6. At the instance of the CIT, Gujarat, this reference is made by the Tribunal for our opinion on the question set out above.
7. We are of the opinion that this reference must be rejected obviously for the following two reasons :
8. In the first place, the Tribunal has found, as a matter of fact, that the facts and circumstances in the case before the Tribunal out of which this reference arises are similar to the facts and circumstances of the case which was before the Full Bench of the Allahabad High Court. In the context of the question, which has been referred to us, there does not appear to be any dispute about these facts, as is clear from the tenor of the question but also having regard to the facts found by the AAC in his order while allowing the appeal of the assessee. The AAC has, in his order, found as under :
'The committee of local merchants of Murkhed who had collected the laga receipts had passed a resolution on 5-9-70 saying that amounts collected as lagas during the years S. Y. 2023 to S. Y. 2026 will be distributed among the following temples, hospital, Arya Samaj, etc. In view of these facts and authorities I hold that the laga receipts are to be altogether excluded from the total income.'
9. The ITO has also in his order of assessment for the assessment year 1967-68 observed as under :
'During the accounting year the total of such amounts collected amounted to Rs. 3,926. According to the assessee it is known as gam laga (village impost). It is contended that the amount of laga collected cannot be taxed as the amount was being held by way of trust for the charitable objects.'
10. While rejecting this claim of the assessee, the ITO has not found that the nature of the impost was other than what was claimed by the assessee. It is also clear from the order of assessment for the assessment year 1968-69 that during the course of scrutiny of the balance-sheet it was noticed that a sum of Rs. 5,801 was shown as gam laga on the liability side of the balance-sheet of Murkhed branch of the assessee. We do not think that in view of this concurrent finding of fact, the revenue can have a grievance about the ultimate conclusion reached by the Tribunal.
11. Even then we have examined the question, in the second place, from the angle whether payments when made by the constituents of the assessee-firm at the time of sale of the cotton through the firm were impressed with an obligation of the nature of trust so that it cannot be said, much less urged successfully, that the receipts were income. In CIT v. Tollygunge Club Ltd. : [1977]107ITR776(SC) , a similar question arose in the context of the impost of additional fee for purposes of charity by Tollygunge Club Ltd. on every ticket for admission at the time of races issued to the guests of the members or to the members of the public, viz., whether the said fee can be considered to be a receipt in the nature of income. The Supreme Court considered the various resolutions passed by Tollygunge Club seeking to impose this additional fee on admission and the utilisation thereof for the purpose of charity. The Supreme Court conceded that if nothing more had been done by the club beyond passing a resolution deciding to utilise a part of the admission fee received by it for charitable purpose, no legal obligation would have been created obliging the assessee to utilise this amount for the purpose of charity, because such a resolution would have left it open to the assessee to alter it or to rescind it and it would have amounted to merely an expression of desire or intention. The Supreme Court thereafter found as under (page 781) :
'But here a resolution was passed at the general meeting of the assessee for levying the surcharge for local charities and, pursuant to this resolution, the surcharge was paid by the race-goers and received by the assessee for the specific purpose of being applied to local charities. The surcharge when paid was clearly impressed with an obligation in the nature of trust for being applied for the benefit of local charities. It is settled law, as observed by this court in CIT v. Thakar Das Bhargava : [1960]40ITR301(SC) , that a trust may be created by any language sufficient to show the intention and no technical words are necessary and it may even be created by the use of words which are primarily words of condition. The only requisites which must be satisfied are that there should be 'purposes independent of the donee to which the subject-matter of the gift is required to be applied and an obligation on the donee to satisfy those purposes'. When the race-goers paid the surcharge to the assessee, they did so for a specific purpose and thereby imposed an obligation on the assessee to utilise it for local charities.'
12. The crux of the problem was thereafter set out by Bhagwati J., speaking for the court, in the following terms (page 781) :
'The question then arises whether this obligation to utilise the surcharge for local charities was an obligation to apply the surcharge to local charities after it reached the assessee as its income or it was diverted for being applied to local charities before it was received by the assessee. Did it involve an application by the assessee of apart of its income to local charities, or was it rather an allocation of a receipt for local charities before it became income in the hands of the assessee ?'
13. The Supreme Court, after following its earlier decisions in CIT v. Sitaldas Tirathdas : [1961]41ITR367(SC) and Raja Bejoy Singh Dudhuria v. CIT [1933] 1 ITR 135 , held that it was a case of diversion of the amount for being applied to local charities before it was received by the assessee. If this test is to be applied in the present reference, which we must do on principle and authority, we must hold that, in the facts and circumstances of this case, and having regard to the nature of the impost which has not been challenged by the revenue, it was diversion of the amount before it became income of the assessee. The very nature of the impost which has been described as gam laga, which term has a definite connotation in the sense that it is an impost either under the statute or under the custom, we do not think that it can be successfully urged that the payment made by the brokers to the assessee-firm was not impressed initially with an obligation in the nature of trust at the time of payment. The result is that we must answer the question referred to us in the affirmative and in favour of the assessee and against the revenue. The Commissioner shall pay costs of this reference to the assessee.