Law: Income Tax Act, 1922

Section: 3,4,10

Indian Income Tax Act, 1922 (XI of 1922) Sections 3, 4, 10 --income General principles-Diversion by overriding title-Sports club-Surcharge for local charities in addition to fees for race- Whether income of assessee -Held no- Whether diverted at source Held yes. The respondent, a social and sports club, conducted horse races with amateur riders, and charged fees for admission into the enclosures of the club at the time of the races. A resolution was passed in 1945 at a general meeting of the respondent for levying a surcharge of eight annas ever and above the admission fees, the proceeds of which were so go to the Red Cross Fund. The resolution was varied by another dated January 30, 1950, to the effect that the surcharge should be earmarked "for local charities and not solely for the Indian Red Cross"., Every entrant was issued two tickets, one, an admission ticket for admission in the enclosure of the club, and the other, a separate ticket in respect of the surcharge of eight annas for local charities. The question was whether receipts on account of the surcharge was to be treated as the respondents income for the assessment year 1960-61. The Appellate Tribunal and the High Court, on a reference, held that the respondents receipts from the surcharge levied on admission tickets for purposes of charity could not be included in the respondent's taxable income. On Appeal to the Supreme Court: "Held, affirming the decision of the High Court, that the surcharge a was not a part of the price for admission but was a payment made for the specific purpose of being applied to local charities. Since a resolution was passed at the general meeting for levying the surcharge for local charities and pursuant to this, resolution the surcharge was paid by the race-goers and received, by the respondent 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, and was by that obligation diverted before it reached the hands of the respondent and at no stage became part of the income of the respondent. It is settled law that a trust may…

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