Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Diversion of at source by overriding title or application of income - Assessment years 1967-68 to 1969-70 - Assessee claimed that 'laga receipt' collected, along with sale price of cotton, was not liable to tax as it was held by way of trust for application to charitable purposes - ITO however, brought it to tax - AAC excluded it from assessee's taxable income - Tribunal confirmed AAC's orders - Whether, since very nature of impost described as gam laga (village impost) which term had a definite connotation in sense that it was an impost either under statute or under custom indicated that payment made by brokers to assessee was impressed initially with an obligation in nature of trust at time of payment, amount so collected by assessee was not includible in its total income - Held, yes FACTS The assessee-firm used to collect along with the sale price of cotton a specified sum termed 'laga receipt' over the sale price. For the relevant assessment years the assessee claimed that the said receipt was not liable to tax as it was held by way of trust for application to charitable purposes. The ITO, however, added the amount to the assessee's income. On appeal, the AAC upheld the assessee's claim and directed exclusion of the laga receipt from the taxable income. The Tribunal dismissed the revenue's contention, on second appeal that the assessee retained dominion over the amount collected by it, and no trust was ereated and, therefore, it amounted to the assessee's income. On reference: HELD In the facts and circumstances of the case, and having regard to the nature of the impost which had 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 had been described as gam laga, which term has a definite connotation in the sense that it was an impost either under the statute or under the custom, indicated that the payment made by the brokers to the assessee-firm was impressed initially with an obligation in the nature of trust at the time of payment. Therefore, the Tribunal was right in holding that the amount in question collected by…

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