Law: Income Tax Act, 1922

Section:

Income-tax----Income---Business income ---Assessee conducting chit fund---Agreement between assessee as foreman of chit and subscribers for conduct of auction--¬Stipulation for payment to a trust of certain percentage out of margin forgone by successful bidder---Subscribers voluntarily participating---Sum set apart for trust from inception---Not includible in business income of assessee. The assessee-firm carried on the business of a chit of fund. It had several series of chits functioning simultaneously. Agreements were entered into between the fund and subscribers who participated in the chits. The first instalment paid by the subscribers to a series became the property of the assessee, the foreman. In respect of the subsequent payments, the agreement provided that there would be an auction every month, the successful bidder being the one who forwent the largest bargain of discount, and that from this discount, 5 per cent would be set apart for expenses, 25 per cent of the balance would be given over to a trust M, and the remaining amount distributed among the subscribers. The question was whether the portion of the discount given to the trust was includible in the business income of the assessee. The Tribunal held that it was not. On a reference: Held, that the relations between the parties would be governed by the terms and conditions of the agreement. The agreement specifically provided that 5 per cent. of the discount or bonus was set apart for expenses and 25 per cent. of the balance would go to the trust. It was only the remaining amount that came up for distribution among the subscribers of the series. The terms and conditions made it clear that the subscribers were voluntary participants in the series in question. Therefore, the sum paid to the, trust from the discount was not, in any way, the income of the assessee, because, from the inception, it was set apart for the trust. CIT v. Bijli Cotton Mills (P.) Ltd. (1979) 116 ITR 60 (SC) rel JUDGMENT V. V. KAMAT, J.---These references relate to the assessment years 1979-80 and 1980-81, respectively. They relate to the assessee which is a firm in the name and style of Muthootu Mini Chitty Funds,…

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