Law:

Section:

JUDGMENT T.P. Mukerjee, J.-This is a reference made by the Delhi Bench "A" of the Appellate Tribunal under section 66(1) of the Income-tax Act, 1922, hereinafter referred to as "the Act". The statement of the case relates to the assessment years 1951-52 and 1952-53, the corresponding previous years being the calendar years 1950 and 1951, respectively. The assessee is a private limited company. It carries on the business of manufacturing and selling yarn. The company used to realise certain amounts on account of dharmada (charity) from its customers on sales of yarn and bales of cotton. The rate was one anna per bundle of 10 1bs. of yarn and two annas per bale of cotton. The company did not, however, credit the amounts of dharmada so realised by it in its trading account. It maintained a separate account known as the "dharmada account" in which realisations on account of dharmada were credited and payment thereout were debited from time to time. The company was incorporated in the year 1943, and it has been realising amounts on account of dharmada since its very inception. On January 15, 1955, the directors of the assessee-company made a resolution in one of the meetings of the board stating that it was considered desirable that the amounts realised by the company on account of dharmada should be treated as a trust fund with Lala Nawal Kishore and Lala Ram Babu Lal, directors of the company, as trustees. It was declared that all money realised in future by the company by sale of yarn from the purchasers at 0-1-0 per bundle or such rate as may be decided upon in future, will be handed over to the trustees for being utilised in such altruistic, religious or charitable purposes as may be decided upon by them. Subsequently, in October, 1950, the said directors, viz., Sri Nawal Kishore and Sri Ram Babu Lal, executed a deed of declaration of trust. In this deed it was stated that a sum of Rs. 85,000 had accumulated in the charity fund maintained by the trustees and it was declared that the amount did not belong to any individual but it was trust money of which the executors were the trustees and which would be utilised by them for altruistic, religious or charitable…

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