Commissioner of Income Tax, (central) Delhi, New Delhi v. Bijli Cotton Mills (p) LTD., Hathras DISTT., Aligarh
COMMIS.SIONER OF INCOME TAX, (CENTRAL) DELHI, A
NEW DELHI
v.
BULI COTTON MILLS (P) LIB., HATHRAS DISTT., ALIGARH
November 7, 1978
[P. N. BHAGWAT! AND V. D. TuLZAPURKAR, JJ.]
Indian Income Tax A.ct. 1922 s. ~(3)(i) & s. 10(1)-Assessee colleoted
moneys on sale of goods und~r t.he htad "D/larmada"-Kept the amount in a
separate account-Created a trust-Utilised the fnoney for charitable purposes-
--.--- Whether amount realised cowld be regarded as assessee's income-"Dhannadci' C
Trust whether void as Val?Ut Qnd uncertain.
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Words & Phrases-"D•armada"-meaning of.
The assessee reali3ed certain amounts of money on account of Dharmada
(charity) from its customers on sale of yarn and bales of cotton which was its
principal business. The amounts so realised were shown in a separate column
headed '"Dharmada" in the bills issued to customers. Without taking them into
its trading account, the assessce, credited these amounts to a separate account
known as "Dhrmada" account. The Board of Directors of the company created
a trust and declared that all moneys standing in the "Dharmada Account", and
realised on this account in future should be treated as trust fund and utilised by
the trustees for such religious and charitable purposes as may be decided by
them.
For the assessment years 1951-52, 1952-53 and 1953-54 the Income Tax
Officer adt'ed the lnnounts realised under the head "Dharmada" to the assessable
income of the iissessce. The assessce's appeals to the Appellate Assistant Com
missioner ·were dismissed. On further appeal the Appellate Tribunal held that
the trust was void for vagueness and uncertainty and that the realisations par·
took of the character of trade receipts.
On reference, the High Court held that the amounts were never the income
of the assessee, that the assossee was merely acting as a clearing house for pass
ing the amount to the trust, that the fact that it was a compulsory levy did
not make it a trade receipt, that "Dharmada" was a customary levy prevailing
in some parts of the country and' where it was paid by the cutomers to a trading
concern, the amount was not paid ai. a price for the commodity sold to the
customer. G
In appeal to this Court it was contended on behalf of thC Revenue that the
realisations being a compulsory levy, they mast be regarded as a part of the
consideration or price of the goods purchased by the buyers and that gift for
• -,. .. Dharm:1da" was void for vaguenetls and uncertainty.
Dismissing ti.e appeals,
HELD : I. The impugned realisations made by the assessee from its cus
tomers for "Dharmada" being entirely earmarked for religious or charitable
A purposes would not be regarded as the assessee's income chargeable to income
tax. [256FJ
2. A gift to the "Dharmada" or "Dharmadaya'' both in common parlance
as well as the cusotmary meaning attached thereto among the commercial and
trading community cannot be regarded as void or invalid on account of vague
ness or uncertainty. When the customers or the brokers paid the impugned
B amounts to the assessee earmarking then1 for "Dharmada" these payments were
validly earmarked for charitable purposes. In other words right from the
inception these amounts were received and held by the assessee under an ob1iga
tion to spend the same for charitable purposes only, with the result that these
receipts could not be regarded as forming income of the assessee.
[253H-254B]
Though there is some justification for holding that a gift to "Dharma" simpli
citer would be invalid on grounds of vagueness and uncertainty, a gift ta
"Dharmada" would be definite, the object being certain viz., for religious or
chartiable purposes. In common parlance the expression "Dharmada" or "Dha
ramadaya" cannot be said to be vague or uncertain and as such a gift to
"Dharmada" (Dharmadaya) would not be invalid for vagueness or uncer
tainty. [251 E·FJ
3. While the word "Dharma" is indefinite and equivocal, the word 'Dharma
daya" is quite definite. The former means either law or virtue or legal duty or
moral duty, the latter means an endowment or gift for religious or charitable
purpose. Similarly while the expression "Dharma" is idefinite and equivocal
the expression "Dbarmarth" has only one meaning viz., anything given for chari
table or pious purposes. [251C·DJ
4. Apart from the fact that the concept of: "Dharmada" or "Dharmadaya" in
common parlance means anything given in charity or for religious or charitable
purposes among the trading or commercial community in various parts of this
country, a gift or payment for "Dharmada" is by custom invariably regarded
a gift to charitable purposes. [252C)
5. Since a gift or payment for "Dharmada" is by commercial or trading
custom invariably regarded as a gift for charitable purposes there is no ques
tion of there being any vagueness or uncertainty about the object for which
such gift or payment has to be utilised. [253E]
6. Since the realisations are not a part of the price or surcharge on. the
price but payments for a specific purpose of being spent no charitable purposes,
they cannot be regarded as trading receipts of the assessee. [2550)
7. The amount of "Dharmada" is a payment which a customer is required
to pay in addition to the price of the goods which he purchases from the trader
but the purchase of the goods by the customers would be the occasion and not
the consideration for the "Dharmada" amount taken from the customer. Al
though without payment of "Dharmada" amount the customer may not be able
to purch.ase the goods, but that would not make the payment of "Dharmada"
involuntary inasmuch as' it is out of his own volition that he purcltases the
goods from the trader. The "Dharmada" amount is, therefore, not a part of
the price but a payment for the specific purpose of being spent on charitable
purposes. [255C·E]
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C.I.T. v. BIJLI COTTON MILLS (Tulzapurkar, I.) 243
8. Even if the assessee had not kept these amounts in a separate bank account, A
admittedly a separate "Dharmada Account" was maintained in the books of
the assessee in which every receipt was credited and payment made out on
charity ""as debited. The High Court had clearly, found that all these amounts
were never credited in trading account nor carried over to profit and loss state
ment. [256E]
Commissioner of Income-tax, West Bengal v. Tollygunge Club Ltd., [1977] B
107 !TR 776; followed .
Agra Bullion Exchange Ltd. v. Commissioner of Income Tax, [19611 41 ITR
473, Ranchordas v. Parvatibai, 26 IA 71; Devshankar v. Moti Ram, ILR 18 Born
136; Thakur Das Shyam Sunder v. Additional Commissioner of Income-tax, U.P.
& Anr., [1974] 93 ITR 27; Commissioner of Income-tax, Amritsar v. Gheru Lal
Bal Chand, 111 !TR 134, Advocate General of Bombay v. Jimbabai, !LR 41 C
Born. 181; Chaturbhuj Vallabhdas v. Commissioner of Income-tax, 14 ITR 144
referred to.
Poosarla Sambamurthi v. State of Andhra, 7 STC 652; N. S. Pandaria Pillai
v. State of Madras, 31 STC 108 distinguished.
Prof. Wilson's Glossary of Judicial and Revenue Terms: Molesworth's Dic
4
tionary (Marathi-English) Second Edition (1975) referred to.
ClvlL APPELLATE JURISDICTION : Civil Appeal Nos. 1328 and
1329/73 & 2059/71.
(From the Judgments and Orders dt. 18.11.69 and 21.1.70 of the
Allahabad High Court in Income Tax-Reference Nos. 320/64 and 454 E
of 1965).
T. A. Ramachandran and A. Subha~ini for the· appellant.
"-,, C. S. Agarwal, R. A. Gupta, S. K. Jain and K. C. Dua for the respon-
dent in CA 2059 /71.
C. S. Agarwal, R. A. Gupta, S. K. Jain, G. S. Chatterjee and F
K. C. Dua for the respondent in CA 1328-1329/73.
The Judgment of the Court wa·s delivered by
TULZAPURKAR, J .-These three appeals are preferred on certificates
of fitness granted by the Allahabad High Court under ss. 66-A of the
Indian Income Tax Act, 1922. They raise a common question whether G
the amounts realised by the assessee-company from its customers as
and for 'Dharmada' during the three assessment years 1951-52, 1952-
53 and 1953-54 are liable to be taxed as its income under the Act, and
the question arises in the following circumstances.
The assessee is a private limited company havin!l been incorporated H
in the year 1943. It carries on the business of manufacturing and sel-
ling yarn. Right from the inception it used to realise certain amounts
244 SUPREME COURT RHORTS [1979] 2 S.C.R.
on account of 'Dhannada' (charity) from its customers on sales of yarn
and bales of cotton. The rate was one anna per bundle of 10 lbs. of
yarn and two annas /per bale of cotton. In the bills issued to t!ie
customers these amounts were shown in a ·separate column headed
'Dharmada'. The assessee did not credit the amounts of 'Dharmada'
so realised by it in its trading account but it maintained a separate ac
count known as the "Dharmada Accounf' in which realisation on ac
count of 'Dharmada' were credited and payments made out were debited
from time to time. It appears that at a meeting of the Board of Direc
tors of the as·sessee-company held on January 15, 1945, the Board
passed a resolution that the moneys standing in the "Dharmada Account"
be treated as trust fund of which Lala Nawal Kishore and Lala Ram
Babula!, two Directors of the company, be the trustees and it was further
declared that all the money realised in future' by the company on sale
of yarn from the purchasers at the rate of one anna per bale or such
rate as may be decided in future be handed over to the trustees for
being utilised in such altruistic, religious and charitable purposes as may
be decided upon by them, and that the trustees shall in particular utilise
such funds for the advancement of education and the alleviation of
misery and sickness of the public in general as it think fit. Subsequently,
011 October 3, 1950 the said two Directors executed a Deed of Declara
tion of Trust wherein it was stated that a sum of Rs. 85,,000 had accumu
lated 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 executants were trustees and it will be utilis~d by
them for altruistic, religious or charitable purposes.
During the previous year (.be,ing the calendar year 1950) relevant
to the asses•ment year 1951-52, the total amount received by the asses
see-company in the "Dharmada Account" as aforesaid amounted to
Rs. 21,898 /-; similarly during the previous year (being the calendar
year 1951) relevant to the assessment year 1952-53 the company collec
ted from its customers a sum of Rs. 17,242/- on account of 'Dharmada'
and a sum of Rs. 904 /- for the same purpose from the brokers and
interest was also credited to this account amounting to Rs. 4,010/-,
while during the previous year (being the calendar year 1952) relevant
to the a·sie.sment year 1953-54 the assessee received a sum of Rs.
19,490/- as 'Dhannada' from its customers and a sum of Rs. 4578/
was also credited on account of interest in the "Dharmada Account".
l• the assessment proceedings for the assessment years 1951-52, 1952-
53 and 1953-54 the assessee claimed that the aforesaid amounts lying
to the credit of the "Dharmada Account" were held in trust by it and
were ear-marked for charity and as such they were not ifs income from
business liable to tax and in support of this contention reliance was
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C.I.T. v. BIJL! COTTON MILLS (Tulzapurkar, J.) 245
placed upou the resolution passed by the Board of Directors on January A
15, 1945 and the Deed of, Declaration of Trust dated October 3, 1950.
The Income-Tax Officer rejected the contention and added the said
amounts to the assessable income of the assessee-company in all the
years. The appeals before the Appellate Assistant Conunissioner at
the instance of the assessee-company proved unsuccessful. Further
appeals to the Appellate Tribunal also proved futile. Before the Tri- B
bunal it was contended on behalf of the assessee that each customer who
paid the 'Dharmada' amount was a settlor of the trust, that there were
as many settlors as there were customers and that the assessee had
received these amounts under an obligation to utilise the same for
charity; it was pointed out that the resolution of the Board of Directors C
dated January 15, 1945 was merely a confirmation of the fact that the
amounts l'!ere held in trust by the assessee and that the deed dated Octa~
ber 3, 1950 was merely a declaration of the acceptance of the trust by
the two trustees mentioned therein; in other words, it was contended
·that the customers of the assessee created a trust by paying the amounis
as 'Dharmada' and the amounts having been ear-marked for charitable D
purposes only they were not the assessee"s income. liable to tax. The
Tribnnal negatived the claim of the assessee on two grounds, first, that
the amcunts in question could not be regarded as having been received
or held by the asses·see under a trust for charitable pwposes, the trust
being void for vagueness and uncertainty and, secondly,. that the realisa-
tions partook of the character of trading receipts. At the instance of E
the assessee the matter was carried to the. High Court by way of two
References, Income-tax Reference No. 329 /1964 being in relation tq
the amount,,; concerned in the two assessment years 1951-52 and 1952-
53 and Income-tax Reference No. 454/1965 being in relation to the
amount concerned in the assessment year 1953-54. In the former
Reference the High Court approached the question not from the angle of F
deciding whether the assessee could claim exemption from tax under
s. 4(3) (i) of the Act in respect of the impugned amounts but whether
the impugned amount' could be regarded as the profits or gains of the
busine.. caITied on by the assessee under s. 10(1) of the Act; in othec
words, in the opinion of the High Court the dispute related to the initial G
character of the receipt itself and the que1tion was whether the amounls
paid by the ·customera ear-marked for charity were the assessee's income
at all and following an earlier decision of a Division Bench of that
vei;y Court in tho case of Agra Bullion Exchange Ltd. v. Commissio_.
of Income Tax,(1) the High Court held that the impugned amonnt. were
never the income of the assessee at all and that the asaesseo was merely u
acting as a conduit pipe or clearing house tor passing on the amounts
(I) (1961) 41 l.T.R. 472.
II
246 SUPREME COURT REPORTS [ 1979] 2 S.C.R.
to the objects of charity. It took the view that the Tribunal erred in
holding that the levy for 'Dharmada' was in the nature of a surcharge on
the price charged for sale of yarn and cotton and that in its opinion the
fact that it was a compulsory levy ipso facto did not impress the same
with the character of a trading receipt. The High Court pointed out
that the amounts realised by tha assessee on account of 'Dharmada' were
never treated as trading receipts or as a surcharg;o on the sale price which
was evident from the fact that such realisations were never credited to
the trading account nor shown in the profits and loss statement for any
year. It further observed that it was well-known that the "Dharmada"
was a customary levy prevailing in certain parts of the country and
where it was tpaid by the customers to a trading concern the amount was
not paid as price for the commodity sold to the customer. In this view
of the matter the High Court answered the questions in favour of the
assessee and against the Revenue. Following this decision, the High
Court answered the question raised in the latter Reference also in favour
of the assessee. The Commissioner of Income Tax, Delhi (Central),
New Delhi has challenged the aforesaid view of the High Court before
us in these appeals.
Counsel for the Revenue raised a two-fold contention in support of
these appeals. In the first place he contended that since the realisation
or recovery of 'Dharmada' amounts by the assessee from each of its
cu·stomers was a compulsory levy such payments from the customers'
point of view must be regarded as a part of the consideration or price
for the goods purchased by them to from the assessee. He urged that
such compulsory levy would be in the nature of a premium or surcharge
on the price and as such will have to be regarded as a trading receipt.
In that behalf reliance was placed upon two decisions, one of the Andhra
Pradesh High Court in Poosa.rla Sambamurthi v. State of Andhra,(')
and the other of Madras High Court in N. S. Pandaria Pillai v. The
State of Madras,(') where similar amounts charged by the assessee as
and by way of 'Dharmam' in the former case and 'Mahimai' in the latter
case wi:.re held to be part of the price includible in the taxable turnover
of the assessee. Secondly, he contended that it is well-settled that a
gift for 'Dharma' or 'Dharmada' is void for vagueness and uncertainty
and, therefore, when the 'Dharmada' amounts were paid by the custo
mers and received by the assessee these amounts could not be regarded
as "property held under trust or other legal obligation for charitable pur
poses" within the meaning of s. 4( 3) (i) of the Act and in this behalf
strong reliance was placed upon the meanings given to the expressions
(1) 7 S.T.C. 652.
(2) 7 S.T.C. 108.
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C.l.T. v. BJJLI COTTON MILLS (Tulzapurkar, J.) 2 47
'Dharma' and 'Dharmada' in Prof. Wilson's Glossary of Judicial & A
Revenue Terms, the decision of the Privy Council in Ranchordas v.
Parvatibai(il) and the decision of the Bombay High Court in Devshankar
v. Moti Ram.(') Apart from this legal position he sought to support
the Tribunal's finding that no trust could be said to have been created
by the cu'stomers on the basis of certain factual aspects-(a) the cus- B
tomers [paid the amounts not voluntarily but out of compulsion, (b) the
customer~ being illiterate did not appreciate that .they were paying the
amounts with a view to.create trust, (c) there was no control over
the assessee as regards the manner in which and the time when it should
spend for 'Dharmada' and ( d) the assessee did not keep these
amounts in a separate bank account-separate from its business assets. c
He therefore, urged that no trust of th.ese realist1tions could be said to
have been created and a's such these realisations were rightly regarded
by the. Tribunal as part of the assessee's trading receipts liable to be in
duded in its assessable income.
On the other hand, counsel for the assessee contended_ that it was
the initial character of the receipt in the hands of the. assessee that was
important, that the amounts when paid by the customers, over and above
[)
the price for the goods purchased from the assessee, were paid for 'Dhar
mada' (i.e. for charity) and were received by the assessec as such; in
other words, the receipts from the inception were impressed with the
obligation to spend the same only on charitable objects. He contended
that the two concepts of 'Dharma' and 'Dharmada' were distinct from
each other and though a gift to 'Dharma' may be void on grounds of
vagueness and uncertainty, a gift to 'Dharmada' would not be void inas
much as the concept of 'Dharmada' was not vague or uncertain especially
when a gift to 'Dharmada' was by commercial or trading custom invari
ably regarded as a gift to charitable purposes, and in this behalf strong F
reliance was placed by him upon Full Bench decision of the Allahabad
High Court in Thakur Das Shyam Sunder v. Additional Commissioner
of Income-Tax, U.P. and Another(') and the decision of the Punjab &
Haryana High Court in Commissioner of Income-tax, Armit>ar, v. Gheru
Lal Bal Chand('), where such customary meaning of 'Dharmada:
among the trading community has been judicially recognised. He fur
ther urged that the compuisory nature of the payment, did not affect or
:alter the initial character of the receipts which were earmarked for charity
and, ,therefore, such receipts could not be regarded as trading receipts,
(l) 26 I.A. 71.
(2) I.LR. lg Born. 136.
(3) (1974) 93!. T.R. 27.
(4) 1111.T.R. 134.
248 SUPREME COURT REPORTS [1979) 2 S.C.R.
not being any part of the ]>rice nor even a snrcharge on the pric~. In
support of his contentions counsel strongly relied upon the decision of
this Court in Commissioner of Income-Tax, West Bengal v. Tollygunge
Club Ltd.(.1).
Having regard to the rival contentions noted above, it 'seems to us
clear that there are two aspects that are required to be considered fo1
determining the question raised in these appeals but in a sense the two
aspects are so inter-related that they would represent the two sides of
the same coin. The one a·spect is what is the true nature or charact@r
of these receipts, whether they constitute a part of the price received
by the assessee while effecting sales of yarn or cotton and are, therefore,
trading receipts of the assessee? The other aspect is whether the~e
realisations are property held under trust or other legal obligation for
charitable purposes or not ? And this depends upon whether the
ear·marking of these payments for 'Dharmada' creates a valid trust or
obligation to spend the same only on charitable objects ? But in the
D facts ;ond circumstances of the case it is obvious that these receipts would
not be trading receipts only if at the time these are received they are held
under a trust or other legal obligation to 'spend the same for charitable
purposes. Jn other words,. if the legal obligation to spend the same
for charitable purposes is void and, therefore, non-existent the receipts
or the realisations may have to be regarded as trading receipts in the
hands of the assessee. That being the position, in our view, the ap
proach adopted by the High Conrt to determine the question at issue
cannot be regarded as correct. As pointed out carli.,r, the High Court
approached the question from the angle of deciding whether the im
pugned amounts realised by the asse.see could be regarded as the Pro-
fits and gains of the busine.s carried on by the assessee under s. 10(1)
of the Act, impliedly suggesting that a claim for exemption for such
amounts under s. 4(3) (i) o[ the Act was unnecessary or irrelevant
and that the dispute merely related to the initial character of the
receipt itself and following the decision in Agra Bullion Ex
change case (supra) it held that the amounts in question which
were paid by the customers ear-marked for charity were not
trading receipts and were never the income of the assessee at all
It is clear that the while making this finding the High Court assumed that
the customers while paying these amounts had validly ear-marked them
for charity. Since the Revenue had specifically raised a dispute that
the receipts of 'Dharmada wonld neither create a valid trust nor a valid
legal obligation to spend the same for charitab1e purposes, 'Dharmada'
being a vagne and uncertain concept, the High Court could not, in our
(I) (1977) 107 I.T.R. 776.
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C.I.T. v. BIJLI COTTON MILLS (Tulzapurkar, !.) 2 49
view, come to the finding that these realisations were not trading receipts
unless it further found that ear-marking for 'Dharmada' was a
valid ear-marking for charity. In our view, therefore, both the aspects
of the question are required to be considered for the purpose of arriving
at a correct decision thereon .
Therefore, the first que·stion that arises for our consideration is whe
ther a gift to 'Dharmada' is void on grounds of vagueness or uncertainty?
The answer to this question will depend u;pon what is the true meaning
of the expression 'Dharmada' and is the concept of 'Dharmada' as vague
or uncertain as the concept of 'Dharma' ? The two allied conc.:p s of
'Dharma and Dharmada' will have to be considered together. It is true
that as early a·s in 1899 the Privy Council in Runchordas Vandrawai1das
and Others v. Parvatibhai a'1d Others (Supra) declared a bequest or
a gift to 'Dharma' (Dharm) simpliciter to be void, the concept being
vague and uncertain and in that behalf the Privy Council relied npon the
meaning of that expression given in Prof. Wilson's Glossary of Judicial
and Revenue Terms, where the expression is stated to aean 'law, virtue,
legal or moral duty',, derived from the Sanskrit verb 'Dhri' meaning 'to
hold', that which keeps a man in the right path. Accepting the afore
said meaning of the expression 'Dharma', the Privy Council observed
thus :
"In Wilson's Dictionary "Dharam" is defined to be law,
virtue, legal or moral duty ....... The objects which can be E
considered to be meant by that word are too vagua and unce,r-
tain for the administration of them to be under any control."
By this decision the Privy Conncil gave its impramatur to the view which
prevailed in the Presidencies of Bombay and Calcutta for the. past 5()
years that gifts to 'Dharma' simo:>liciter were invalid. The reason for
the decision was the oft-quoted principle that all charities were the 'pe
cial care and under the direct control of the Court of Equity and that
the Court must refuse to accept as "chari!y" any gift which by reason
of the vagueness in which it was expressed left the Court in doubt as
to how it was to be applied. However, in a later Bombay case, namely,
the Advocate-General of Bombay v. Jimbabai.(1) Beaman, J., felt
that in this country 'Dharma' did mean roughly and almoot invariably in
the cases which had come up for legal decisions ju•t "charity" and no'h-
ing else and observed :
"It is true that an Oriental's idea of charity might be a little
wider and looser than that of the Lord Eldon, particularly
amongst the lower and more illiterate classes ot Hindll8 and
(!) l.L.R. 41 Born. 181.
17-817 SC!/78
250 SUPREME L'OU..T REPORTS [1979] 2 S.C.R.
Mahomedans; but a liberal nse of the convenient doctrine of
cy-pres which is surely elastic enough to reach almost anything
which Judges .wish to reach, might have validated the technical
defects and cured the infirmity."
It may be stated that with a view to give effect to the popular con
cept of the word 'Dharma' a Bill was introduced (being Bill No. 10 oi
1938 published in the Gazette of India Part V. dated 17.9.1938) but it
was presumably dropped as it fell under "Religious and Charitable En
dowments" in List II of the Govermuent of India Act, 1935, which was
a Provincial subject. Thereafter the State of Bombay enacted Bombay
Public Trust Act being Act No. XXIX of 1950 which is now in opera
tion in the States of Maharashtra and Gujarat. By the Explanation to
s. 10 it has been enacted that a public trust created for such objects as
"dharma, dharmada, punyakarya or punyadan" shall not be void only
on the ground that the objects for which it is created are unascertained
or unascertainable; in other words, in the areas where legislation simi
lar to the Bombay Public Trust Act would be in operation bequests or
gifts for religious or charitable purposes, expressed rn terms for
"dharma, Dharmada, Punyakarya, punyadan, etc." would not fail on
ground of vagueness or uncertainty. However, in areas where such
legislation is not in force bequests or gifts to 'Dharma' simpliciter
would continue to be void on ground of vagueness or uncertainty.
In the above context it will be interesting to point out that in Chatur
bhuj Vallabhadas v. Commissioner of Income-Tax(') the Bombay
High Court has taken the view that where instead of 'Dharma' the testator
used the English word 'Charity' that word without any qualifications o_r
limitations denoted public charity and as such the bequest was held to
be a valid charitable bequest falling within the definition of "charitable
purposes" ins. 4(3)(i) of the Act.
Torning to the concept of 'Dharmada' ('which is the same as 'Dhar
madaya') the question is whether that concept could be 'said to be as
vague as the concept of 'Dharma'. In Prof. Wilson's Glossary the
expression 'Dharmada' or 'Dharmadaya' is stated to be the vernacular
equivalent of the Sanskrit expression 'Dharmadan' or 'Dharmadayam'
and the expression 'Dharmada' is explained thus :
"Dharmadeo, corruptly, Dharmadow, (from Dan or Daya,
donation) An endowment, grant of food, or lands, or fnnds,
for religious or charitable purposes".
(1) 14 J.T.R. 144..
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C.l.T. v. BIJLI COTTON MILLS (Tulzapurkar, J.) 2 51
Two other allied expressions, namely,, 'Dharmakhaten' and 'Dharmarth'
are explained thus : "
"Dharmakhaten, (Marathi) The head of accounts under
which pious or charitable gifts are entered."
"Dharmarth, (Sanskrit) Any thing given for charilable or
pious purposes."
In Molesworth's Dictionary (Marathi-English), Second Edition,
reprinted 1975, the expression 'Dharmadaya' or 'Dharmadav' is stated
to mean "an alms or a gift in charity".
If the respective meanings of the two expressions 'Dharma' and
'Dharmada' as given in the above dictionaries are compared, it will appear
clear that that the former is indefinite and equivocal whereas the latter is
quite definite; the former means either law, or virtue or legal duty or
moral duty but the latter only means an endowment or gift for religious
or charitable purpose. Similarly, if the expression 'Dharma' is com
pared with the exprc·ssion 'Dharmarth' it will be clear that the former is
indefinite and equivocal while the latter has only one meaning, namely,
anything given for charitable or pious purpose. The Marathi expres
sion 'Dharmakhaten' means the head of accounts under which pious or
charitable gifts are entered. From the above discussion it appears to
us clear that though there is some justification for holding that a gift to
'Dharma' simpliciter would be invalid on ground of vagueness and uncer-
tainty, a gift to 'Dharmada' (Dharmadaya) would be definite, the
object being certain, namely, for religious, or charitable purposes. In
common parlance, therefore, the expression 'Dharmada' or 'Dharma
<;iaya' cannot be said to be vague or uncertain and as such a gift to 'Dnar
mada' (Dharmadaya) would not be invalid for vagueness or uncertainty.
Counsel for the Revenue,, however, strongly relied upon the decision
of the Bombay High Court in Devshankar v. Moti Ram (supra) where
that Court has taken the view that a bequest in favour of 'Dharmada' is
void by reason of uncertainty. After going through the arguments of
counsel in that case and the decision of the Court, it appears to us clear
that the Court has accorded a literal and derivative meaning to the word
'Dharmada' in that 'Dharmada' means property set apart for 'Dharma'
and having regard to such derivative meaning accorded to that ex
pression, the Court has taken the view that there is no real distinction
between a bequest to be expended on 'Dharmada' and a bequest for
'Dharma'. As against its literal and derivative meaning, the expression
'Dharmada' (Dharmadaya) in common parlance means, as mentioued
in Prof. Wilson's Glossary and Molesworth's Dictionary, an endow
ment or gift for religious or charitable purposes and we are inclined
252 SUPREME COURT REPORTS (1979] 2 S.C.R.
to accept the latter popular meaning that ,Js invariably accorded by
Orientalists to the expression 'Dharmada' (Dharmadaya) and as such
in our view a gift to 'Dharmada' or payment for 'Dharmada' must be
regarded as a gift or payment for religious or charitable purposes and
such a gift or payment would not be invalid for vagueness or uncer
tainty.
Apart from the fact that the concept of 'Dhramada' or 'Dhramada
in common parlance means anything given in charity or for religious or
charitable purposes, it cannot be disputed that among the tradin!~ or
commercial community in various parts of this country a gift or pay-
ment for 'Dharmada' is by custom invariably regarded as a gift to chari
table purposes. In Thakur Das Shyam Sunder v. Additional Com
missioner of Income-Tax U.P. and Another (supra), a Full Bench
decision of 1he Allahabad High Court, the question was whether, when
the asstssee, who carried on business as a commission agent, charged on
every transaction of sale of goods worth Rs. 100 /- a sum of 15 paise
from the person to whom goods were sold and 10 iJlaise from the oerson
whose goods were sold as 'Dharmada' and credited the amounts thus
collecteu in a separate 'Dharmada' account which was held by him, l<il
be utilized specifically and exclusively for charitable purpose8, the
amounts so collected by him were liable to be included in his assessable
incom' or not ? The High Court held that the said amounts were
not ir;cludible in the assessable income and were not chargeable ro in
come-tax. The High Court took the view that in order to determine
whether a particular receipt, by whatever name it was called, was
or Wd's not the income; of an assessee, its real nature and quality had to
be considered and if it was rccieved under a custom, the answer to the
question depended on the nature of the obligation created by the
custom. The assessee's specific case was that in the Dis'rict of Shah
jahanpur there was a custom according to which the commission agents
reafaed 'Dharmada' from their constituents and spent the same on
charity and this specific case was not controverted by the Revenue, pre
sumably because the Revenue was aware that such a custom did obtain
in the trading community. It was contended on behalf of the Revenue
that the ownership of the fund realised by way of Dharmada' rested enti
rely in the assessee who was free to spend the, amount according to his
own discretion, and, therefore, the assessee's position qua the 'Dlwr
mada' account was not that of a trustee. Rejecting this contention the
Allahabad High Court observed thus :
H "We are unable to accept the submission that as the owner-
8hio of the amounts credited to the 'dharma,da' account vest~
in the petitioner and it enjoys some discretion with regard to its
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C.I.T. v. BIJLI COTTON MILLS (Tulzapurkar, J.) 2 53
disjposal it cannot be said that its po'sition is not that of a trus
tee. The question whether the position of the petitioner,
when he received the amount, was that of a trustee or not will
depend upon the actual custom which obliged the constituents
to pay dlwrmada. As stated earlier, the petitioner's oase
that the amount realised as dharmada has got to be ·spent on
charity has not been controverted by the respondents. Under
the law relating to trust, legal ownership over the trust fund and
the power to control and dispose it of always vests in the trus
tee. Accordingly, merely because in this case the legal owner
ship over the amount depo'sited as dharmada vested in the peti
tioner, it cannot be said that its position was not that of a
trus1ee. Discretion vested in a trustee to spend the trust
amount over charities will not affect the character of the depo
sit."
The above Full Bench decision of the Allahabad High Court, it can
fairly be said, amounts to a judicial recognition of the custom of collect
ing 'Dirnrn.•ada' amounts by traders from their cU:Stomers or constituonts
which casts an obligation on the traders to spend the same only on some
charitable pul{pose. In other words, a gift or payment for 'Dharmada'
is by commercial or trading custom invariably regarded as a gift for
charitable purposes and as such there is no question of there being any
vaguene·ss or uncertainty about the object for which such gift or pay
ment has to be utilized. Counsel for the Revenue sought to contend
that the custom referred to in Thakur Das Shyam Sunder's case
(supra) should be regarded as being prevalent only in the District of
Shahjahanpur from which the case arose. It is not possible to accept
this contention, for, it is common knowledge that such customary levy
for 'Dharmada' is frequently collected by traders from their customers
in several parts of the CO'llntry. A similar custom creating the obliga
tion to spend the 'Dharmada' amounts exclusively on charitable purposes
was invoked or resorted to by the Punjab & Haryana High Court in the
case of Commissioner of Income-Tax, Amritsar v. Gheru Lal Bal Chand
(supra) where the assessee who carried on business in Districts of
Abohar, Hissar and Malaut in Punjab & Haryana realised 'Dharmada'
amounts from his constituents and the Court held that the as'sessee was
ac1ing more or less as a trustee of such amounts and as such these were
not includible in his assessable income.
Having regard to the above dfscussion, we are. clearly of the view H
that a gift to 'Dharmada' or 'Dharmadaya' both in common parlance as
well as by the customary meaning attached thereto among the commer-
254 SUPREME COURT REPORTS ( 1979] 2 S.C.R.
cial and trading community cannot be regarded as void or invalid on
account of vagueness or uncertainty, and it is, therefore, clear that when
the customers or brokers paid the impugned amounts to the assessee
ear-marking them for 'Dhannada' it must be held that these payments
were validly ear-marked for charitable purpose's. In other words,
right from inception these amounts were received and held by the assessee
under an obligation to spend the same for charitable purposes only,, with
the result that these receipts cannot be regarded as forming any income
of the assessee.
The next aspect requiring consideration is whether because of the
compulsory nature of the levy the impugned amounts charged to the
customers and received by the assessee could be regarded as a part of the
price or a surcharge on the price' as contended by the counsel for the
Revenue ? In our view, this question is covered by the decision of
this Court in Tollygounge Club case (supra). In the case the respon
dent club conducted horse races with amateur riders and charged fees
for admission into the enclosure of the club at the time of the races; a
resolution was passed in 1945 at the general body meeting of the club
for levying a surcharge of eight annas over and above the admission fees,
the proceeds of which were to go to the Red Cross Fund; this resolution
was varied by another resolution dated January 30, 1950 to the effect
that the surcharge should be ear-marked "for local charities and not
solely for the Indian Red Cross"; every entrant was issued two tickets,
one, an admission ticket for admission to the enclosure of the club, and
the other, a separate ticket in respect of the smcharge of eight annas for
local charities; the question was whether receipts on account of the
surcharge were to be treated as the respondent's income for the assess
ment year 1960-61; the Appellate Tribunal and the High Court on a
reference held that the respondent's receipts from the surcharge levied
on admission tickets for purposes of charity could not be included in
the respondent's taxable income. On fnrther appeal, this Court held,
confirming the decision of the High Court, that the surcharge was not a
part of the price for admission but was a payment made for the specific
purpose of being applied to local charities. At page 780 of the report
this Court has observed thus :
"The surcharge is undoubtedly a payment which a race
goer is required tb make in addition to the price of admission
ticket if he wants to witness the race from the Club enclosure,
but on that account it does not become part of the price for ad
mission. The admission to the enclosure is the occasion and
not the consideration for the surcharge taken from the race
goer. It is true that but for this insistence on payment of the
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C.I.T. v. BIJLI COTTON MILLS (Tulzapurkar, !.) 255
surcharge at the time of admission to the enclosnre, the race
goer might not have paid any amount for local charities. But
that does not render the payment of the surcharge involuntary.
because it is out of his own volition that he seeks admittance
to the enclosure and if he wants such admittance, he has to pay
not only the price of the admission ticket bnt also the surcharge
for local charities. The surcharge is clearly nol a part of the
price for admission but it is a payment made for the specific
purpose of being applied to local charities."
On parity of reasoning the 'Dharmada' amounts paid by the c;.istomers
cannot be regarded as part of price or a ·surcharge on price of goods
purchased by the customers. The amount of 'Dharmada' is undoub
tedly a payment which a customer is required to pay in addition to the
price of the goods which he purchases from the assessee but the purchase
of the goods by the customer would be the occasion and not the consi
deration for the 'Dharmada' amount taken from the customer. It is
true that without payment of 'Dharmada' amount the customer may not
be able to purchase the goods from the assessee but that would not make
the payment of 'Dharmada' amount involuntary inasmuch 1s it is out of
his own volition that he purchases yarn and cotton from the assessee.
The 'Dharmada' amount is, therefore, clearly not a part of the price, but
a payment for the specific purpose of being spent on charitable purposes.
The two decisions on which reliance was placed by counsel for the Re
vegue, namely, Poosarla Sambamurthi's case (supra) and Pandaria
Pillai's case (supra) are clearly distinguishable and inapplicable to the
facts of this case inasmuch as both the decisions were rendered under
sales-tax legislation where the question that was required to be consi
dered was whether the realisations for 'Dharmam' (charitable purpose)
in the former case or 'Mahimai' (religious purpose) in the latte~ case
would fall within the definition of 'turnover' a:s contained in the con
cerned legislation and it was held that such realisations were includib'e
in the assessee's turnover. We do not wish to express any opinion on
the correctness of these decisions. Suffice it to state that the, ratio of
these decisions cannot apply to the instant case. Since the realisation
in question in the present case' are not a part of the price or surcharge
on the price bnt payments for the specific purpose of being spent on
charitable purposes, they cannot be regarded as trading receipts of the
~ ., assessee.
Dealing with the factual aspects on the basis of which counsel for the
Revenue sought to support the Tribunal's finding that no trust could be H
said to have been crea'ed by the customers it will be apparent fro n the
above discussion that none of the aspects are such as would lend support
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2 56 SUPREME COURT REPORTS [1979] 2 s.c.R.
to the inference drawn by the Tribunal. We have already dealt with
the alleged compulsory nature of the levy and have pointed out that
the 'Dharmada' amounts cannot be said to have been paid involuntarily
by the customers and in any case the compulsory nature of the payments,
if there be any, cannot impress the receipts with the character of being
trading receipts. Further, it is not possible to accep: the submission
that the customers being illiterate did not appreciate that they were
paying the amounts with a view to create a trust, especially when it has
been found that such payments were made pursuant to a custom which
obtained in the commercial and trading community; indeed, being a cus
tomary levy the constituents or customers whether literate or illiterate
would be knowing that the additional payment over and above the price
were meant for being spent by the assessee for charitable purposes.
Further, the fact that the as"sessee would be having some discretion as
regards the manner in which and the time wheu it should spend the
'Dharmada' amounts for charitable purposes would not detract the posi
tion the assessee held qua such amounts, namely, that it was under the
obligation to utilize them exclusively for charitable purposes. It is true
that the assessee did not keep these amounts in a separate bank account
but admittedly a separate 'Dharmada' account was main'ained in the
books in which every receipt was credited and payment made there out
on. charity was debited and the High Court had clearly follJld that these
amounts were never credited iu the trading account nor were carried to
the profit and loss statement. Having regard to this position, it seems
to us clear that the Tribunal's finding that no trust could be said to have
been created by the customers in respect of the impugned amounts will
have to be regarded as erroneous.
Jn the result, after considering both the aspects, we are of the view
that the impugned realisations made by the assessee from its customers
for 'Dharmada' being validly ear-marked for charity or charitable pur
pose could not be regarded as the as·sessee's income chargeable to in
come-tax. The ultimate, conclusion of the High Court, is, therefore,
confirmed and the appeals are dismissed with costs.
N.V.K. Appeals dismissed.
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