COMMISSIONER OF INCOME TAX, WEST BENGAL versus TOLLYGUNGE CLUB LTD.

Citation: [1977] 3 S.C.R. 225 · Decided: 15-03-1977 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Dismissed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

, 
' 
225 
COMMISSIONER OF INCOME TAX, WEST BENGAL 
A 
v. 
TOLLYGUNGE CLUB LTD. 
March 15, 1977 
[P. N. BHAGWATI AND S. MURTAZA fAZAL ALI, JJ.] 
Income-tax Act. 
1922-S. 
15B-Diversion 
of income 
or 
diversion 
of 
source-Charity su-rcharge whether inco1ne-Obligation in the nature of trust, 
how to be created. 
B 
The assesGee was a Company limited by guarantee and owned a Social 
~nd 
Sports Club one of \vhose· activities consisted of conducting horse races \vith 
C 
amateur riders. It charged for admission into the enclosure of the club admis-
sion fee !o the guests introduced by the members of the club as \Yell as to the 
members of the public. 
It also charged a surcharge of eight annas solely 
earmarked for local charities. 
That was done pursuant to a resolution passed 
at the meeting of the General Body providing that ,the surcha!'g<! of eight ann?.s 
on the f'.:ntrance ticket should be earmarked for local charities. 
The Income Tax Officer pdor to the assessment year 1960-61 did not treat 
1he receipts on account of surcharge as trading receipts of the assessee and 
bring them to tax as income of the· a~essee. While making the assessment for 
the assessment year 1960-61, the Income Tax Officer took the vie\v that the 
receipts on account of surcharge were revenue receipts in the hands of assessee 
and they could not be excluded from the total income of the a~sessee merely on 
the-ground that they were applied for charitable purposes. It \Vas common 
ground that the amounts received by way of surcharge had in fact been dis-
bursed to local charities. 
The Income Tax Officer treated the receipts on 
account of surcharge as income of the assessee: and allowed rebate under s. 15B 
in respect of the amounts actually disbursed in favour of local charities. 
The 
.A.ppellate AssiStant Commissioner confirmed the order of th.e Income Tax Officer 
on the ground that a person who wished to gain admission to the enclosure 
of the club had to pay the surcharge whether he was willing to contribute to 
the charity or not and the amount of the surcharge was therefore a part of the 
price charged by the assessee for admission and it was accordingly a revenue 
receipt in the hands of the assessee. 
On further 3.ppeal, the Tribunal held that 
the surcharge, \Vas levied on admission ticket for the purpose of charity and 
hence the receipts in respect of the surcharge were not income of the assessee 
at the point of time when they reached its hands and being earmarked 
for 
charity they never belonged to the assessee. 
The High Court on a reference made by the Tribunal. agreed with the view 
taken by the Tribunal holding that since the 
surcharge \Vas charged by the 
assessee an<l paid by the race goers for the specific purpose of being applied 
to local chanties pursuant to the resoluti,-on passed by the general meeting of 
D 
E 
F 
the· assessee, there was at the time of receipts of the amounts in respect of the 
G 
surcharge, a legally enforcible obligation on the assessee to apply them to local 
charities and those amounts accordingly did not reach assessee as its income 
but were diverted to local charities before they reached the assessee. 
Dismissing the appeal, 
HELD : ( 1) 
Income tax is a tax on income. 
Every receipt by 
the 
assessee is not necessarily income in his hands. 
It is only when it bears the 
H 
character of income at the time when it reaches the hands of the assessee that 
it becomes exigible to tax. [228 El 
Lo11don County Cou11cil v. Attorney General [1901] AC 26. 
A 
B 
c 
226 
SUPREME COURT REPORTS 
[1977J 3 S.C.R. 
-------
(2) The assumptions of the Revenue that the surcharge was received· as 
part of the price for admission 10 the club enclosure 
and that there was no 
legally enforcible obligation on the assessee to spend the amounts on charity 
are erroneous. 
The admission to the· enclosure was the occasion and not 
the consideration for the surcharge taken from the race-goers. 
It is not 
a 
correct analysis of the nature of the legal relationship to say that there v.:as 
nothing rr.ore than a mere desire or intention on the part of the assessee 
to apply the amounts received on account of surcharge to the local charities 
\Vithout any legally enforcible obligation. 
The resolution was passed at the 
general meeting of the assessee and pursuant to that resolution the surcharge 
was paid by the race-goers and received by the assessee for the specific purpose 
of being applied to local charities. 

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