LexTHE COMMISSIONER OF INCOME-TAX, MADHYA PRADESH AND BHOPAL versus MESSRS. VYAS & DOTIWALA
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(1) S.C.R. SUPREME COURT REPORTS 39 THE COMMISSIONER OF INCOME-TAX, MADHYA PRADESH AND BHOPAL v. MESSRS. VYAS & DOTIW ALA (VENKATARAMA AIYAR, GAJENDRAGADKAR and A. K. SARKAR JJ.) I ncome-tax-Assessees financing. cloth distribution scheme-Pro- fits, if accrue to assessees-Agreement to utilise profits for charitable purposes-Such profits, if exempt from taxation-Indian Income-tax Act, r922 (XI of r922), s. 4(3) (i-a). The Deputy Commissioner of Amraoti, evolved a scheme for the distribution of standard cloth. The assessees agreed to finance the scheme without charging any interest and were ap- pointed financiers and distributors. The orders for the cloth were placed by the Government with the mills and the cloth was deli- vered to the assessees upon their paying the value of the cloth together with 6!% of the ex-mill price. The Deputy Commis- sioner paid 4t% of the ex-mill price to the assessees for contin- gent expenses of working the scheme. The assessees distributed the cloth at prices fixed by the Deputy Commissioner through the Tehsildars and the Deputy Commissioner was responsible to the assessees for the sale proceeds receivable from the Tehsil- dars. Out of the sale proceeds the Deputy Commissioner paid to the assessees whatever thev had advanced on the cloth. The profits from the scheme were agreed to be utilised for such charitable purposes as might be decided by the Deputy Commis- sioner. The assessees contended that the income was not their income and that it was exempt from taxation under s. 4(3) (i-a) of the Income-tax Act. · Held, that the profits were income which accrued to the ; . assessees. The assessees worked the scheme and such working produced the profits. The fact of the control of the Deputy Com- missioner could not prevent the working of the scheme by the assessees from being a business carried on by them. The provi- sions in the agreement that the Deputy Commissioner guarante- ed the payment by the Tehsildars of the price due from them, and that the profits would be devoted to charity decided by the Deputy Commissioner and the claim for exemption under s. 4(3) (i-a) all indicated that the assessees were the owners of the business. Held further, that the profits were not exempt from taxa- • tion under s. 4(3) (i-a), as the business was not carried on behalf of any religious or charitable institution. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 222 of 1956. October 3. 40 SUPREME COURT REPORTS . (1959] Supp. 1958 Appeal by special leave from the judgment and Th c . . decree dated December 8, 1953, of the former Nagpur .; 1:,;::;'.;;;~· High Court in Misc. Civil Case No. 55 of 1950. Madhya Pradesh 0- G K Da 1ta S l" "t G . l f [--' · rT K Bh P 1 • • p1• ry, oici or- ene1a <! , ... ia, "· • ; • Rajagopala Sastri, R.H. Dhebar and.D. Gupta, for the Mmrs. Vyas o;. appellant.. Dotiwala Sarkar ]. The respondent did not appear. 1958. October 3. The Judgment delivered by of the Court was SARKAR J.-This is an appeal brought by special leave against the judgment of the High Court at Nagpur, delivered on a reference under s. 66(1) of the Income-tax Act, The appeal is by the Commissioner of Income-tax, Madhya Pradesh and Bhopal. The respondents are the assessees Vyas & Dotiwa.la. The respondents have not appeared in this appeal. We shall presently set out the facts but before we do that, we wish to state that the assessment years concerned were 1945-46 and 1946-47. Though there were two separate assessment orders in respect of these years, ultimately when they ca.me up before the Appellate Tribunal they were conaolidated into one appeal. The appeal before us likewise concerns both these assess- ment years. It appears that in or about July 1943 when consider- able difficulty was being felt about cloth, the Deputy Commissioner, Amraoti, evolved a scheme to solve that difficulty. Under that scheme Kisanlal Vyas and a firm called Edulji Framji Dotiwala who have in these proceedings been referred to as Dotiwala, under- took to finance the scheme without charging any interest or profit and were appointed as financiers and also distributors of a variety of cloth called stardard cloth for the town and camp of Amraoti and certain areas in the interior. It is not necessary to set out the various details of the scheme and it will be sufficient to state that Vyas and Dotiwala, who as an association of persons are the asses
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