1978 (4) TMI 41 - HC - Income Tax

Summary

Issues Involved:
1. Whether the amounts received by the assessee by way of "under-charges" constitute trading receipts.
2. Whether the surplus of the receipts remaining unpaid or the amounts transferred by the assessee to the profit and loss account could be assessed as the income of the assessee.

Summary:

Issue 1: Whether the amounts received by the assessee by way of "under-charges" constitute trading receipts.

The controversy in this case relates to an item in the account of the assessee shown as "under-charge," questioning whether the same are trading receipts in the hands of the assessee. The assessee, acting as a middleman and/or agent in coal sales, collects payments from consumers and forwards them to collieries. When freight is charged on a weight greater than the coal actually dispatched, the assessee claims a refund from the colliery, known as "under-loading charges" or "under-charges." The amounts collected are credited to an "under-charges" account and, if unclaimed by consignees, are transferred to the profit and loss account after three years. The Income Tax Officer (ITO) held these amounts as trading receipts, but the Appellate Assistant Commissioner (AAC) and the Income Tax Appellate Tribunal (ITAT) had differing views on when these should be taxed. The Tribunal concluded that the assessee, acting as an agent, had no beneficial interest in these amounts, and they were not trading receipts.

Issue 2: Whether the surplus of the receipts remaining unpaid or the amounts transferred by the assessee to the profit and loss account could be assessed as the income of the assessee.

The Tribunal held that the amounts received by the assessee by way of "under-charges" did not constitute trading receipts and surplus thereof remaining unpaid was not assessable to income-tax. The Tribunal's decision was based on the nature of the assessee's role as an agent and the fiduciary capacity in which the amounts were received. The Tribunal referred to several cases, including Morley v. Tattersall and CIT v. Sandersons & Morgans, to support its conclusion that the amounts were not trading receipts. The Tribunal's decision was challenged by the Commissioner of Income-tax (CIT), but the High Court upheld the Tribunal's view, stating that the amounts collected by way of "under-charges" were received by the assessee as an agent and, therefore, in a fiduciary capacity vis-a-vis the consignees.

Conclusion:

The High Court answered the question referred in the affirmative and in favor of the assessee, concluding that the amounts received by way of "under-charges" did not constitute trading receipts and were not assessable as the income of the assessee. The facts of the case were found to be substantially similar to those in Morley v. Tattersall and CIT v. Sandersons & Morgans, distinguishing it from Prices Tailors Ltd.