TMI Blog1986 (9) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the drawback rate was to be on the account of the Republic. A separate agreement was entered into by the assessee with the Arab Republic of Egypt, on September 28, 1972. It was recorded in the said agreement, inter alia, as follows: (a) The cost of tea would be in terms of the invoice of the brokers. 6 paise per kilogram of tea purchased would be the profit of the assessee. (b) All taxes, duties and levies, Central and State, would be on account of and payable by Egypt. (c) If and when any excise rebate would be received by the assessee from the Customs on exports, the same would be remitted to Egypt after obtaining approval from the Reserve Bank of India. In the agreement entered into with Iraq through the latter's Government Purchasing Board, it was recorded that the assessee would act as purchasing agent and contractor of the Government of Iraq. In clause 8 of the Operation Schedule to the said agreement, it was recorded that the duties imposed by the Government of India would be paid by the assessee on account of the Government of Iraq. Differences in the rates of such duties would also be on account of the Government of Iraq and paid on the basis of the actual r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts on account thereof. It was held that the amounts so received constituted trading receipts of the assessee assessable to income-tax and particularly as the excise duty paid by the assessee had been allowed as deduction in the trading account. The Income-tax Officer rejected the contention of the assessee that if the said amounts were considered to be the income of the assessee, the same had been surrendered before accrual under the agreements entered into with the foreign purchasers. The Income-tax Officer held that there was no arrangement under which the assessee surrendered rebates and drawbacks receivable on the exports to the Customs authorities but on the contrary received the said amounts on filing proper claims. It was held that the said amounts had accrued in the hands of the assessee as income and received as such. The stipulations in the agreements with the foreign buyers, it was held, were conditional and remittance to the latter could only be made by the assessee after obtaining permission from the Reserve Bank. Till such permission was obtained, the amounts remained the property of the assessee and the assessee alone was entitled to claim the rebate and the draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the foreign buyers were ineffective and invalid as no previous approval of the Reserve Bank of India had been obtained in respect of the same. On behalf of the assessee, it was contended that this contention had never been raised earlier and had not been considered by the authorities below. The assessee also contended on the authority of a decision of the Supreme Court that the contracts permitting remittance to foreign parties with the permission of the Reserve Bank of India were valid. It was further contended on behalf of the Revenue that there was no diversion of the amounts of rebate and drawback at source nor was there any overriding title of the foreign buyer in respect of the amounts and the assessee alone was entitled to the said amounts. The assessee contended to the contrary and submitted that the agreements between the assessee and the foreign buyers provided that excise rebate and duty drawback were on the buyer's account which indicated that there was an overriding title of the foreign buyers in respect thereof and the latter became the owners of the rebate and drawback whenever they were received by the assessee. All exports of tea by the assessee were subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts hands initially, irrespective of any corresponding liability of the assessee to refund the said amounts. It was submitted that in the facts, no overriding title in favour of the foreign buyers had been established in respect of the said amounts of excise duty rebate and customs drawback. In support of his contentions, the learned advocate for the Revenue cited the following decision. K. C. Bose Co. v. CIT [1985] 156 ITR 701 (Cal). This decision was cited as in that judgment, a number of reported decisions on the question of diversion of income by overriding title starting from Raja Bijoy Singh Dudhuria v., CIT [1933] 1 ITR 135 (PC) were considered. Learned advocate for the assessee contended on the other hand that on a proper construction of the agreements between the assessee and its foreign buyers, it would be apparent that the amounts of excise duty rebate and customs duty drawbacks at no time became or could be deemed to be the income of the assessee. Under the said agreements, the assessee could only collect and receive the amounts of rebate and drawback on behalf of its foreign buyers and it was specifically provided in the agreements that the same would be refunded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tilal B. Daftari v, CIT [1959] 36 ITR 18 (Bom). In this case, the assessee was a partner in a registered partnership and had contributed a share in the capital of the partnership. The assessee had entered into an agreement with four other persons under which the assessee along with the said four persons had contributed diverse sums aggregating to the capital contributed in the, partnership by the assessee and they had agreed to share the profits and losses in proportion to their individual contributions. On these facts, it was held by a Division Bench of the Bombay High Court that in the assessment of the assessee to income-tax, what was to be considered was not the income allocated to his share in the partnership but his real income. The real income of the assessee was what remained after deducting the amounts to be paid to the other four persons. The amounts, it was held, had been diverted, that they never constituted the real income of the assessee and bad to be excluded to ascertain the real income of the assessee. (c) Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 (SC). In this case, the assessee carried on the business of distribution of electricity under a licen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whereby the assets of a sugar company controlled by the Government as also of a distillery and tincture factory run by the Government were agreed to be sold to the assessee. Apart from the cash consideration, the assessee was entitled to have the licence of the distillery transferred to it and also the promise of the Government for grant of fresh licence for a five-year term thereafter. The assessee was required to sell the products of the distillery to the Government at a price to be fixed by the latter and also the medical products at stipulated prices. The Government, it was agreed, was further entitled to 20% of the annual net profits of the assessee subject to a maximum of Rs. 40,000 after providing for depreciation and remuneration of the secretaries and treasurers. This clause was subsequently amended and it was provided that the Government would be entitled to 10% of the annual net profits, i.e., the net amount for which the assessee's audited profits would be assessed to income-tax. The question arose whether the amount payable to the Government was liable to deduction under section 10 of the Indian Income-tax Act, 1922. On these facts, it was held by the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld go to the Indian Red Cross. Subsequently, it was resolved further that the proceeds of the surcharge should be earmarked not only for the Indian Red Cross but also for local charities. A separate receipt used to be issued in respect of the surcharge collected. The question arose whether the surcharge received by the assessee was to be treated as a part of the assessee's taxable income. On these facts, the Supreme Court held that the surcharge collected was a payment made for the specific purpose of being applied to local charities. When the surcharge was paid, it was clearly impressed with an obligation in the nature of a trust for being applied for the benefit of local charities and, therefore, the same was diverted before it reached the hands of the assessee and at no stage became a part of the income of the assessee. The Supreme Court held further that a trust could be created without the use of technical words and it was sufficient to indicate the intention. (h) CIT v. Bijli Cotton Mills (P.) Ltd. [1979] 116 ITR 60 (SC). In this case, the assessee, a private limited company, collected certain amounts on account of dharmada at a fixed rate from its customers on sales of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. On these facts, a Division Bench of this court held that the amounts collected on account of extra freight charged from the collieries had been received by the assessee as an agent and in a fiduciary capacity Vis-a-vis the consignees. Such amounts did not constitute trading receipts. Accordingly, neither the surplus of the unpaid receipts nor the amounts transferred by the assessee to its profit and loss account could be assessed as income of the assessee. (j) Addl. CIT v. Rani Pritam Kunwar [1980] 125 ITR 102 (All). In this case, the assessee inherited an estate belonging to her husband. Under the Hindu law, the U. P. Estates Act, 1920, and the prevailing custom and usage, the assessee, as the heir of her husband, was obliged to provide maintenance to certain surviving relations of her deceased husband including the deceased husband's mother, sister and daughter and a co-widow. On these facts, it was held by a Division Bench of the Allahabad High Court that the right of the said relations of the deceased husband to receive maintenance was attached to the estate and would amount to an overriding charge and, therefore, the amounts paid by way of such maintenance was a permissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his practice, the taxpayer received large amounts of money on his clients' behalf which remained deposited with his firm. From the said account, amounts were put in deposit with banks in the name of the firm from time to time and the taxpayer retained the interest arising therefrom and used it for his own benefit. Money out of this fund was also lent by the firm to other clients and earned interest. Interest was paid to the clients who owned the amounts at a lower rate and the difference was utilised by the firm. In it, assessment to income-tax, the taxpayer claimed relief in respect of interest earned on deposits and the difference between the interest charged and the interest allowed to clients on money lent claiming that the same were earned income. On these facts, it was held by the House of Lords that the taxpayer was not entitled to earned income relief as the interest in question did not belong to him but to his clients. The taxpayer being in a fiduciary position was not authorised to keep the interest or any part thereof by custom or by implied agreement. (b) CIT v. Sandersons and Morgans [1970] 75 ITR 433 (Cal). In this case, the assessee was a firm of solicitors. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to a breach of his fiduciary relationship and whatever may be the consequences in law that will follow, the unauthorised act of the assessee in converting any part of the said amounts or the income derived therefrom could not convert the money held in a fiduciary capacity into money held beneficially. (d) Addl. CIT v. Brijlal Gupta [1974] 94 ITR 88 (All). In this case, it was held by a Division Bench of the Allahabad High Court that 10% of an advocate's fee which represented the fee of the clerk of the advocate could not be held to be a part of the professional income of the advocate and exigible to income-tax. On a consideration of the facts as found, the provisions of the relevant agreements between the assessee and its foreign buyers, the respective submissions of the parties and the decisions cited, it appears to us that under the agreements it was made clear that the assessee would be entitled to receive the excise duty rebate and customs duty drawback only on account of the foreign buyers and not on his own account. Under the said agreements, the assessee was also under an obligation to remit the said amounts received to the foreign buyers after obtaining the permission ..... X X X X Extracts X X X X X X X X Extracts X X X X
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