TMI Blog1984 (9) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... re transferred to the account of the Hindustan Ideal Insurance Company. From the said account, regular payments towards premia of insurance were made to the company. After making payments, there was an excess of Rs. 12,370 in the account of the insurance-company. It was being carried forward from year to year for the last ten years or more prior to the assessment year 1974-75. The amount thus represents the excess of receipts from the constituents of the assessee towards premia of insurance after making the required payments to the insurance-company. The hire-purchase agreements in respect of the vehicles to which the excess of receipts related, came to an end when the vehicles had been transferred to the purchasers long ago. There was no liability to pay any amounts towards premia of insurance in respect of those vehicles. The sum of Rs. 12,370 was returnable to the constituents from whom it was collected. The assessee did not return it either on the ground that the constituents were not traceable or they did not come forward to claim refund of the excess amounts paid. The assessee retained the same., At the end of the accounting year, relevant to the assessment year 1974-75, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation towards payment of premia of insurance in respect of the vehicles purchased from the constituents. In such circumstances, the Tribunal held that if at the close of the hire-purchase agreements, any excess amounts remained out of the deposit, the same could not be treated as part of business receipts of the assessee notwithstanding that the assessee did not return the amounts to the concerned parties but appropriated the same as its own income for either of the two reasons assigned by the assessee. In that view, the Tribunal held that the amount of Rs. 12,370 could not be brought to tax in the assessment year 1974-75. The Tribunal also held that even assuming that the collections made by the assessee initially were not in the nature of deposits but were outright receipts on its demand for payment towards premia of insurance, and that the same became part and parcel of its trading receipts, still, the excess collections of Rs. 12,370 could not be treated as income during the assessment year in question and brought to tax for the reason that the assessee became entitled to the excess amount in each case in the year it was determined when the related hire purchase agreement came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , when distributed to the partners, are trading receipts, and that, if and when any claim is made thereafter, such claim, if successful, should be treated as a proper debit against the profits of the year in which it is made. The balances arise in the course of the business and by reason of the conditions laid down by the partnership. It is to be inferred that they arise annually in many years, if not in every year. No immediate liability to pay exists in respect of the balances; the liability is merely contingent ...... Once it is conceded, as it must be conceded in view of the authorities, that a receipt in the course of and arising out of trade may be a trading receipt for income-tax purposes, although a contingent liability attaches to it, I can see no reason why the unclaimed balances, which are received in the manner in question in the present case, should not be regarded as trading receipts." The firm thereupon preferred an appeal before the Court of Appeal. The judgment in that appeal was delivered by Sir Wilfrid Green M.R., who reversed the decision of the King's Bench observing as follows (p. 65) : " The money which was received was money which had not got any profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osits received from its agents had been used as fixed capital and not as circulating capital, and that the profit on exchange was a capital profit not subject to income-tax. For the Crown it was contended that the deposits, to which the company could have recourse in the event of default by the agent, were circulating capital and that the exchange profit made in the course of the company's business must be included in the computation of its profits for income-tax purposes. It was held that the taking of the deposits was not a trading transaction, and that the profit was not assessable as income but was simply the equivalent of an appreciation in a capital asset not forming part of the assets employed as circulating capital in the trade. The case of Punjab Distilling Industries Ltd. v. CIT (1959] 35 ITR 519 (SC), a decision of the Supreme Court relied upon by the Revenue, was distinguished by the Division Bench. In the said case the assessee carried on business as a distiller of country liquor and sold the same to licensed wholesalers. After the war started, the demand for the country liquor increased. A difficulty was felt in finding bottles in which the liquor was to be sold. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s carried over as a liability. In the assessment for the assessment year 1959-60, the ITO added the balance of Rs. 4,042 in the surplus brokerage account to the income of the assessee, overruling the assessee's objection that it was not the income of the assessee. That order was set aside by the AAC but restored by the Appellate Tribunal. On a reference to the High Court of Allahabad, it was held by a Division Bench of the High Court that the amounts initially received by the assessee were its trading liabilities and, therefore, the amounts in question were not liable to be assessed as the income of the assessee. It was observed by the Division Bench that the taxability of such unclaimed balances would depend on the nature and character of the initial receipts, that if the amounts initially received partook of the character of trading receipts, the unclaimed accumulations of such receipts would necessarily be taxable as such and that if, however, the amounts were initially the trading liability of the assessee, the unclaimed balances could not be taxed despite the magnitude of the accumulation and despite its appropriation by the assessee to his own credit. Reliance was placed up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee some years back. Even after final adjustments of bills, small balances continued to be carried forward from year to year till December 31, 1956, when the assessee thought of closing the accounts of the clients and transferred the balances to the profit and loss account. This amount of Rs. 4,078 was ultimately apportioned as between the partners of the assessee in their respective profit-sharing ratio. The ITO added the said amount to the total assessable income of the assessee for the assessment year 1957-58, as being in the nature of professional income. On appeal, the AAC deleted the sum of Rs. 4,078 from the total income of the assessee, accepting the assessee's contention that the relationship between solicitors and clients was the relationship between a trustee and a beneficiary and since the Limitation Act did not apply in the matter of recovery of amount deposited by clients, the liability of the assessee continued in spite of the fact that certain unclaimed balances had been written off and transferred to the profit and loss account. On further appeal by the Revenue, the Tribunal held that the unclaimed balances in the clients' accounts were " obvious liabiliti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completed on the basis of the returns, but, thereafter, necessary proceedings were taken under s. 34 of the Indian I.T. Act, 1922 (" the 1922 Act "), to reopen the assessments for the purpose of including the amounts of the said interest in the relative assessments of the said four years on the ground that such interest had escaped assessment. The ITO and the AAC held that the said amounts were includible in the personal assessment of the assessee. The Tribunal, however, held to the contrary. The Tribunal, after examining the position in law, held that the said amounts held in the assessee's clients' accounts, including the amount of the fixed deposits, were held by the assessee in a fiduciary capacity, that the said amounts of interest earned by the assessee were also held by him in a fiduciary capacity and that even though the assessee had not apportioned the interest so earned between his various clients whose moneys were so held by him, it made no difference to the fiduciary capacity in which the assessee held the said amounts and also the said interest and that, therefore, the said amounts of interest were not includible in the personal assessment of the assessee. On a referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition by him for being paid as clerkage to his clerical establishment and was not assessable as his income. The ITO held that the clerkage was received by the assessee and then paid to the clerks and so it was not a case of diversion at source but appropriation only. The ITO, however, found that out of the sum of Rs. 8,074.50, a sum of Rs. 3,600 was paid by the assessee to his daughter-in-law on the footing that she assisted him in his professional work. This was held not to be a permissible deduction. The balance of Rs. 4,474 was allowed as a valid deduction. The assessee went up in appeal. The AAC held that the clerkage was never received as a part of the income of the assessee, that it was an amount payable to the staff who assisted him in the professional work and that as the said amount did not form part of the total income of the assessee, the question of considering the deductibility of the same from the professional receipts did not arise. In the result, he deleted the addition of Rs. 3,600. The ITO went up in appeal to the Tribunal. The Tribunal upheld the finding that the receipt of Rs. 8,074.50 did not form part of the income of the assessee. At the instance of the Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money-lender, received, on the occasion of 'Grahapravesam' of the house constructed by him for his residence, presents from relatives, friends and well-wishers. The ITO considered these presents as income liable to tax. The addition was, however, deleted by the AAC and the same was confirmed by the Tribunal. On a reference, the High Court of Madras held (headnote): " ... the proper approach to the question would be to consider whether taking note of all the facts fairly and objectively, it could be reasonably concluded that what was received by the assessee in the present case on the auspicious occasion of the " Grahapravesam " was nothing but receipts by him in the course of carrying on of his money-lending business." So judged, the answer to the question was found to be in the negative and the Tribunal was held to be right in directing deletion of the amounts received by the assessee. In CIT v. Dr. B. M. Sundaravadanam [1984] 148 ITR 333 (Mad), one K who was treated in 1958 by the respondent-surgeon was completely cured of his ailment and a sum of Rs, 4,082 was paid by K to the respondent as and by way of professional charges. Subsequently, in the year 1960, K executed a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceive the amounts as trading receipts from its clients, that the same represented liability to the clients which remained unclaimed for a number of years and that the liability had been adjusted in the accounts of the assessment year in question and that the amounts did not constitute taxable income. The ITO, however, held that the excess amounts of premia were received from the constituents of the assessee because the liability of the constituents was undertaken by the assessee itself and that, therefore, the same constituted income of the assessee. The Commissioner (Appeals) affirmed the order of the ITO. On further appeal, the Tribunal affirmed the order of the Commissioner (Appeals). On a reference, a Division Bench of the High Court of Calcutta held that the assessee received the amounts from its constituents as an agent for and on behalf of the constituents, that the assessee held the amounts in a fiduciary capacity with its constituents, that the assessee in the year of receipt of the sums, did not treat the same as its own income, that at the time of receipt of the amounts the same were not income of the assessee, that the taxability of an amount must be determined on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year of assessment in question, it must be taken that it had resiled from the position which it had wrongly taken while filing the return. Quite apart from it, it is incumbent on the income-tax department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee wrongly included the income in its return for a particular year, it cannot confer jurisdiction on the department to tax that income in that year even though legally such income did not pertain to that year ". In R. B. Jessa Ram Fateh Chand v. CIT [1971] 81 ITR 409 (All) the assessee therein filed separate returns for the two parts of a single accounting period. The assessee applied for registration for the first period only. The assessment for the second period proceeded as against an unregistered firm. It was urged on behalf of the Revenue that it was not open to the assessee to contend that a single assessment under s. 26(1) of the 1922 Act ought to have been made. Repelling the said contention, a Division Bench of the Bombay High Court held that there could be no estoppel against a statute and that if in fact the procedure adopted by the ITO was incorrect, the de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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