1984 (9) TMI 123 - AT - Income Tax

Summary

Issues Involved:

1. Whether the 1% extra commission collected by the assessees over and above the permitted quantum constitutes a trading receipt.
2. Whether the amount collected by the assessees as commission agents from their principals is in substance their income.
3. Applicability of the Supreme Court decision in Chowringhee Sales Bureau (P.) Ltd. v. CIT to the facts of the case.
4. Whether the amount collected by the assessees was held in a fiduciary capacity as a trustee on behalf of the agriculturists.
5. Whether the collection made in contravention of rules and subsequent withdrawal of the writ petition affects the nature of the receipt.

Detailed Analysis:

1. Whether the 1% extra commission collected by the assessees over and above the permitted quantum constitutes a trading receipt:

The primary issue was whether the 1% extra commission collected by the assessees, over and above the 2% permitted by the Agricultural Market Committee, constitutes a trading receipt. The assessees argued that this extra commission was not a trading receipt as it was collected under the interim order of the High Court and was to be refunded to the agriculturists if the writ petition failed. The Tribunal found that the assessees had credited this 1% commission to a separate account called the commission deposit account and shown it on the liability side of the balance sheet, indicating it was treated as an accrued liability and not income.

2. Whether the amount collected by the assessees as commission agents from their principals is in substance their income:

The department contended that the amount collected by the assessees as commission agents should be considered their income, following the Supreme Court's decision in Chowringhee Sales Bureau (P.) Ltd. v. CIT. However, the Tribunal distinguished this case, noting that in Chowringhee, the sales tax collected was neither earmarked nor deposited with the government, whereas in the present case, the assessees had earmarked the 1% commission and shown it as a liability in their balance sheets.

3. Applicability of the Supreme Court decision in Chowringhee Sales Bureau (P.) Ltd. v. CIT to the facts of the case:

The Tribunal found that the decision in Chowringhee Sales Bureau (P.) Ltd. was distinguishable. In Chowringhee, the sales tax collected was treated as a trading receipt because it was not earmarked or deposited with the government. In contrast, the assessees in the present case had earmarked the 1% commission and shown it as a liability, indicating it was to be refunded to the agriculturists if the writ petition failed. The Tribunal also noted that the High Court had permitted the collection of 3% commission, with 1% to be deposited with the Agricultural Market Committee, pending the disposal of the writ petition.

4. Whether the amount collected by the assessees was held in a fiduciary capacity as a trustee on behalf of the agriculturists:

The Tribunal agreed with the assessees that the 1% extra commission was held in a fiduciary capacity as a trustee on behalf of the agriculturists. The assessees had given an undertaking to the High Court to refund the 1% commission to the agriculturists if the writ petition failed. The Tribunal found that this created a fiduciary relationship, distinguishing the case from Chowringhee, where no such fiduciary relationship existed.

5. Whether the collection made in contravention of rules and subsequent withdrawal of the writ petition affects the nature of the receipt:

The department argued that the collection made in contravention of the rules and the subsequent withdrawal of the writ petition meant that the 1% commission should be treated as income. However, the Tribunal found that the collection was made under the interim order of the High Court, which permitted the collection of 3% commission, with 1% to be refunded if the writ petition failed. The Tribunal also noted that the Agricultural Market Act provided for the refund of excess commission collected within 11 years, further supporting the assessees' position that the 1% commission was a liability and not income.

Conclusion:

The Tribunal concluded that the 1% extra commission collected by the assessees was not a trading receipt and was held in a fiduciary capacity as a trustee on behalf of the agriculturists. The appeals filed by the department were dismissed, and the appeal filed by the assessee was allowed.