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TMI Blog1984 (9) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-divided between the assessee and the sub-commission agents for services rendered by the latter. In the case of Grandhi Satyanarayana Murthy, the commission earned by the assessee during the year was Rs. 76,935 of which Rs. 13,419 was claimed as payable to the sub-commission agents. Out of Rs. 13,419 the assessee allocated Rs. 3,386 as relating to sub-commission agents and it was kept in commission deposit account. As appearing in the balance sheet the commission deposit account shows a credit balance of Rs. 13,419 comprising of Rs. 3,386 belonging to the sub-commission agents and Rs. 10,083 relating to the assessee-firm. This deposit account with the credit balance of Rs. 13,419 represents 1 per cent commission collected from ryots. The assessee collected commission on sales of ryotwari produce at 3 per cent of which 1 per cent had been kept in commission deposit account. This 1 per cent commission is not offered for assessment and it is stated that it was payable to Agricultural Market Committee. 3. Similarly, in the case of Ramu Co. the gross commission earned during the year amounted to Rs. 3,62,530 of which Rs. 2,60,935 (sic) the assessee credited Rs. 55,180 to sub-comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were permitted to collect 3 per cent commission tentatively subject to depositing 1 per cent with the Agricultural Market Committee pending disposal of the writ petition. In view of the High Court decision the assessee treated the amount as accrued liability and had accepted this accordingly in the balance sheet by opening a sub-commission deposit account. It was further submitted that the decision in Chowringhee Sales Bureau (P.) Ltd.s' case is not applicable to the facts of this case. They relied upon decisions in Morley (H.M. Inspector of Taxes) v. Tattersall 22 Tax Cases 51, CIT v. Karam Chand Thapar Bros. (Coal Sales) Ltd. [1979] 117 ITR 621 (Cal.) and the unreported judgment of the Andhra Pradesh High Court pronounced on 13-4-1983 in the case of CIT v. Devatha Chandraiah Sons [IT Reference No. 11(Hyd.) of 1981 dated 13-4-1983]. On considering the facts and after hearing the parties, the Commissioner, in the case of Ramu Co., came to the conclusion that the excess commission of 1 per cent collected by the assessee cannot be treated as a trading receipt. He held that the decision in the case of Chowringhee Sales Bureau (P.) Ltd. is distinguishable. He also was of the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of the Supreme Court and in the case of Chowringhee Sales Bureau (P.) Ltd. and this should be taxed in the year of receipt. 8. Aggrieved by the order of the first appellate authority, in the case of Grandhi Satyanarayana Murthy, Kaida Kottu, Anakapalle, the assessee filed an appeal to the Tribunal. Similarly, aggrieved by the order of the first appellate authority, in the case of Ramu Co., Anakapalle and Bondada Satyanarayana Sons, Anakapalle, the department filed appeal before the Tribunal. 9. The learned departmental representative submitted before us that the first appellate authority erred in holding that the amount collected by the assessee from its agriculturist-principals is accrued liability as it does not attract liability to market cess at all under the provisions of law. It was further submitted that the Commissioner (Appeals) ought to have held that the amount collected by the assessee as a commission agent from its principals is in substance its income as held by the Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. Therefore, it was submitted that the order passed by the ITO may be restored. 10. In the assessee's appeal it was submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed as payable to sub-commission agents. Out of Rs. 13,419 the assessee allocated Rs. 3,386 as relating to sub-commission agents and it was kept in commission deposit account. As appearing in the balance sheet, the commission deposit account shows a credit balance of Rs. 13,419 comprising of Rs. 3,386 belonging to the sub-commission agents and Rs. 10,083 relating to the assessee-firm. Similarly, in the case of Ramu Co., the gross commission during the year amounted to Rs. 3,62,530 of which Rs. 2,60,935 was claimed as payable to sub-commission agents. Out of Rs. 2,60,935 the assessee credited Rs. 55,180 to sub-commission deposit account. This deposit account represent 1 per cent commission collected from ryots. 12. According to the notification dated 11-9-1980, issued by the Commissioner for Development of Marketing and Director of Marketing, Government of Andhra Pradesh, Bye-law No. 35---Annexure IV of the Agricultural Market Committee, Anakapalle was amended for restricting the quantum of commission chargeable in respect of all notified commodities except onions, to only 2 per cent. The assessee along with similar other agents of Anakapalle filed Writ Petition No. 266 of 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of agricultural produce at 3 per cent. So far as 2 per cent of commission is concerned, there is no dispute. In the matter of balance of 1 per cent commission it was directed to be deposited with the Market Committee according to High Court's order dated 12-2-1981. The assessee had credited this 1 per cent commission to a separate account called the commission deposit account and shown it on the liability side of the balance sheet prepared by the assessee. 15. According to the assessee, 1 per cent extra commission collected over and above the quantum permitted as per the Government notification would not constitute trading receipt of the assessee. According to the High Court's interim direction in its order dated 12-3-1981 though the assessee was permitted to collect 3 per cent commission, 1 per cent thereof was directed to be deposited with the Agricultural Market Committee pending disposal of the writ petition. Thus, according to the High Court's order dated 12-2-1981, 1 per cent commission though not deposited in the Market Committee it virtually belongs to the agriculturists. Therefore, the assessees are holding the same in a fiduciary capacity in trust on behalf of the agric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l representative in Chowringhee Sales Bureau (P.) Ltd.'s case also there was collection of sales tax which the assessee should not have collected. In such a situation, the Supreme Court held that the amount should be recorded as a trading receipt and should be allowed as a deduction in the year when the amounts were returned back to the customers. As in Chowringhee Sales Bureau (P.) Ltd.'s case in the instant case also, the assessee collected commission and, therefore, in both these cases, the assessees have collected certain amounts far in excess. In that view of the matter, the ruling of the Supreme Court in Chowringhee Sales Bureau (P.) Ltd.'s case will be clearly applicable to the facts of this case according to the department. 18. According to the facts appearing in the case of Chowringhee Sales Bureau (P.) Ltd., the sales tax collected by the assessee from the buyers which was neither paid to the State Government nor to the owner of the goods nor refunded to the purchaser was held to be the trading receipt of the assessee. The Supreme Court had confirmed the finding of the High Court that 'the sales tax collected was part of the trading receipt and was to be included in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these facts, we find that there is justification on the part of the Commissioner (Appeals) in distinguishing the judgment of the Supreme Court in Chowringhee Sales Bureau (P.) Ltd.'s case from the facts of the present case. 20. There was a judgment in the case of Moreley v. Tattersall 22 Tax Cases 51. In that case, the assessee-firm was carrying on business as auctioneers of horses and was having as one of its terms and conditions of business that no purchase money would be paid or remittance by post without a written order from the customers. It had accordingly accumulated with it as unclaimed balances of the customers who had not demanded the same for many years. After some years, the funds accumulated were divided by the firm among the partners, with the stipulation that any payment claimed by any customer subsequently and paid to him out of his accumulated funds available to the firm, should be met by the partners in their profit-sharing ratio. It was also pointed out that at all times, the firm considered itself liable to pay its balances as and when claims were made. Considering these facts, the court of appeal held that unclaimed balances so transferred to the partners wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was all along been treated as the liability to be discharged by refunding the amount to the agriculturists from whom it was collected and shown in the books of account besides showing it as a liability in the balance sheet as a separate account in sub-commission deposit account. We have also scrutinised the sub-commission agent accounts produced before us. On such scrutiny, it appears that the assessees kept separate commission deposits account with the hands of parties to whom the amounts are due and their addresses, worked out with reference to bills. Therefore, the contention raised by the departmental representative in this regard is not acceptable. 22. The learned departmental representative pointed out that the collection made by the assessees in contravention of the rule after the withdrawal of the writ petition is in the nature of income. Even otherwise it was submitted that the collection made and the liability arose in an infraction of law is also taxable. He further, by drawing an analogy from the judgment of the Andhra Pradesh High Court in CIT v. Kodandarama Co. [1983] 144 ITR 395 where collection of welfare fund was held to be infraction of law, submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partmental representative by relying upon a passage in the commentaries of Sampath Iyengar on the Law of Income-tax, 7th edn. at page 473 contended that income is income even though it is tainted. It was stated that--- "Income is income, though tainted. When a receipt possesses the quality of income, it does not shed its quality by reason of the fact that it comes from a tainted source, or through tainted means. The degree of taint may vary from a simple unenforceability in a court of law of a contract intended to produce income to the illegality of making a contract itself and consequent visitation of fines and imprisonment on the transgression thereof...." In this context, he also relied upon the following decisions in the cases of Kali Prasad Singh v. CIT [1955] 28 ITR 294 (Pat.), Chowringhee Sales Bureau (P.) Ltd. and Sinclair Murray Co. (P.) Ltd. v. CIT [1974] 97 ITR 615 (SC). In M.Ct Muthiah v. CIT [1974] 97 ITR 516 (Mad.), since the sales tax collected from the purchaser was neither paid to the revenue nor refunded to the purchaser and was also not separately earmarked or put into a different account, the Supreme Court held that the amount collected by the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned counsel appearing for the assessee, the collection made amounts to brokerage collected from constituents to be paid to brokers but remaining unpaid as in the case of Upper India Sugar Exchange Ltd. v. CIT [1969] 72 ITR 331 (All.) or in the case as in Addl. CIT v. Brijlal Gupta [1974] 94 ITR 88 (All.) where clerk charges collected by a senior advocate repayable to his clients or money deposited with solicitors by his clients and remaining unrefunded as in the case of CIT v. Sandersons Morgans [1970] 75 ITR 433 (Cal.). In all these cases such amount remaining with the assessees were held to be not a trading receipt since amounts have been collected in fiduciary capacity. Instances were also cited from the decisions of the Allahabad High Court in the cases of CIT v. Shiv Nath Prasad [1970] 77 ITR 378 and Upper India Sugar Exchange Ltd.'s case. A decision of the Calcutta High Court in Karam Chand Thapar Bros. (Coal Sales) Ltd.'s case was also relied upon in this context. The learned counsel also relied upon a decision of the same High Court in Bengal Assam Investors Ltd. v. CIT [1983] 142 ITR 156, where in the process of rendering service to his clients as an insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation in coming to the conclusion that the assessees are holding the collections in a fiduciary capacity as a trustee on behalf of the agriculturists to whom it was repayable. 28. The learned departmental representative submitted that out of the collection made a part---2 per cent---was said to be trading receipt and balance 1 per cent was non-trading receipt. This is not correct since both belongs to one unit. The learned departmental representative further contended that this dichotomy is not envisaged. According to him, the assessees collected to appropriate the commission for themselves and the intention is only to utilise the same for their benefit. Therefore, according to him, it is not a liability but only a penalty. But, according to us, the question of dichotomy as pointed out by the learned departmental representative does not arise on the facts of these cases, because the entire 3 per cent was collected by the assessees in view of the order of the High Court when the interim order was in force. The subject-matter in this appeal relates only to 1 per cent commission collected by the assessee. The 2 per cent commission collected by the assessee is not the subject-matter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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