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TMI Blog1988 (4) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... t its instance purchased and sold maize. As the business activity was centralised through the assessee-firm all the funds of the Bombay firm remained with it. After 31-3-1971 the assessee-firm ceased to function as the agent of the Bombay firm. From 1-4-1971 disputes arose between the partners of the Bombay firm and the family of late Sri Aildas and they led to severance of connections between Sri Bhagawandas Tarachand and his wife Smt. Maya Devi. Smt. Maya Devi and her children were since then have been living with Smt. Sushila Devi and the other partners of the assessee-firm at Nizamabad. Up to 30-4-1971 the balance in the account of the Bombay firm as per the books of account of the assessee-firm was Rs. 62,528.89 ps. By a registered notice dated 9-9-1971 by the Advocate of Sri Bhagawandas Tarachand a demand was got issued to the assessee-firm from Bombay demanding to remit an amount of Rs. 62,528.80 which was lying with the assessee-firm in the account of the Bombay firm till 30-4-1971. Copy of the said notice is furnished at page 12 of the paper book No. (1) filed before us. A reply was got sent to the Advocate of the Bombay firm by the assessee-firm, dated 22-9-1971 a copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collusion with the other partners of the Bombay firm (Mrs. Rani) avoided payment of funds to him and thereby they were involved in abetment of breach of trust along with the said Smt. Rani. The Metropolitan Magistrate at Bombay while disposing of the criminal case upheld that there was no breach of trust and the payment of the firm's funds to one of the partners is valid and the partners of the assessee-firm were exonerated from the offence. However, civil suits mentioned above were still pending. Considering the situation and particularly having regard to the strained relations that went beyond any redressal with Sri Bhagawandas Tarachand the assessee-firm had, decided to write off the credit balance to avoid any difficulties in future. The ITO after examining the stand of the assessee held the credit balance of Rs. 68,757 as income of the assessee-firm for asst. year 1976-77 on protective basis and he treated the said sum of Rs. 68,757 as income of the assessee for asst. year 1972-73 in which year the credit balance of Rs. 68,757 was appearing in the account of the Bombay firm as income of the assessee itself. In the asst. order the ITO gave a finding that this amount of Rs. 62, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able income of the assessee-firm. The said amount constitutes either a loan or deposit in the hands of the assessee-firm. The decisions relied upon by the appellate authority are distinguishable both on facts and law and do not apply to the facts of the case. 3. We have heard Sri Y. Ratnakar, the learned Advocate for the assessee and Sri P. Radhakrishna Murthy, the learned DR for the Department. The learned Advocate for the assessee relied upon the following decisions : (1) Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 (SC) (2) Rajabali Nazarali Sons v. CIT [1987] 163 ITR 7 (Guj.) (3) CIT v. Andhra General Finance Corpn. [1985] 156 ITR 386 (AP) (4) CIT v. Devatha Chandraiah Sons [1985] 154 ITR 893 (AP) (5) Beni Prasad Sidh Gopal v. CIT [1984] 148 ITR 760 (All.) (6) CIT v. Sandersons and Morgans [1970] 75 ITR 433 (Cal.) (7) Upper India Sugar Exchange Ltd. v. CIT [1969] 72 ITR 331 (All.). It is mainly argued for the assessee that there is no difficulty in ascertaining the source wherefrom the impugned amount was received by the assessee-firm. Having regard to the particular facts and circumstances in which this amount was received by the assessee-firm the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount should then be treated as its own. Because of that fact alone the assessee-firm should have treated the impugned amount as fit one to be transferred to the Profit Loss account of the assessee-firm in asst. year 1976-77. The learned DR relied upon the following authorities in support of his stand : 1. Sinclair Murray Co. (P.) Ltd. v. CIT [1974] 97 ITR 615 (SC) 2. CIT v. Punjab Distilling Industries Ltd. [1964] 53 ITR 75 (SC) 3. Badri Narayan Balakishan v. CIT [1965] 57 ITR 752 (AP) 4. Kesoram Industries Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 (SC) 5. Ashoka Viniyoga Ltd. v. CIT [1972] 84 ITR 264 (SC) 6. CIT v. Meerut Bidi Factory [1977] 107 ITR 543 (All.) 7. Metal Rolling Works (P.) Ltd. v. CIT [1983] 142 ITR 170 (Bom.). 4. We have considered the documents records and also the respective arguments advanced on both sides. We are of the opinion that the impugned amount of Rs. 68,757 represents either a deposit or a debt due by the assessee-firm to the Bombay firm and under no circumstance it has the characteristic of revenue receipt or income in the hands of the assessee. The assessee-firm is obliged to account for the impugned amount to the Bombay firm. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... character of the amount or alter the character of the amount. In our opinion, whatever character the amount which was received bears at the time of receipt on 16-10-1971 continues and it would not alter subsequently at any time, till it is discharged or returned to Mrs. Rani. We are also of the opinion that the burden of proof that a particular receipt is of revenue in character is on the revenue and no iota of evidence is produced in this case by the revenue to show that the impugned amount assumes the character of income in the hands of the assessee-firm. Our above conclusions have found their authority in Parimisetti Seetharamamma's case. Their Lordships of the Supreme Court had the occasion to consider the taxability of a particular receipt by the assessee in that case. Their Lordships at page 536 held as follows : " By sections 3 and 4 the Act imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision where however a receipt is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily payment made is for acquiring capital asset would be capital receipt unless otherwise shown as pointed by the Hon'ble Supreme Court the burden is on the revenue to prove otherwise. U/s. 28 the burden lies on the revenue to show that the receipt is liable to tax. The real nature of the transactions has to be gathered from the facts and circumstances without clutching at the nomenclature of the receipt. 5. In Andhra General Finance Corpn.'s case, the AP High Court had considered the case of an assessee who used to advance monies on hire purchase from the intending purchasers of motor vehicles. The loans advanced were repayable in instalments together with the stipulations of interest thereon. The assessee in that case collected from its parties certain amounts payable by them to the Hindustan Ideal Insurance Corporation (HIIC) towards premia on account of 'accident insurance policies' taken on the vehicles. Initially the amounts collected were credited to the account of the individual constituents but subsequently the same were transferred to the account of HIIC. From the said account regular payments towards premia of insurance were made to the company. After making payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintained its accounts on the mercantile system. It collected sales-tax from the purchasers and paid it to the Government. Part of the sales-tax was refunded. On such refund, the assessee made suitable entries and also opened a separate account for each agriculturist and credited it with the amount of refund. The ITO sought to assess the amount of refund received by the assessee as his income. The AAC and the Tribunal, however, held that the amount was not assessable in the hands of the assessee. On a reference : Held, that the money representing the sales-tax had been received by the assessee in a fiduciary capacity. The money received towards sales-tax by the assessee from the purchasers was received on behalf of the agriculturist principals and the same did not constitute trading receipts in the hands of the assessee. In any event, since the assessee followed the mercantile system of accounting which created a liability to repay the sales tax to its principals, as and when it was refunded, the same could not be included in its income. " 7. In Upper India Sugar Exchange Ltd.'s case the facts of the case also deal with brokerage collected from the constituents and payable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm, when first received and no subsequent operations could turn them into 'professional receipts' and dismissing the appeal the Calcutta High Court held as follows : " Held, that the sum of Rs. 4,078 was not revenue receipt liable to income-tax. When a solicitor receives money from his client, he does not do so as a trading receipt but he receives the money of the principal in his capacity as an agent and that also in a fiduciary capacity. The money thus received does not have any profit-making quality about it when received. It remains money received by a solicitor as 'client's money' for being employed in the client's cause. The solicitor remains liable to account for this money to his client. The fact that the money was paid to the solicitor by a client will not make any difference, if initially the money was not received as trade receipt. " 9. Thus it is clear that simply because the assessee-firm thought erroneously that the impugned amount bears income character in its hands in asst. year 1976-77 and so appropriated or misappropriated the same by carrying it to profit and loss account would not alter the real character of the impugned amount in the assessee's hands. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -4-1971. Therefore, the Supreme Court's decision cited does not have any relevance. 12. In Badri Narayan Balakishan's case their Lordships had laid down the following principle with regard to sales tax : " The principle applicable in the case of deposits or security deposits is that where it is part of the price or part of each transaction, whether the amounts returnable or not, it is deemed to be a trading receipt. But if the amount received has nothing to do with the transactions as such or is no part of the price but is only received for the due performance of an obligation or a service, then it is not considered as a trading receipt but is akin to money borrowed. " In the facts and circumstances of that case their Lordships came to the conclusion that the accounts were collected as part of each and every transaction and, therefore, they constituted trading receipts. In the case before us we did not hold the impugned amount as a trading receipt. On the other hand or recorded a finding that the relationship between the Bombay firm and the assessee-firm ceased to exist and from 31-4-1971. Therefore, the AP High Court's decision does not have any relevance. The other decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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