The Judgment of the Court was delivered by

Dipak Kumar Sen, J.:— This reference, at the instance of the Commissioner of Income-tax, West Bengal-I, arises out of the income-tax assessments of Messrs. Karam Chand Thapar & Bros. (Coal Sales) Ltd., Calcutta, in the assessment years 1953–54 and 1956–57 to 1962–63, the corresponding previous years being the financial years ending on the 31st March preceding the assessment years concerned.

2. The facts found and/or admitted are in short as follows. The assessee carries on business as middlemen and arranges sales of coal from various collieries to the consumers. They act as del credere agents on behalf of various collieries. The controversy in this case relates to an item in the account of the assessee shown as “under-charge”, the question being whether the same are trading receipts in the hands of the assessee.

3. The transactions out of which the amounts shown as “under-charge” reach the till of the assessee are essentially as follows:

(a) The assessee acts as the middleman and/or agent in respect of sale of coal by the collieries to the consumers.

(b) Following the sales, the colliery loads the coal into wagons and consigns the same to the consumer on the basis “freight to pay” which means that the freight is to be paid by the consumer.

(c) The railways charge freight on “chargeable weight”, arrived at in the following manner:— The wagon is first weighed empty; then coal is loaded up to the permitted limit and the loaded wagon is weighed thereafter to ascertain “gross weight”. The difference between the weight of empty wagon and the gross weight of the loaded wagon represents the “net weight” of coal. The “chargeable weight” for the purposes of freight is, however, either the net weight of coal loaded or the carrying capacity of the wagon, whichever is higher.

(d) After the coal is loaded, the colliery sends the consignment forwarding note to the consignee who collects the coal after paying the freight charges, a copy of the same is forwarded to the assessee.

(e) The colliery also sends its bill for the coal to the assessee.

(f) The assessee collects the payment of the bill from the consumer and forwards the amount to the collieries.

(g) From the copy of the forwarding note the assessee checks up the actual weight and the weights charged in calculating freight and if it is found that freight has been charged on a weight greater than that of the coal actually despatched then a claim is lodged with the colliery for refund of this extra freight charged. This is known as “under-loading charges “shortly referred to as “under-charges”.

(h) According to the practice in the trade all collieries grant such refunds to the assessee if claimed, and the amounts collected are credited to an “under-charges” account.

(i) When consignees claim from the assessee “under-charges”, i.e, extra freight charged in respect of any particular consignment, the assessee makes over to the consignee the amount collected from the colliery and the “undercharges” account is debited accordingly.

(j) Where no claim is made by the consignees concerned the amounts collected by the assessee accumulate in the account. The unclaimed credits from this account are transferred at the end of every three years to the profit and loss account of the assessee.

4. For the assessment years in question the assessee claimed that the amounts received by it from the collieries on account of “under-charges” should be excluded from the computation of its business income inasmuch as the same were realised on behalf of its customers and were not trading receipts. The ITO, however, held that the same having remained unclaimed and not having been credited to the account of individual customers were trading receipts in the hands of the assessee and disallowed the claim. The amounts credited to the profit and loss account each year from the balance in the “under-charges” account were treated as the assessee's taxable income.

5. On appeal by the assessee, the AAC upheld the order of the ITO in substance but held that the amount of net credit in the “under-charges” account should be brought to tax in the relevant year and not when the amounts came to be credited to the profit and loss account.

6. The assessee preferred further appeals before the Income-tax Appellate Tribunal. On an analysis of the transactions in question and of the process by which the amounts accumulated in the hands of the assessee by way of “under-charges”, the Tribunal concluded as follows:

“To summarise the essential facts:

(i) The assessee is the del credere agents of the collieries and is also the agent of the consumers.

(ii) The assessee collects from the consignees' of the coal only the sale price. The freight is paid neither to the collieries nor to the assessee; it is paid direct to the railways by the consignee.

(iii) The assessee collects the under-loading charges from the colliery, independent and irrespective of any demand from the consignee.

(iv) There are cases where the consignees demand the under-charges and the assessee passes on the amounts received by it but there are cases where it does not leave the assessee with a surplus in the under-charges account.

(v) The assessee's practice of collecting under-charges is not only from collieries managed by Karamchand Thapar & Bros, but extends to other collieries as well.

(vi) The collieries have to pay these under-loading charges only out of the price of coal supplied by them as there is no way of their making any recoveries from the railways.”

7. After considering a number of decisions cited at the hearing, namely, Morley v. Tattersall, [1938] 22 TC 51 : [1939] 7 ITR 316 (CA) Jay's—The Jewellers Ltd. v. IRC, [1947] 29 TC 274 (KB), Elson (Inspector of Taxes) v. Prices Tailors Ltd., [1963] 1 All ER 231 : 40 TC 671 (Ch D), Punjab Distilling Industries Ltd. v. CIT, [1959] 35 ITR 519 (SC) and CIT v. Sandersons & Morgans, [1970] 75 ITR 433 (Cal), the Tribunal held as foflows:

“We have already explained that the assessee is only an agent; it is not dealing in coal. It is responsible for the payment of the price for the coal. The freight is paid by the consignees to the railways and if anyone has a cause of action to recover it from the collieries, it is only the consignees. When the assessee makes a demand against the colliery, it can only be as an agent of the consignees. They have no locus standi to make a claim on their own behalf. No doubt, in a sense, these moneys came into the assessee's hands because it carries on business as commission agents, but as pointed out by Gold Thomas J. in the Prices Tailors' case, [1963] 1 All ER 231 (Ch D) they had no benefieial interest in them at all and they were not receipts of their trade at all.”

8. The Tribunal held that amount received by the assessee by way of “undercharges” did not constitute trading receipts and surplus thereof remaining unpaid was not assessable to income-tax.

9. On an application by the CIT, West Bengal-I, the Tribunal under s. 66(1) of the Indian I.T Act, 1922, and s. 256(1) of the I.T Act, 1961, has drawn up a consolidated statement of case and referred the following question as a question of law arising from the order of the Tribunal:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amounts received by the assessee by way of under-charges do not constitute it's trading receipts and that accordingly neither the surplus of the receipts remaining unpaid nor the amounts transferred by the assessee to the profit and loss account could be assessed as the income of the assessee in the years 1953–54, 1956–57, 1957–58, 1958–59, 1959–60, 1960–61, 1961–62 and 1962–63?”

10. At the hearing Mr. B.L Pal, learned counsel for the revenue, contended that the Tribunal having found that the assessee collected the “undercharges” from the colliery independently and irrespective of any demand from the consignee, the amounts collected must be deemed to have reached the hands of the assessee as trading receipts and not on account of any particular consignee. In this context, he relied on the observation of the Tribunal that the money came into the assessee's hands because it carries on business as commission agents.

11. Mr. Pal relied on and cited Prices Tailors Ltd., [1963] 1 All ER 231 (Ch D). The facts in that case were that the assessee carried on business as bespoke ready-to-wear tailors. When taking orders for made-to-measure garments the customers' measurements were recorded in an order form and the customers used to be asked to make deposits. The deposits, if paid, were recorded in the order forms from which slips were detached and given to the customers showing the price of the balance, viz., the difference between the price charged and the amount of the deposit. The question arose whether such unclaimed deposits could be taxed in the hands of the assessee. It was not disputed that at the time of payment the property in the money deposited was of the assessee though subject to certain contingencies. It was also not disputed that such deposits were received in the course of the assessee's business. On the aforesaid facts, it was held that the amounts being the property of the assessee from the moment of receipt were trading receipts in the year in which they were deposited.

12. Mr. Pal contended that, in the instant case, the amounts received by the assessee by way of “under-charges” should similarly be held to be trading receipts received in the usual course of the assessee's business, collected and kept in the assessee's account subject, however, to be refunded on the consignment claim. Therefore, the said amounts must be considered to be part of taxable income of the assessee.

13. Dr. Debi Pal, learned counsel for the assessee, contended on the other hand that, on the facts found, it was clear that the amounts were received by the assessee as an agent on account of its principal and in no sense the amounts collected could form part of the trading receipts of the assessee. The law was well-settled on the question.

14. He drew our attention to the following decisions:

Morley v. Tattersall, [1938] 22 TC 51 : [1939] 7 ITR 316 (CA), where the facts were, inter alia, as follows:

The assessee, a firm, carried on business as auctioneer of horses. The conditions of sales effected by auction were, inter alia, that purchase money would be paid to the owner Monday week after the auction and that no purchase money would be paid or remittance sent by post without written orders. Unclaimed purchase money amounting to substantial sums accumulated in the hands of the assessee. It was provided in the deed by which the assessee was constituted that part of the unclaimed balances would be transferred to the credit of: the partners and that claims made should be borne by the partners in proportion to their shares. It was held by the Court of Appeal that the unclaimed balances transferred to the partners were not trading receipts liable to be assessed to income-tax., Sir Wilfrid Greene M.R observed in his judgment as follows (p. 65):

“Mr. Hills' argument was to the effect that, although they were not trading receipts at the moment of receipt, they had at that moment the potentiality of becoming trading receipts. That proposition involves a view of income-tax law in which I can discover no merit except that of novelty. I invited Mr. Hills to point to any authority which in any way supported the proposition that a receipt which at the time of its receipt was not a trading receipt could by some subsequent operation ex post facto be turned into a trading receipt, not, be it observed, as at the date of receipt, but as at the date of the subsequent operation. It seems to me, with all respect to that argument, that it is based on a complete misapprehension of what is meant by a trading receipt in income-tax law. No case has been cited to us in which anything like that proposition appears. It seems to me that the quality and nature of a receipt for income-tax purposes is fixed once and for all when it is received.”

15. Dr. Pal next cited CIT v. Sandersons & Morgans, [1970] 75 ITR 433 (Cal). The facts here were that in the profit and loss account of the assessee, a firm of solicitors in Calcutta, a sum of Rs. 4,078 was credited in the relevant assessment year. This sum represented the aggregate of the unclaimed balances in a number of personal ledger accounts of the clients of the assessee who had advanced moneys to the assessee in connection with cases entrusted. The said personal ledger accounts were closed and the balance was transferred to the profit and loss account. The question arose whether the said balance formed part of the taxable income of the assessee. A Division Bench of this court held that the said sum of Rs. 4,078 was not a revenue receipt liable to income-tax. The relevant observations in the judgment are as follows (p. 444):

“In the instant case, we have already observed, the money received was money of the principal received by the agent in a fiduciary capacity, for being employed for the work of the principal entrusted to the agent. We have already seen that the balance of the money was refundable by the agent to the principal. Since the money was impressed with the character of somebody else's money, namely, clients' money, it did not become the income of the assessee. It may be, in the absence of a rule like the Solicitors' Account Rules in this country, the assessee mixed up this money with its own money and may have deposited the money in it's own bank account; it may be that this money remained part of the general assets of the assessee for a long time; but this mixing up did not have the result of converting the money into the assessee's money or trading receipt or income.”

16. It appears to us that, on the facts found, the question referred has to be answered in favour of the assessee. The amounts collected by way of under-charges have been found to have been received by the assessee as an agent and, therefore, in a fiduciary capacity vis-a-vis the consignees. It appears to us that the facts of this case are substantially similar to the facts in the Tattersall's case, [1938] 22 TC 51 : [1939] 7 ITR 316 (CA) as also to those in Sandersons & Morgans case, [1970] 75 ITR 433 (Cal).

17. The facts in Prices Tailors Ltd., [1963] 1 All ER 231 (Ch D) appear to us to be different. In that case, the deposits were claimed and received by the assessee in its own right and the money was received as property of the assessee though subject to certain contingencies. There is no similar finding in the instant case. For the reasons as stated above, we answer the question referred in the affirmative and in favour of the assessee. In the facts and circumstances, there will be no order as to costs.

C.K Banerji, J.:— I agree.