1. At the instance of the assesses the Income-tax Appellate Tribunal has referred the following question :
'Whether, on the facts and in the circumstances of the case, the sum of Rs. 36,318 was income of the assessee liable to be taxed under the Indian Income-tax Act, 1922, in the present assessment year ?'
2. The assessee is a private limited company. The assessment year is 1953-54, the relevant accounting period being the calendar year 1952.
3. Under the then existing arrangements governing the supply of yarn to the market, a number of dealers were selected and were granted a specific quota of yarn to be supplied by the manufacturers which they sold in the market. These dealers came to be known as 'quotaholders'. Subsequently, the arrangement was modified. The manufacturers were now required to sell their stocks directly to the wholesale dealers with the result that the quotaholders were excluded altogether. In order to prevent the hardship thus caused to the quotaholders an order dated September 13, 1945, was made by the Textile Commissioner requiring the. manufacturer to recover from the wholesale dealer the wholesale price of the yarn at the controlled rate and to pay to the quotaholders, to whom it would have originally sold the yarn, that part of the sum which represented the excess over the ex-mill price, the sale being 'for this purpose deemed to have been' made by the manufacturer on behalf of the quotaholders'. The amounts representing the margin of profits due to the quotaholders were credited to an account called the 'quotaholders margin account'. Whenever amounts from this account were paid to the quotaholders, they were debited to the said account. At the end of 1951 the account showed a balance of Rs. 36,318. On December 21, 1952, the company transferred this balance of Rs. 36,318 to the credit of its profit and loss account for the year 1952.
4. In assessment proceedings for the assessment year 1953-54, the Income-tax Officer treated the amount of Rs. 36,318 as the income of the assessee liable to tax. On appeal, the Appellate Assistant Commissionerdeleted the addition and in doing so purported to follow an order of the Income-tax Appellate Tribunal for the earlier assessment years 1948-49 and 1949-50. The case was taken by the Income-tax Officer in appeal to the Income-tax Appellate Tribunal. The Tribunal took a different view now. It noted that the situation had changed since its earlier decision in respect of the assessment years 1948-49 and 1949-50. It pointed out that the quotaholders who could be said to be the beneficiaries in respect of the amounts retained by the assessee had long since 'dissolved' and that none of the former quotaholders were forthcoming to claim the amounts. The law of limitation, it was said, made it possible for the assessee not to pay the said amounts. Further, the assessee had treated the entire amount in question as its own and had carried it to the profit and loss account. Accordingly, the Tribunal allowed the appeal. And now this reference has been made.
5. It seems to us clear that, upon the facts of the present case, it cannot be said that the total amount received by the assessee as the wholesale price of the yarn constituted the taxable income of the assessee. The assessee was entitled to the ex-mill price only. But it recovered the wholesale price of the yarn because the order dated September 13, 1945, made by the Commissioner required it to sell the yarn to wholesale dealers and to recover the wholesale price thereon and as the sale was 'for this purpose deemed to have been made by the manufacturer on behalf of the quotaholders' it was required to pay to the quotaholders the difference between the wholesale price and the ex-mill price. In other words, although the assessee received the wholesale price, the part representing the ex-mill price alone belonged to it while the balance belonged to the quotaholders. It was never intended under the arrangement that the quotaholders' margin of profit should ever form a constituent part of the profits accruing to the assessee and that the assessee should have any title thereto at any stage. From the outset, the excess over the ex-mill price was impressed with the character of trust money, to be held by the assessee on behalf of the quotaholders. It is well-settled that the taxability of a receipt is fixed with reference to its character at the moment it is received and that merely because the recipient treats it subsequently in his own accounts as his own does not alter that character. At this stage, we may refer to the especially pertinent observations made by Greene M. R. in Morley v. Tattersall,  22 T.C. 51, 65;  7 I.T.R. 316, 323 (C.A.):
'The money which was received was money which had not got anyprofit making quality about it; it was money which, in a business sense, wasthe client's money and nobody else's. It was money for which they wereliable to account to the client, and the fact that they paid it into their ownaccount, as they clearly did, and the fact that it remained among their assets until paid out, do not alter that circumstance.'
6. The learned Master of the Rolls expressed himself in favour of the principle that 'the quality and nature of a receipt for income-tax purposes is fixed once and for all when it is received'. Clearly, if at its inception the entire amount of the wholesale price did not represent money belonging to the assessee but a part of it in fact belonged to the quotaholders, the subsequent circumstance that the quotaholders had long since 'dissolved' and that none of them were forthcoming to claim the amount due to them could not alter the character of the money received by the assessee. Nor could that character be affected by the circumstance that the assessee treated the amount in question as its own and had carried it to the profit and loss account.
7. In Upper India Sugar Exchange Ltd. v. Commissioner of Income-tax,  72 I.T.R. 331 (All.) a Bench of this court, of which one of us (Mukerjee J.) was a member, had before it a case where the assessee, a sugar exchange, managing the business of forward transactions of its constituent members, charged an amount in respect of those transactions which included brokerage. Under the bye-laws, brokerage was payable by the assessee to the broker for the transaction made through him. It maintained a brokerage account in which a credit entry was made of the brokerage accruing on each transaction. During the year amounts were paid out from this account to different brokers to whom they were due but in some years a surplus remained in the account which was carried over in the balance-sheet as a liability at the end of the accounting year. From the assessment year 1958-59, the income-tax department began to treat the surplus as the income of the assessee for that year. The court, relying on Morley v. Tattersall, held that as the amounts in the brokerage account represented the assessee's trading liability it could not be assessed as the income of the assessee.
8. The same principle was applied by the Calcutta High Court in Commissioner of Income-tax v. Sandersons and Morgans,  75 I.T.R. 433, 444 (Cal.) where similar unpaid accumulations of amounts received by the assessee, who were solicitors, from clients for disbursement on behalf of the clients was held from the outset to represent the clients' money and not the income of the assessee. It was 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 its 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.'
9. The learned judges also repelled the contention that the bar of limitation would affect the situation. They referred to an earlier decision of the Bombay High Court in Kohinoor Mills Co. Ltd. v. Commissioner of Income-tax,  40 I.T.R. 578 (Bom.). where unclaimed wages which had remained unpaid and the recovery of which was barred by limitation were held to represent a subsisting debt of the assessee. The claim of the revenue that because of the bar of limitation they could no longer be claimed and as such they represented the income of the assessee was repelled. For the same reasons which appealed to the learned judges in that case we are of opinion that the consideration applied by the Tribunal in the present case that the amount belonging to the quotaholders could not be recovered by them by reason of limitation must be regarded as one of little importance.
10. For the revenue reliance has been placed on Maharajadhiraja Sir Kameshwar Singh v. Commissioner of Income-tax,  41 I.T.R. 169, 172;  2 S.C.R. 74 (S.C.). The assessee had executed a trust deed settling certain properties and the rents of some lands for the maintenance of certain temples and thakoorbaries. Under the deed of trust he was entitled to receive fifteen per cent. of the estimated net income from the trust properties as remuneration under a covenant in the deed of trust. He claimed that the remuneration was exempt from income-tax being at its inception agricultural income. The claim was rejected by the Income-tax Officer and the rejection was upheld by the Supreme Court. The Supreme Court pointed out that, although the income from the trust properties originally bore the character of agricultural income, the title under which the assessee received the remuneration from such income altered Its character so that it no longer remained agricultural income. The court adverted to the circumstance that the assessee had no beneficial interest in the land which formed the subject-matter of the trust nor was he given under the trust deed a right to receive and appropriate to himself the income of the properties or a part thereof in lieu of any beneficial interest in that income. It pointed out:
'The source of the right in which a fraction of the net income of the trust is to be appropriated by the appellant as his remuneration is not in the right to receive rent or revenue of agricultural lands, but rests lathe covenant in the deed to receive remuneration for management of the trust. The income of the trust appropriated by the appellant as remuneration is not received by him as rent or revenue of land ; the character of the income appropriated as remuneration due is again not the same as the character in which it was received by the appellant as trustee. Both the source and character of the income are, therefore, altered when a part of the income of the trust is appropriated by the appellant as his remuneration, and that is so, notwithstanding that computation of remuneration is made as a percentage of the income, a substantial part whereof is derived from lands used for agricultural purposes.'
11. The decision proceeded on the basis that, although the income of the trust at its inception bore the character of agricultural income, yet the remuneration received by the assessee did not bear that character because the title under which he received it intervened to alter that character. In the case before us no such circumstance can be referred to.
12. Then, reliance is placed on Punjab Steel Scrap Merchants' Association Ltd. v. Commissioner of Income-tax,  43 I.T.R. 164 (Punj.). The assessee sold scrap iron to permit holders on their depositing the estimated price When the scrap iron was actually supplied it was found upon calculation that the amounts deposited were sometimes more and sometimes less than the true price which could be charged. In some cases, where the purchase price was less than the amount received, the permit-holders did not call for refund of the difference. The surplus accumulated over the years were transferred to the profit and loss account. The Income-tax Officer included the unclaimed surplus of the year in the assessable profits of the assessee. In this, he was upheld by the Punjab High Court. Upon careful consideration, it appears to us that the case is distinguishable. The amounts were received by the assessee from the permit-holders as price of the scrap iron ; from their very inception they were impressed with the character of trading receipts of the nature of revenue.
13. Considerable emphasis was laid on the decision of the Supreme Court in Commissioner of Income-tax v. Punjab Distilling Industries Ltd.,  53 I.T.R. 75 ;  7 S.C.R. 447 (S.C.) The assessee, who distilled and sold bottled country liquor collected from its customers, besides the price of the liquor and the bottles in which it was sold, a certain charge called 'empty bottles return security deposit'. It was understood that the charge would be refunded when the bottles were returned to the assessee. The question considered by the Supreme Court was whether the charge was a trading receipt assessable to tax. In its earlier decision in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax,  35 I.T.R. 519 ;  Supp. 1 S.C.R. 683 (S.C.) the court had held that as the charge was an ingredient of the sale consideration it was part of the price of the liquor and bottles sold. Subsequently, the Rules under the Punjab Excise Act, 1940, were amended and now provided that it was compulsory for the licensee to return at least 90 per cent. of the bottles issued to him by the licensed distiller and that the licensed distiller may, at the time of issue, demand security up to ten per cent. of the bottles issued by him and confiscate the security to the extent falling short of the 90 per cent. limit. The Supreme Court observed that the new Rules made no difference to the character of the deposits made by way of security, and that neither before nor after the amended Rules was the charge in fact a security deposit. It pointed out that the consumers were under no obligation to return the bottles in which they bought liquor and in the absence of the right in the wholesaler to the return of the bottles from a retailer it would not be right to read that provision as creating an obligation on the wholesaler to return the bottles. The Supreme Court, therefore, read the Rules as intending only to lay down that if the wholesaler could not return the bottles his deposit was liable to be confiscated. There was nothing to show that the distiller could obtain a return of the bottles. The other consideration which prevailed with the Supreme Court was that the deposit had to be taken under a contract made in regard to it. We are unable to see any parallel between that case and the present one.
14. Reliance was also placed by the revenue on Chhatrasinhji Kesarisinhji Thakore v. Commissioner of Income-tax,  59 I.T.R. 562 ;  2 S C.R. 440 (S.C.). But in that case also the decision of the Supreme Court that the amounts in dispute constituted the income of the assessee rested on the basis that they were paid under a covenant directly related to the payment of rent and royalty, which admittedly were taxable as income, that the amounts in question had been paid by the buyers and received and appropriated by the assessee as if he was entitled to receive them and the excess received over the amount for which the assessee could, under the terms of the lease, claim reimbursement had, therefore, to be regarded as income liable to tax. It was pointed out that the mere circumstance that the lessee might claim refund of the excess did not deprive the payments of the character of income when received. Here again, the decision turned on the character of the payments at the time of receipt, subsequent events being held not to modify or affect that character. The decision in V.S.S.V. Meenakshi Achi v. Commissioner of Income-tax,  60 I.T.R, 253 (S.C.) to which reference has been made, is also distinguishable. Under the Rubber Industry (Replanting) Fund Ordinance, 1952, a fund was created into which cesses were collected, and amounts were paid from that fund for the purpose of encouraging the producing of rubber. The amounts out of the fund were credited to the account of the assessee corresponding to the amounts of rubber produced by it, and payments were made to the assessee from the amounts so credited against the expenditure incurred on the maintenance of the plantations. The Supreme Court observed that, as the amounts in the fund earmarked for the assessee were paid against the expenditure incurred by it for maintaining the rubber plantations and producing the rubber, they were revenue receipts liable to be included in its assessable income.
15. There remain two more cases cited on behalf of the revenue. They are Badri Narayan Balakishan v. Commissioner of Income-tax,  57 I.T.R. 752 (A.P.) and Ikrahnandi Coal Co. v. Commissioner of Income-tax,  69 I.T.R. 488 (Cal.). In the former case, the Andhra Pradesh High Court held that the amounts collected by the assessee by way of sales tax were assessable as trading receipts because they were part of every transaction and formed part of the price charged by the assessee even though they were taken as deposits merely and credited to a separate account called the deposit account. In the latter case the assessee contended that a refund of sales tax received by it from the sales tax authorities consequent on a decision of the Supreme Court could not be treated as its income. The submission was based on the assumption that when the money was refunded to it by the sales tax authorities it became returnable by the assessee to its buyers and, therefore, was not assessable as its income. The Calcutta High Court repelled the contention holding that the amount of sales tax was a part of the consideration which the assessee charged for sale of the goods and the transaction was of a trading character. The principle on which these two cases have been decided cannot be invoked here. In the present case, from the outset, the entire amount of the wholesale price received by the assessee did not constitute the income of the assessee ; a part of it belonged to the quotaholders. From the very moment of receipt, that part never belonged to the assessee. It was always an amount belonging to the quotaholders. It is true that the wholesale price was realised under a contract between the assessee and the wholesale dealer, but while the amount constituted a receipt in the hands of the assessee the entire sum did not constitute the assessee's income.
16. Upon the aforesaid considerations, we are of opinion that the sum of Rs. 36,318 was not the income of the assessee liable to tax under the Indian Income-tax Act, 1922, and the question referred is, therefore, answered in the negative.
17. The assessee is entitled to its costs which we assess at Rs. 200. Counsel's fee is assessed at the same figure.