Per Shri K. A. Thankikkachalam, Judicial Member -Income-tax Appeal Nos.
1283 and 1284 (Hyd.) of 1983 is filed by the. Since the questions involved in these appeals are common, they are taken up together and disposed of by this common order for the sake of convenience.
2. According to the facts, the assessee derived income from ryotwari commission business. In the case, of Grandhi Satyanarayana Murthy, Anakapalle, the assessee-firm not only derives income from ryotwari commission business but also derives income from purchase and sale of jaggery. In the case of Ramu & Co., Anakapalle, the assessee apart from carrying on money-lending business also did business in commission agency in agricultural produce. The assessee arranged sale of agricultural produce brought by the ryots and collected 3 per cent commission on such purchases. The commission, thus, received is further 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 and it was kept in commission deposit account. As appearing in the balance sheet the 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-commission deposit account.
This deposit account represents 1 per cent commission collected from ryots. The assessee collected commission on sales or ryotwari produce at 3 per cent of which 1 per cent had been kept in sub-commission deposit account. Here also 1 per cent commission was not offered for assessment stating that it is payable to Agricultural market Committee.
4. It was submitted before the ITO that the Agricultural market Committee, Anakapalle issued orders not to charge commission of more than 2 per cent on sales of ryotwari produce. The assessee collected 3 per cent and the sum at 1 per cent had been debited to commission account in names of several sub-commission agents and credited to the sub-commission deposit account. it was also stated that a writ petition was filed in Andhra Pradesh High Court challenging the orders of the Market Committee. It was claimed that the excess collections of commission at 1 per cent against the orders of Agricultural market Committee is refundable to ryots.
5. The question before the ITO was that whether the assessees share amounting to Rs. 10,083 in the case of G. Satyanarayana Murthy and Rs. 19,313 in the case of Ramu & Co. is to be treated as income or to be allowed as a liability as claimed. According to the ITO, the assessees are commission agents. They auction jaggery brought by the ryots and collect a commission of 3 per cent on such sale. A restriction was imposed by the Market Committee to collect commission at 2 per cent only. While the assessees collected commission at 3 per cent they neither deposited I per cent commission with the market Committee nor refunded it to the ryots. following the decision of the Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT  87 ITR 542, the ITO held that this amount will be included in the total income for the assessee year under consideration and this will be allowed in the year in which will be paid.
6. Aggrieved, the assessees filed appeals before the first petitioner authority. Before the Commissioner (Appeals), the assessees submitted that 1 per cent extra commission collected over and above the quantum permitted as per the Government notification would not constitute a trading receipt of the assessees. Even according to the High Courts interim direction, it was submitted (interim order dated 12-2-1981) that the assessees 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 (supra) is not applicable to the facts of this case. They relied upon decisions in Morley (H. M. Inspector of Taxes) v. Tattersall 2 Tax Cases 51, CIT v.Karam Chand Thapar & Bros. (Coal Sales) Ltd..  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., (supra) is distinguishable. He also was of the view that the amount was of the view that the amount was held by the assessee in a fiduciary capacity as a trustee on behalf of the agriculturists from whom it was collected. Accordingly, he deleted the addition made by the ITO and allowed the appeal filed by the assessee.
7. But, however, in the case of Grandhi Satyanarayana Murthy, anakapalle, the on considering the facts and circumstances of the case, refused to accept the conclusion arrived at by the Commissioner (Appeals) in the case of Ramu & Co. he was of the view that the principle laid down in the case of Chowringhee Sales Bureau (P.) Ltd. (supra) is clearly applicable to the facts of the case. he further held that at the time of collection of the commission at the rate of 3 per cent it was not incurring any liability. In other words, in the opinion of the AAC, the collection cannot be regarded as incurring a liability.
he was also of the view that when the collection is made from some parties in the same breath it cannot be held that the assessee is incurring a liability by way of collection. Therefore, he eventually held that the amount collected was nothing but a trading receipt. He further observed that the Income-tax Act, 1961 (the Act), permits taxing of income earned through illegal ways. Therefore, any excess collection made by the assessee according to the C, could be brought to tax because the legality or validity of collection is not a primary condition for taxability. He further pointed out that when once we conclude that a particular receipt is a trading receipt, its scope and nature for income-tax purposes is fixed once for all, when it is received, as held in the case of Tattersall. According to him, if 2 per cent commission is trading receipt, it necessarily follows that balance of 1 per cent is also a trading receipt, as it form part of one unit.
He was also of the view that the fact that the assessee had credited the amount to a separate account would not be relevant to determine the nature of the receipt which in his opinion is trading receipt. By following the ratio of the judgment of the Supreme Court in the case of CIT v. Bill Cotton Mills (P.) Ltd.  116 ITR 61, the AAC was of the view that in the instant case, the excess collection cannot be treated as collection as a trustee. Accordingly, he held that the excess amount of 1 per cent collected was clearly in the nature of trading receipt in terms of the judgment of the Supreme Court and in the case of Chowringhee Sales Bureau (P.) Ltd. (supra) 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. (supra). Therefore, it was submitted that the order passed by the ITO may be restored.
10. In the assessees appeal it was submitted as under : The authorities below have failed to appreciate that 1 per cent deposit was made by the assessee is in accordance with the directions given by the High Court.
The High Court has permitted the assessee to collect 3 per cent commission and directed that 1 per cent to be deposited to the Market Committee till the disposal of the writ petition filed by the assessee.
The assessee has withdrawn the writ petition and accepted the amendment to the bills of the Market Committee and also as per the directions of the High Court. According to the market Committee Act, any collection in contravention of rules and bye-laws of market Committee can be recovered from the assessee within a period of 11 years as if it was arrears of land revenue. Therefore, it is a clear liability which is enforceable by the Market Committee. The agriculturists at Anakapalle are aware of the fact that out of 3 per cent commission collected 1 per cent has to be refunded to them. The authorities below are not justified in stating that the assessee is not having sufficient balance and as such, it could not be considered that the said amount was kept out of the circulating capital in the business without considering the fact that there was sufficient balance in Andhra Bank accounts have not considered the spirit of the judgment referred to by them which do not apply to the facts and circumstances of the assessees case.
11. We have heard the rival submissions made by the parties. The fact remains that derived income from commission trade in jaggery. In the case of Bondada Satyanarayana Sons, Anakapalle in the balance sheet on 4-6-1981, there was a commission deposit account showing credit balance of Rs. 15,281. This account represents commission collected from ryots and debited to the respective capital accounts of the partners at the end of the accounting year. In the case of Grandhi Satyanarayana Murthy, gross commission earned by the assessee during the year was Rs. 76,935 of which Rs. 13,419 was claimed 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 1981 in the Andhra Pradesh High Court praying for the issue of direction or writ in the nature of mandanus declaring the Government Notification dated 11-9-1980 amending the above Bye-law No. 35 restricting the quantum of commission to 2 percent as void. By an interim order dated 23-1-1981, the High Court suspended the operation of the Government notification dated 11-9-1980 fixing the commission payment at 2 per cent. On a Miscellaneous Petition No. 361 of 1981 filed by the State Government, the High Court as per order dated 9-2-1981 vacated the earlier interim order dated 23-1-1981 thereby lifting the ban on the operation of the Government Notification dated 11-9-1980. A Writ Appeal No. 78 of 1981 was filed against the High Courts order dated 9-2-1981 in Writ Petition No. 369 of 1981. As per the order passed by the High Court on 9-2-1981 in the Writ Petition Miscellaneous Appeal No. 78 of 1981, the High Court had permitted the Anakapalle commission agents to collect commission at 3 per cent out of which 1 per cent should be deposited with the market Committee pending the disposal of the main Writ Petition 266 of 1981. The Court had also directed that if ultimately the commission agents fail in the writ petition, the market Committee would refund the amount of one per cent to the respective sellers, viz., agriculturists who had brought their agricultural commodities for sale. The commission agents had also given an undertaking to the effect that they were prepared to furnish to the Market Committee the detailed particulars such as names and address of the agriculturists from whom commission was collected.
13. In the assessees case during the accounting year relevant to the assessment year 1982-83 the order dated 12-2-1981 of the Andhra Pradesh High Court was in operation. As per this order, 1 per cent of the commission collected at the rate of 3 per cent should be kept in deposit with the agricultural Market Committee pending the final disposal of the Writ Petition No. 266 of 1981. At the end of the accounting year relevant to the assessment year 1983-83 the High Court as per order dated 13-7-1982 had dismissed the Writ Petition No. 266 of 1981 as it was withdrawn by the commission agents of Anakapalle.
14. The fact remains that during the accounting year relevant for the assessment year 1982-83 the assessee had collected commission on the sale of agricultural produce at 3 per cent. So far 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 Courts 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 the, 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 Courts 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 Courts 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 agriculturists to whom this amount has got to be ultimately payable. Accordingly, in view of the High Courts direction, the assessee treated the said amount as accrued liability and exhibited this as such in the balance sheet by opening commission deposit account.
16. In support of the contention put forward by the department a decision in the case of Chowringhee Sales Bureau (P.) Ltd. (supra) was relied upon. According to the learned counsel appearing for the assessee, the decision in the abovesaid case is distinguishable.
According to him, in the case of Chowringhee Sales Bureau (P.) Ltd (supra), the assessee had not earmarked the amount realised as sales tax and did not put it in a different account of deposits with the Government. Therefore, according to the learned counsel for the assessee, this decision is distinguishable. the learned departmental representative pointed out that in the case of Chowringhee Sales Bureau (P.) Ltd. (supra), the Court was of the view that if the initial receipt was concluded to be a trading receipt, the treatment given by the assessee to the same in his account books was immaterial to determine its nature. It was also pointed out that it is open to the (sic) ultimately the assessees treatment will not determine its character. The learned departmental representative further submitted that a glance of the balance sheet will show that the excess collection was converted into as part of the assessees circulating capital. It was also argued by the learned departmental representative that the agriculturists from whom collections were made were not aware of the fact that they are entitled to collect 1 per cent from the assessees.
Therefore, it was submitted that it is not an acceptable liability.
According to the learned departmental representative this was also due to the fact that the assessee contested the Government notification instead of accepting it. Eventually, it was contended that inasmuch as the dispute between the parties was pending throughout the accounting year without any final settlement, the collection was a trading liability at its inception. It was also the case of the department that in the instant case there is no collection on behalf of the third party and, therefore, at the time of collection of the commission at the rate of 3 per cent the assessee was not incurring a liability.
17. According to the learned departmental representative in Chowringhee Sales Bureau (P.) Ltd.s case (supra) 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 (supra) 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 (supra) 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. (supra), 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 appellants total income since the money realised from the purchases was employed by the appellant did not earmark the amount realised as sales tax and did not put it in a different account or deposit it with the Government in terms of section 9B (3).
19. In the present case though 1 per cent which was collected was not deposited with the Market Committee, the assessee had taken adequate caution by treating this as liability by depositing the impugned amount to a separate account styled as sub-commission deposit account. In this respect it was pointed out that the money representing total credits, has been circulating in the assessees business as available in the balance sheet where sufficient balance was not available and this clearly shows, according to the learned departmental representative, that the assessee did not keep out of circulation in the business.. But this does not appear to be correct because we have verified the accounts shown to us at the time of hearing. In the separate commission deposit account, the names of parties, were mentioned. It was also shown that some of these accounts are due. Their address were also given. Such ryots account was also worked out with reference to bills.
These minute details were mentioned in the eventuality of repayment.
Thus, this is the distinguishing feature found in the cases of the assessee herein as against what is stated in the case of Chowringhee Sales Bureau (P.) Ltd. (supra). In fact, those amounts were collected in accordance with the interim order passed by the High Court dated 9-2-1981 in Writ Petition Miscellaneous Appeal No. 78 of 1981. Thus, during the accounting year relevant for the assessment year 1982-83, the High Courts permission to collect 3 per cent commission was very much in force. When the writ petition was dismissed on 13-7-1982 the position reversed back to the Government notification dated 11-9-1982 the position reversed back to the Government notification dated 11-9-1980 fixing the commission payment at 2 per cent. Therefore, during the relevant point of time, when the assessee made collection of 3 per cent there was no infraction of law. In fact, the assessees gave an undertaking during the time of pendency of the writ petition that they were prepared to furnish to the Market Committee the detailed particulars of names and addresses of the agriculturists from whom the commission was collected. From these facts, we find that there is justification of the Supreme Court in Chowringhee Sales Bureau (P.) Ltd.s case (supra) 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 ration. 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 were not trading receipts of the firm assessable to income-tax. It was further held that the unclaimed balances when first received from the auction purchasers were obviously liabilities and no subsequent operation of alteration in the account would turn them into trading receipts. The first appellate authority was of the view that when once we conclude that a particular receipt is trading receipt, its scope and nature for income-tax purposes will remain as same for the rest of the period as held in the case of Tattersall (supra).
Therefore, he came to the conclusion that after collecting the amount which is evidently trading receipt if the assessee has to pay back part or whole, nonetheless the subsequent event does not affect the character of the receipt. It was pointed out that the assumption made by the first appellate authority that 1 per cent commission collected by the assessees as trading receipt is not at all correct since he proceeded on the basis that the assessee did not earmark this amount realised as payable in his account in case if the assessees were called upon to repay the said collection in view of the decision in the case of Chowringhee Sales Bureau (P.) Ltd. (supra). But on the other hand, the facts appearing in these appeals are entirely different as we have pointed out in the foregoing paragraphs especially in view of the pending proceedings in the High Court. Therefore, the initial assumption made by the first appellate authority itself cannot stand for a moments scrutiny.
21. The next contention of the learned departmental representative was that the amounts collected by the assessees were used as circulating capital and it is not kept apart and the mere balance sheet entry is not sufficient. Therefore, it must be treated as a trading receipt. In other words, according to the learned departmental representative, the money representing the total credits has been circulating in the assessees business and it is not clear from the balance sheet whether sufficient cash balance was available. This clearly means according to the departmental representative that the assessees did not keep the money out of circulation in the business. We have already stated that the facts appearing in these appeals are quite contrary to the submission made by the learned departmental representative. In the instant case we have already pointed out that 1 per cent commission 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.  144 ITR 395 where collection of welfare fund was held to be infraction of law, submitted that the commission collected by the assessees are also to be treated in like manner so as to make it liable for taxation. In Kodandarama & Co.s case (supra) the assessees who were all dealers-cum-millers of paddy, made contributions at specified rates to the Andhra Pradesh Welfare Fund, West Godavari District and in return were granted export permits by the Collector for exporting boiled rice to Kerala. The assessee submitted that the said amount was expenditure incurred wholly and exclusively in the course of business and, accordingly claimed deduction under section 37(1) of the Act. The Andhra Pradesh High court was of the view that payments were made by the assessee only because they were told that they would not get export permit unless they made the contribution. The regularity and systematic manner in which the contributions were made showed, according to the High court, that the contributions to the welfare fund were a pre-condition for grant of export permits. Therefore, it was observed that the contributions were compulsory payments extracted from the assessees as a price for granting export permits. Therefore, the High court was of the view that this would certainly be subversive of public interest and good administration. It is under these circumstances, the High court held that the payments made by the assessee to the Andhra Pradesh Welfare Fund for obtaining permits for export of rice being in contravention of public policy would not be allowed as business expenditure. In the present case facts are different. The commission was collected in view of the order of the High court, on an undertaking given by the assessees that they will repay the same in the case they lose the battle in the Court. Further, according to section 17A of the Agricultural Market Act, where the market committee is of the opinion that any commission agent has made any collection in excess of what is allowed by law, it may require that amount within a period of eleven years from that person after giving an opportunity of being heard to him. In these circumstances, there is definite liability on the part of the assessee to repay the commission collected from the agriculturists. Accordingly, the analogy drawn by the learned departmental representative from the judgment of the Andhra Pradesh respondent in Kodandarama & Co.s case (supra) has become an unsound analogy.
23. Further, the learned departmental 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 possess 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  28 ITR 294 (Pat.) Chowringhee Sales Bureau (P.) Ltd. (supra) and Sinclair Murray & Co. (P.) Ltd. v.CIT  97 ITR 615 (SC). In M. Ct. Muthiah v. CIT  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 its trading receipt.
In Chowringhee Sales Bureau (P.) Ltd.s case (supra) also the position is the same as in M. Ct. Muthiahs case (supra).
24. In Kali Prasad Singhs case (supra) there was a prohibition by the Bengal Cess Act, 1980, for recovering the entire road cess from the tenant. There the Patna High Court held the amount of cess recovered by the landlord in excess of Rs. 1 lakh of his income can be assessed to income-tax under the Indian Income-tax Act, 1922. But according to the facts appearing in the present case, 1 per cent commission was collected in view of the order of the High Court as stated above.
Therefore, at the time when the collection was made, there was sanction of the Court to collect and keep the same in a separate account with an undertaking to repay the same to the agriculturists. Under such circumstances, the ruling of the Patna High Court in Kali Prasad Singhs case (supra) will not be applicable to the facts of this case. As we have also pointed out the collection of commission was made by the assessee in view of the order of the High Court, we consider that there is no infraction of law., Therefore, the question of taxing a tainted income in infraction of law does not arise.
25. There was also a recent decision of the Andhra Pradesh High Court in a matter like this in the case of CIT v. Devatha Chandraiah & Sons [IT Reference No. 11 (Hyd.) of 1981 dated 13-4-1983]. In that case the assessee, a commission agent, used to collect sales tax while selling the goods on behalf of the agriculturist principals. The sales tax so collected was credited to the sales tax account which was debited when the payments were made after the completion of sales tax assessments.
In the Takpatties, all the relevant details regarding name of the agriculturist principals, the commodities sold, and deduction made were noted. In the debtors ledger, where a separate account was opened for such agriculturist principal, his account was credited with the amount of sales tax and refundable to him.
Considering these facts, the Andhra Pradesh High Court held that the amount collected in the from of sales tax did not constitute the assessees trading receipts.
26. The learned counsel appearing for the assessee further submitted that the amount of collection was held by the assessee in a fiduciary capacity as trustee on behalf of the agriculturist from whom it was collected. According to the 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  72 ITR 331 (All.) or in the case as in Addl. CIT v. Brijlal Gupta  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  75 ITR 433 (Cal.).
In all these cases such amount remaining with the assessee 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  77 ITR 378 and Upper India Sugar Exchange Ltd.s case (supra). A decision of the Calcutta High Court in Karan Chand Thapar & Bros. (Coal Sales) Ltd.s case (supra) was also relied upon in this context. The learned counsel also relied upon decision of the same High Court in Bengal & Assam Investors Ltd. v. CIT  142 ITR 156, where in the process of rendering service to his clients as an insurance agent, the assessee collected some excess amount from the clients over the years which were neither paid to the insurance companies nor refunded to the clients.
The clients also did not claim refund of these amounts. The assessee contended that he did not receive insurance premium as trading receipt and the same represented liability to the clients which remained unclaimed over the years and the liability had been adjusted in the accounts of the relevant year and the amount did not constitute taxable income. The Calcutta High Court on these facts held that the said sum could not be assessed as the income of the assessee during the relevant assessment year, since there was a fiduciary relationship between the clients and the principal. Further, the High Court held that the taxability of an amount must be determined on the nature of the receipt and the capacity in which it was received, etc. In Karam Chand Thapar & Bros. (Coal Sales) Ltd.s case (supra) where unloading charges collected by the Del Credere agent in fiduciary capacity from the principal, viz., the collieries, but not paid to the consignee are held to be not assessable as business income.
27. We have already set out that the commission in question was collected as permitted by the High Court and the same was kept under a separate account called under the Commission agents account. There is also a provision in the Agricultural markets Act (section 17A), according to which commission collected in excess of what is allowed by law, that commission many be asked to be refunded within a period of 11 years from the person whom it was collected. According to rule 52(1) (b) of the Andhra Pradesh (Agricultural Produce and Livestock) Market Rules, 1969, the Market Committee has also got power of suspending the licnece of any commission agent, who is found to have committed a breach of any rule or bye-law of the Market Committee. On top of it, the assessee has also given an undertaking before the Andhra Pradesh High Court to furnish particulars to the Marketing Committee about the names and address of the agriculturists to whom the money was to be returned. Under these circumstances, in view of the judicial pronouncements we are of the view that the collections made by the assessees were not that of their own and the liability is always there to refund the same to the ultimate owners. Therefore, we have no hesitation 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 1 per cent commission collected by the assessee. The 2 per cent commission collected by the assessee is not the subject-matter in appeal before us. In view of the fact that we have already held that this collection of 1 per cent does not amount to a trading receipt, the question of bifurcating 2 per cent and 1 per cent as attempted to do by the learned departmental representative, does not arise.
29. Under these circumstances, we have also come across a judgment of the Madras High Court in CIT v. Thirumalaiswamy Naidu & Sons  147 ITR 657. According to the facts in the case of Thirumalaiswamy Naidu (supra), the assessee firm dealing in jaggery collected from its customers amounts towards contingent liability account in order to protect itself from any possible liability to sales tax at a future date and paid the same to the sales tax department. The amounts collected on contingent liability account were not brought into the trading and profit and loss account on the credit side and the remittances of tax from those collections to the sales tax department were also not brought into the debit side. Later on, when proceedings were taken challenging the validity of the levy of sales tax, the High Court held that jaggery was exempt from central sales tax.
Consequently, the amount paid by the assessee to the sales tax department came to be refund to the assessee resulting the assessee highly obliged to refund the amount to its customers. As the refund was received by the assessee in the assessment year under consideration, the department was of the view that the refund so received would represent taxable profit for the year in question by reason of section 41(1) of the Act. On these facts the High Court held that the refund received by the assessee from the sales tax department was not a payment receivable by the assessee in its trading transactions but was received purely in a fiscal transaction. There was not business relationship of any kind between the assessees and the sales tax department in the refund granted. Section 41 could not, therefore, be invoked to assess the sales tax refund. Nor could it be brought to tax de hors this section under any other valid principle of taxation of the case.
30. Thus, on considering the facts in the light of the judicial pronouncements, we are of the view that 1 per cent commission collected is an amount with liability attached with an obligation to repay the same to the agriculturist. Under such circumstances, the assessees were holding the amounts belonging to the agriculturist in fiduciary capacity as a trustee on behalf of the agriculturists from whom the same was collected. Therefore, 1 per cent commission as collected by the assessees cannot be considered as assessees trading receipt.
Accordingly, the addition made under this head in the appeal relating to G. Satyanarayana Murthy. Anakapalle is deleted and in respect of orders passed by the Commissioner (Appeals) in the cases of Ramu & Co.
and Bondada Satyanarayana Sons are confirmed.
31. In the result, the appeal filed by the assessee is allowed while the appeals filed by the department are dismissed.