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Commissioner of Income-tax Vs. Mrs. Doris S. Luiz - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference Nos. 101, 102 and 103 of 1971
Judge
Reported in[1974]96ITR646(Ker)
ActsIncome Tax Act, 1961 - Sections 271(1)
AppellantCommissioner of Income-tax
RespondentMrs. Doris S. Luiz
Appellant Advocate P.A. Francis and; P.K. Raveendranatha Menon, Advs.
Respondent Advocate C.T. Peter,; T.C. Karunakaran and; V.M. Kurian, Advs
Cases ReferredIn Krishan Lal Shiv Chand Rai v. Commissioner
Excerpt:
- - 22,000 for 1965-66, they being the balance out of the amounts collected by the assessee during the respective years but failed to return. on a careful analysis of the position, we are satisfied that the money was being held by the assessee in confidence for the benefit of the students going for overseas training and employment and as such it is not a taxable item in her hands......assessee had concealed income for those years. the assessee appealed to the tribunal. before the tribunal the assessee contended that the income was entitled to exemption under section 10(22) of the income-tax act, 1961, and that, in any event, the balance of deposits remaining unreturned was not income in her hands liable to be taxed. the first of these contentions was not, however, pressed before the tribunal, expatiating on the second contention, it was argued by the assessee that she was in the position of a trustee of the students from whom the money had been collected, and as such money in her hands is not liable to be treated as income. to subvert this argument the department pointed out that the assessee herself had agreed to the inclusion of rs. 45,654 and rs. 22,000 as income.....
Judgment:

Sadasivan, J.

1. The Income-tax Appellate Tribunal, Cochin Bench, hasreferred the following question, viz. :

' Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in cancelling the penalties leviedunder Section 271(1)(c) of the Income-tax Act, 1961, for the assessment years 1963-64, 1964-65 and 1965-66 '

2. The assessee runs an aeronautical engineering college under the name 'Southern College of Engineering and Technology' at Chalakudy in Kerala State. She filed a return on January 15, 1964, declaring a loss of Rs. 19,819 for the assessment year 1963-64, a return on February 19, 1965, declaring a net loss of Rs. 28,004 for 1964-65 and a return on December 3, 1965, admitting an income of Rs. 345 under the head ' property ' and a loss of Rs. 9,896 under the head ' business ' for the assessment year 1965-66. She used to collect monies from students of the college ranging between Rs. 4,500 and Rs. 7,500 for arranging for their overseas training and employment. On a scrutiny of the account the Income-tax Officer found that though the assessee had collected the aforesaid amounts by way of deposits, she had not returned the balance that remained after incurring the expenses in respect of the persons concerned. Hence, he determined her total income at Rs. 83,945 for 1963-64, Rs. 49,530 for 1964-65 and Rs. 34,990 for 1965-66 by making additions of Rs. 48,475 for the year 1963-64, Rs. 45,654 for 1964-65 and Rs. 22,000 for 1965-66, they being the balance out of the amounts collected by the assessee during the respective years but failed to return. The Income-tax Officer accordingly initiated proceedings for levy of penalty under Section 271(1)(c) of the Act and since the penalty leviable exceeded Rs. 1,000 for each year, he referred the matter to the Inspecting Assistant Commissioner *of Income-tax who by his order dated March 10, 1970, and May 19, 1970, levied a penalty of Rs. 3,500 for the assessment year 1963-64, Rs. 3,000 for 1964-65 and Rs. 1,500 for 1965-66, respectively, holding that the assessee had concealed income for those years. The assessee appealed to the Tribunal. Before the Tribunal the assessee contended that the income was entitled to exemption under Section 10(22) of the Income-tax Act, 1961, and that, in any event, the balance of deposits remaining unreturned was not income in her hands liable to be taxed. The first of these contentions was not, however, pressed before the Tribunal, Expatiating on the second contention, it was argued by the assessee that she was in the position of a trustee of the students from whom the money had been collected, and as such money in her hands is not liable to be treated as income. To subvert this argument the department pointed out that the assessee herself had agreed to the inclusion of Rs. 45,654 and Rs. 22,000 as income for the assessment years 1964-65 and 1965-66 and in the face of that it is not up to the assessee to contend otherwise.

3. The Tribunal found that the admission was made by the assessee, only on the advice of her counsel and since the department had not acted on the admission to its prejudice, it was open to the assessee to withdraw it.

4. The Tribunal further observed that the surplus amount in the hands of the assessee was impressed with the character of trust money, and did not partake of the nature of revenue receipts. So holding, the Tribunal quashed the order of the Inspecting Assistant Commissioner levying the penalties.

5. We think that the view held by the Tribunal is correct in the circumstances of the case. The stand taken by the assessee was that the money in question is in the nature of trust money, not impressed with the character of revenue receipt. On a careful analysis of the position, we are satisfied that the money was being held by the assessee in confidence for the benefit of the students going for overseas training and employment and as such it is not a taxable item in her hands.

' When a solicitor received 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.' (Commissioner of Income-tax v. Sandersons and Morgans, [1970] 75 I.T.R. 433 (Cal.)).

6. Similar is the position in the present case. Here also, the money received has no profit-making quality about it, and it continues to be the money of the students for which the assessee is accountable to the students. The assessee all along has been in the bona fide belief that the surplus amount in her hands under the above account was in the nature of a trust fund refundable or returnable to the party.

7. Reliance was placed very much by the Inspecting Assistant Commissioner on the admission of the assessee that Rs. 22,000 was not refundedto the students. It is stated that she agreed to the said amount ofRs. 22,000 being treated as income. It is worthwhile to remember in thisconnection that during all the relevant years the assessee had taken theconsistent stand that the deposits were returnable to the persons concerned after meeting the expenses, and the surplus, therefore, should not beassessed as income. During the year in question she happened to makethe admission under a misconception of the attendant facts and circumstances. In spite of the admission it is incumbent 'on the department toestablish by relevant proof that the amount in question was income in thehands of the assessee. In Krishan Lal Shiv Chand Rai v. Commissioner ofIncome-tax, [1973] 88 I.T.R. 293 (Punj.), in the course of reassessment proceedings in pursuance ofnotices under Sections 143(3) and 148 of the Income-tax Act, 1961, the assesses gave a statement surrendering the amounts of certain credits on the basis of hundis shown in the names of third parties and the Income-tax Officer accepted those surrenders and made orders of reassessment. Thereafter, penalty proceedings were started. The assessee contended that the surrendered amounts were in fact credits of genuine parties and wanted an opportunity to prove his case. The Inspecting Assistant Commissioner refused to give such opportunity and levied penalty. The appeals filed by the assessee were dismissed by the Appellate Tribunal. On a reference, it was held :

' Even treating the surrender as an admission of the concealment of undisclosed income, the Inspecting Assistant Commissioner could not deny the assessee its right to prove that the fact of surrender was no such admission and that the so-called admission was in fact wrong and the surrender was made solely to avoid botheration as stated by the assessee. Penalty proceedings are distinct from the assessment proceedings and are in the nature of quasi-criminal proceedings. The onus was on the department to positively prove and produce for that purpose certain other material besides the factum of surrender that the amounts in dispute were the undisclosed income of the assessee.'

8. So also in the present case, the admission was wrong and it was for the department to prove positively on other material that there was concealment of income. Being a quasi-criminal proceeding, the burden is entirely on the department. Apart from the so-called admission, there is no material to hold that the income was concealed.

9. We, therefore, answer the question in the affirmative, i.e., in favour of the assessee and against the department.

10. A copy of this judgment with the seal of the court, and under the signature of the Registrar will be sent to the Income-tax Appellate Tribunal, Cochin Bench.


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