Dipak Kumar Sen, J.
1. A. Tosh and Sons (P) Ltd., the assessee, carries on business in purchase and sale of tea. In its said business, the assessee exports tea to foreign countries. At the material time, the assessee entered into agreements with foreign Governments and foreign Government authorities being the U.S.S.R., Poland, the United Arab Republic and Iraq for export of tea. The respective agreements which were recorded in writing were not included in the paper-book though the same had been considered and construed by the authorities below. Copies of the said agreements were produced at the hearing without any objection from the Revenue and the same have been considered by us. The copies produced have been directed to be kept on the record.
2. The agreement with the United Arab Republic was entered into by the assessee on April 19, 1971. In the said agreement, it was recorded that the total value of the drawback refund and any changes in the drawback rate was to be on the account of the Republic.
3. A separate agreement was entered into by the assessee with the Arab Republic of Egypt, on September 28, 1972. It was recorded in the said agreement, inter alia, as follows :
(a) The cost of tea would be in terms of the invoice of the brokers. 6 paise per kilogram of tea purchased would be the profit of the assessee.
(b) All taxes, duties and levies, Central and State, would be on account of and payable by Egypt.
(c) If and when any excise rebate would be received by the assessee from the Customs on exports, the same would be remitted to Egypt after obtaining approval from the Reserve Bank of India.
4. In the agreement entered into with Iraq through the latter's Government Purchasing Board, it was recorded that the assessee would act as purchasing agent and contractor of the Government of Iraq. In Clause 8 of the Operation Schedule to the said agreement, it was recorded that the duties imposed by the Government of India would be paid by the assessee on account of the Government of Iraq. Differences in the rates of such duties would also be on account of the Government of Iraq and paid on the basis of the actual rate. Refund of duties and drawbacks allowed by theGovernment of India on export of tea would be to the credit of the Government of Iraq.
5. In the agreement entered into by the assessee with the Government of Russia, it was recorded that the assessee would be entitled, apart from the actual cost for the tea exported, buying brokerage, commission and also a margin of profit at stipulated rates. It was further provided that the assessee would pass on to the Government of Russia benefits of rebate on excise duty receivable in respect of shipment of tea to Russia. The assessee, however, would be entitled to 4% of the rebate amount received for services rendered or expenses incurred in connection thereof.
6. In the agreement entered into by the assessee with the Government of Poland, it was specifically recorded that in respect of export of tea by the assessee to Poland, excise rebates received from the Government of India would be passed on to the Government of Poland subject to the approval of the Reserve Bank of India.
7. The assessee was assessed to income-tax in the assessment years 1972-73 and 1975-76, the accounting years ending on the 31st May of the calendar years 1971 and 1974. For the assessment year 1972-73, an assessment was made initially under Section 143(3) of the Income-tax Act, 1961. The assessment was, however, reopened subsequently under Section 147 of the Act of 1961 on the ground that income arising from the receipt of rebate on excise duty and duty drawback and interest on deposits of such rebate and drawback had escaped assessment in the said year.
8. A notice under Section 148 was served on the assessee on March 31, 1977, and the assessee filed a further return on June 13, 1977. The Income-tax Officer held that the rebates and duty drawback received by the assessee in the assessment year were assessable in the hands of the assessee, and as there was no remittance of the said rebates and drawback by the assessee in the said assessment year, there was no question of any deduction of the said amount.
9. In the assessment year 1975-76, the return of income was originally filed by the assessee on June 28, 1975, and on March 10, 1978, a revised return was filed. It was held by the Income-tax Officer, in making the assessment, that the assessee became entitled to claim rebates of excise duty and drawback as an exporter and had received substantial amounts on account thereof. It was held that the amounts so received constituted trading receipts of the assessee assessable to income-tax and particularly as the excise duty paid by the assessee had been allowed as deduction in the trading account. The Income-tax Officer rejected the contention of the assessee that if the said amounts were considered to be the income of theassessee, the same had been surrendered before accrual under the agreements entered into with the foreign purchasers. The Income-tax Officer held that there was no arrangement under which the assessee surrendered rebates and drawbacks receivable on the exports to the Customs authorities but on the contrary received the said amounts on filing proper claims. It was held that the said amounts had accrued in the hands of the assessee as income and received as such.
10. The stipulations in the agreements with the foreign buyers, it was held, were conditional and remittance to the latter could only be made by the assessee after obtaining permission from the Reserve Bank. Till such permission was obtained, the amounts remained the property of the assessee and the assessee alone was entitled to claim the rebate and the drawback and had the sole right to receive the said amounts and the foreign buyers, it was held, had no right, title or interest in the source of the income, and the agreements did not divert the said amounts from the hands of the assessee before accrual. In the said assessment year, the interest received from the deposits of rebate and duty drawback was also treated as income of the assessee and taxed as such.
11. Being aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner (Appeals) found that at the time of purchase of tea from the manufacturers, the assessee paid the levy of excise duty on tea and packing materials indirectly. At the time of export and processing of the shipping bills, claims were lodged with the Customs authorities who, on consideration of the claims, issued orders allowing rebate for export of tea and duty drawbacks for the packing materials. Construing the agreements between the assessee and its foreign buyers, the Commissioner (Appeals) held that the assessee was obliged thereunder to refund the excise rebate and duty drawback to the foreign buyers and that the rebate and the duty drawback were diverted to the foreign buyers and the same could not be the income of the assessee who was only an instrument for obtaining the rebates and drawbacks and passing on the same. The foreign buyers, it was held, would be entitled to recover the said amounts from the assessee in any Indian court and till the amounts were remitted to the foreign buyers, the assessee held the same as a trustee and not as a beneficial owner. It was also held that as the amounts did not belong to the assessee, the interest thereon would also not be the income of the assessee. The appeals of the assessee were allowed and the Commissioner (Appeals) directed deletion of the addition of the amounts of rebate of excise duty and duty drawback as also the interest accrued thereon from the total income of the assessee.
12. Being aggrieved, the Revenue preferred an appeal from the order of the Commissioner (Appeals) before the Income-tax Appellate Tribunal.The said appeal was heard by the Tribunal along with the appeal filed by the assessee against the reopening of the original assessment in the assessment year 1972-73. Before the Tribunal, it was contended on behalf of the Revenue that the contracts entered into by the assessee with the foreign buyers were ineffective and invalid as no previous approval of the Reserve Bank of India had been obtained in respect of the same. On behalf of the assessee, it was contended that this contention had never been raised earlier and had not been considered by the authories below. The assessee also contended on the authority of a decision of the Supreme Court that the contracts permitting remittance to foreign parties with the permission of the Reserve Bank of India were valid.
13. It was further contended on behalf of the Revenue that there was no diversion of the amounts of rebate and drawback at source nor was there any overriding title of the foreign buyer in respect of the amounts and the assessee alone was entitled to the said amounts. The assessee contended to the contrary and submitted that the agreements between the assessee and the foreign buyers provided that excise rebate and duty drawback were on the buyer's account which indicated that there was an overriding title of the foreign buyers in respect thereof and the latter became the owners of the rebate and drawback whenever they were received by the assessee. All exports of tea by the assessee were subject to the said condition in the agreements. A number of decisions of the Supreme Court and different High Courts were cited on behalf of the parties. Construing the agreements, the Tribunal held that it was agreed between the parties even at the inception that all rebates and drawbacks received by the assessee would be on the buyer's account. The assessee no doubt would claim such rebates and drawbacks but the same would be received by the assessee only on account of the buyers. The Tribunal held further that there was a diversion of benefit in respect of the said rebate and drawback even from the inception and there was an overriding title in favour of the foreign buyers.
14. The Tribunal followed and applied the decision of the Supreme Court in CIT v. Sitaldas Tirathdas : [1961]41ITR367(SC) . The Tribunal held further that even if it was held that there was no overriding title in favour of the assessee in respect of all receipts of rebates and drawbacks, there was a corresponding liability to pay back the said amounts to the foreign buyers in terms of the agreements. The liability accrued when the claims of the assessee before the authorities were settled and refund orders issued as the assessee followed the mercantile system of accounting. The Tribunal rejected the appeal of the Revenue. On an application of the Revenue under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referredthe following questions, as questions of law arising out of its order, for the opinion of this court :
'1. Whether, on the facts and in the circumstances of the case, the excise duty rebate and customs drawback could be assessed as income in the hands of the assessee-company for the assessment years 1972-73 and 1975-76?
2. Whether, on the facts and in the circumstances of the case, the interest on fixed deposit amounting to Rs. 4,65,108 is assessable as income of the assessee for the assessment year 1975-76 ?'
15. At the hearing, the learned advocate for the Revenue relied on the orders of assessment of the Income-tax Officer and the finding recorded there. He submitted further that in the instant case, the assessee was an exporter of tea and as such it was the assessee alone who would be entitled to claim the refund of excise duty rebate and customs drawback. Such refund would necessarily be paid only to the assessee and the same would constitute a business receipt in its hands initially, irrespective of any corresponding liability of the assessee to refund the said amounts. It was submitted that in the facts, no overriding title in favour of the foreign buyers had been established in respect of the said amounts of excise duty rebate and customs drawback.
16. In support of his contentions, the learned advocate for the Revenue cited the following decision.
17. K.C. Bose & Co. v. CIT : [1985]156ITR701(Cal) . This decision was cited as in that judgment, a number of reported decisions on the question of diversion of income by overriding title starting from Raja Bijoy Singh Dudhuria v. CIT [1933] 1 ITR 1 35 Raja Bijoy Singh Dudhuria v. CIT [1933] 1 ITR 1 35 were considered. Learned advocate for the assessee contended on the other hand that on a proper construction of the agreements between the assessee and its foreign buyers, it would be apparent that the amounts of excise duty rebate and customs duty drawbacks at no time became or could be deemed to be the income of the assessee. Under the said agreements, the assessee could only collect and receive the amounts of rebate and drawback on behalf of its foreign buyers and it was specifically provided in the agreements that the same would be refunded to the foreign buyers after the permission of the Reserve Bank was obtained. The said amounts, it was contended, were diverted at source by an overriding title in favour of the foreign buyers who owned the said amounts under the agreements.
18. Learned advocate contended further that as the amounts of rebate and drawback were not income in the hands of the assessee, the interest accruing thereon could not also be treated as the income of the assessee. In respect of the amounts of rebate and drawback, the assessee was in theposition of a trustee vis-a-vis the foreign buyers and all accretions to the said amounts by way of interest or otherwise would also enure to the benefit of the foreign buyers and not to the assessee. In support of his contentions, learned advocate drew our attention to the relevant sections of the Indian Trusts Act, 1882, and contended that a trustee or a person in the position of a trustee would be bound to make over not only the amounts held by way of trust to the persons for whose benefit the same were held, but would also be liable to pay to such persons in the position of a cestui que trust all amounts accruing to the principal.
19. In support of his contentions, learned advocate for the assessee cited a number of decisions which are considered hereafter.
20. On question No. 1, the following decisions were cited on behalf of the assessee.
(a) Seth Motilal Manekchand v. CIT : [1957]31ITR735(Bom) . In this case, in a partition between three members of a Hindu joint family, a managing agency belonging to the family was also divided. The partition provided that two of the members would be entitled to the managing agency remuneration in equal shares but each of them would pay to the third member a specified part of their share of such remuneration. The members carried on the managing agency thereafter as a registered partnership.
On these facts, it was held by a Division Bench of the Bombay High Court that the real income of the two members as partners was not 50% of the managing agency remuneration in equal shares but less by the amount which the third member was entitled to receive from each of them. It was held that the part of the managing agency remuneration payable to the third member was diverted before it became the income of the other two members and it was not a case of application of a part of the income of the two members.
(b) Ratilal B. Daftari v. CIT : [1959]36ITR18(Bom) . In this case, the assessee was a partner in a registered partnership and had contributed a share in the capital of the partnership. The assessee had entered into an agreement with four other persons under which the assessee along with the said four persons had contributed diverse sums aggregating to the capital contributed in the partnership by the assessee and they had agreed to share the profits and losses in proportion to their individual contributions.
On these facts, it was held by a Division Bench of the Bombay High Court that in the assessment of the assessee to income-tax, what was to be considered was not the income allocated to his share in the partnership but his real income. The real income of the assessee was what remained after deducting the amounts to be paid to the other four persons. Theamounts, it was held, had been diverted, that they never constituted the real income of the assessee and bad to be excluded to ascertain the real income of the assessee.
(c) Poona Electric Supply Co. Ltd. v. CIT : [1965]57ITR521(SC) . In this case, the assessee carried on the business of distribution of electricity under a licence from the Government. The licence was issued under the Electricity (Supply) Act, 1948. Under the statute, if the clear profit of the licensee in any year of account exceeded the amount of reasonable return, one-third of such excess not exceeding seven and half per cent. of the amount of the prescribed reasonable return was at the disposal of the licensee and one-half of such excess had to be either distributed by way of proportionate rebate to the consumers on amounts collected from sale of electricity or carried forward in the accounts of the licensee for distribution to the consumers in future in such manner as the State Government might direct. In the relevant accounting years, the assessee had credited amounts to the consumers' benefit reserve account as excess distributable to the consumers. The assessee claimed deduction of the sums in the computation of its taxable profits.
On these facts, it was held by the Supreme Court that the said amounts credited for the benefit of the consumers was a part of the excess amount received by the assessee and reserved to be returned to the consumers. The said amount did not form part of the real profits and had to be deducted from the total income of the assessee. The Supreme Court held further that there was a distinction between deduction made for ascertaining the profits and distribution made out of profits. It was held that the amounts credited to the reserve were not a part of the profits of the assessee at all and could not be included in the real profits of the assessee as under the statute, they had to be returned to the consumers by way of rebate.
(d) Murlidhar Himatsingka v. CIT : [1966]62ITR323(SC) . This was another case of a sub-partnership. The Supreme Court held that a sub-partner had definite and enforceable rights to claim a share in profits accrued to or received by a partner in the main partnership. The sub-partnership created a superior title and diverted the income from the main firm before it became the income of the partner who received his share of the income from the main firm on behalf of himself and also the sub-partners. The Supreme Court approved of the decision of the Bombay High Court in Ratilal B. Daftari : [1959]36ITR18(Bom) .
(e) CIT v. Travancore Sugars and Chemicals Ltd. : [1973]88ITR1(SC) . In this case, the assessee entered into an agreement with the Government of Travancore whereby the assets of a sugar company controlled by the Government as also of a distillery and tincture factory run by the Government were agreed to be sold to the assessee. Apart from the cash consideration, the assessee was entitled to have the licence of the distillery transferred to it and also the promise of the Government for grant of a fresh licence for a five-year term thereafter. The assessee was required to sell the products of the distillery to the Government at a price to be fixed by the latter and also the medical products at stipulated prices. The Government, it was agreed, was further entitled to 20% of the annual net profits of the assessee subject to a maximum of Rs. 40,000 after providing for depreciation and remuneration of the secretaries and treasurers. This clause was subsequently amended and it was provided that the Government would be entitled to 10% of the annual net profits, i.e., the net amount for which the assessee's audited profits would be assessed to income-tax. The question arose whether the amount payable to the Government was liable to deduction under Section 10 of the Indian Income-tax Act, 1922.
On these facts, it was held by the Supreme Court that the amount paid to the Government was an allowable deduction under Section 10 of the Act of 1922 irrespective of whether it could be considered to be a revenue expenditure or as an overriding charge on the profit-making apparatus or as expenditure laid out or expended wholly and exclusively for the purpose of trade. It was held further that an amount paid with reference to the profits would either be paid after the profits became divisible or distributable or the same could be payable prior to distribution to be computed with reference to a notional or apparent net profit. In the former case, it would be a distribution of profits and not deductible as expenditure but in the latter case, it might be an expenditure incurred as a contribution to the profit-earning apparatus or incurred at the inception and deductible as an overriding charge on the profit-making apparatus.
(f) CIT v. Crawford Bayley & Co. : [1977]106ITR884(Bom) . The assessee in this case was a partnership firm constituted under a deed. On the death of one of the partners, a new partnership deed was executed. On the death of another partner, a supplementary deed was executed subsequently. The first two deeds provided for certain payments to the widows of the deceased partners. Payments were made accordingly and in the assessment years involved, the assessee claimed deduction in respect of such payments. On these facts, it was held by a Division Bench of the Bombay High Court on a reference that the rule of diversion of income by an overriding charge was applicable in the case. It was held that the payments to the widows were not dependent upon the profits and losses of the assessee but were absolute obligations and had to be honoured even though there might not be any profits made by the assessee in any particular year. This absolute obligation was in the nature of an enforceabletrust. This was not a case where the obligation arose to make payment out of the income after it was earned. It was held that the deductions claimed by the assessee were allowable.
(g) CIT v. Tollygunge Club Ltd. [1911] 107 ITR 776. In this case, the assessee, a club, conducted horse races and charged fees for admission to the enclosure of the club. In the assessment years involved, the assessee levied surcharge on the admission fees under a resolution which provided that the proceeds of the surcharge would go to the Indian Red Cross. Subsequently, it was resolved further that the proceeds of the surcharge should be earmarked not only for the Indian Red Cross but also for local charities. A separate receipt used to be issued in respect of the surcharge collected. The question arose whether the surcharge received by the assessee was to be treated as a part of the assessee's taxable income.
On these facts, the Supreme Court held that the surcharge collected was a payment made for the specific purpose of being applied to local charities. When the surcharge was paid, it was clearly impressed with an obligation in the nature of a trust for being applied for the benefit of local charities and, therefore, the same was diverted before it reached the hands of the assessee and at no stage became a part of the income of the assessee. The Supreme Court held further that a trust could be created without the use of technical words and it was sufficient to indicate the intention.
(h) CIT v. Bijli Cotton Mills (P.) Ltd. : [1979]116ITR60(SC) . In this case, the assessee, a private limited company, collected certain amounts on account of dharmada at a fixed rate from its customers on sales of yarn and cotton. In the bills issued to the customers, the item dharmada was shown separately and the amounts collected were not credited in the trading account of the assessee but in a separate account. On these facts, the Supreme Court noted that in common parlance, dharmada meant anything given in charity for religious or charitable purposes and was a customary collection prevalent in the trading and commercial communities of various parts of India. It was held that the amounts paid on account of dharmada were validly earmarked for charity right from the inception. When the amounts were received, the assessee was under an obligation to spend them for charitable purposes only. Such amounts were not trading receipts of the assessee nor could they be regarded as part of the price or a surcharge on the price of the goods sold by the assessee, though the payments of dharmada might be compulsory so far as the purchasers were concerned.
The Supreme Court further held that the fact that the payment of dharmada was compulsory, that the assessee had discretion as regards themanner and the time when the amount collected on such account would be spent and that the assessee did not keep the amounts collected in a separate bank account would not lead to the inference that the assessee had no obligation to utilise the amounts exclusively for charitable purpose.
(i) CIT v. Karam Chand Thapar & Bros. (Coal Sales) Ltd. : [1979]117ITR621(Cal) . The assessee in this case acted as a del credere agent of the collieries and arranged for sales of coal to the consumers. In cases where the collieries charged freight on a weight greater than the coal actually supplied, the assessee used to lodge claims with the said collieries for refund of the extra freight and collected the same. Where the consignees concerned claimed from the assessee such extra freight refunded, the same was paid by the assessee and where there was no such claim, the extra freight refunded remained in the account of the assessee. At the end of every three years, the amounts collected by the assessee on account of refund of extra freight which were not claimed by the consignees were transferred to the profit and loss account of the assessee. On these facts, the question arose whether the said amounts accumulated in the accounts of the assessee were taxable in the hands of the assessee as its assessable income. On these facts, a Division Bench of this court held that the amounts collected on account of extra freight charged from the collieries had been received by the assessee as an agent and in a fiduciary capacity vis-a-vis the consignees. Such amounts did not constitute trading receipts. Accordingly, neither the surplus of the unpaid receipts nor the amounts transferred by the assessee to its profit and loss account could be assessed as income of the assessee.
(j) Addl. CIT v. Rani Pritam Kunwar : [1980]125ITR102(All) . In this case, the assessee inherited an estate belonging to her husband. Under the Hindu law, the U. P. Estates Act, 1920, and the prevailing custom and usage, the assessee, as the heir of her husband, was obliged to provide maintenance to certain surviving relations of her deceased husband including the deceased husband's mother, sister and daughter and a co-widow. On these facts, it was held by a Division Bench of the Allahadad High Court that the right of the said relations of the deceased husband to receive maintenance was attached to the estate and would amount to an overriding charge and, therefore, the amounts paid by way of such maintenance was a permissible deduction from the total income of the assessee.
(k) Bengal & Assam Investors Ltd. v. CIT : [1983]142ITR156(Cal) . The assessee in this case carried on the business of general insurance agency. The assessee acting as such agent collected amounts on account of premium from its clients and paid the same to the insurance companies. Where the premia were paid on time, the insurance companies concerned allowed a rebate which was collected on behalf of the assured by theassessee. This rebate was not refunded to the policyholders who did not claim the refund. In the assessment year involved, the unclaimed amount was credited to the account of the assessee as miscellaneous income. In the income-tax assessment, the assessee claimed that the said amount did not constitute its taxable income as the same had been received on account of the clients of the assessee and on their behalf for payment of insurance premia. On these facts, it was held by a Division Bench of this court that when the said amounts were received by the assessee, they were not treated as the income of the assessee. The assessee received the amount on behalf of its clients as their agent. The subsequent treatment of the amount accumulated in the hands of the assessee could not affect the position and, therefore, the amount could not be assessed as the income of the assessee.
(l) CIT v. Devatha Chandraiah and Sons : [1985]154ITR893(AP) . In this case, the assessee acted as commission agent for sale of agricultural produce. The assessee collected sales tax on the sales effected from the purchasers and paid it to the Government. The assessee obtained refund of a part of the sales tax paid and credited it separately to the account of its principals. The said refund was sought to be assessed in the hands of the assessee as its income. On these facts, it was held by a Division Bench of the Andhra Pradesh High Court that the money representing the sales tax had been received by the assessee in a fiduciary capacity and did not constitute a trading receipt in the hands of the assessee. A liability accrued on the assessee to repay the refunds collected to its principals and the same could not be included in its income.
21. On question No. 2, the following decisions were cited on behalf of the assessee.
(a) Brown v. IRC [1965] 57 ITR 729. In this case, the taxpayer was a solicitor. In the course of his practice, the taxpayer received large amounts of money on his clients' behalf which remained deposited with his firm. From the said account, amounts were put in deposit with banks in the name of the firm from time to time and the taxpayer retained the interest arising therefrom and used it for his own benefit. Money out of this fund was also lent by the firm to other clients and earned interest. Interest was paid to the clients who owned the amounts at a lower rate and the difference was utilised by the firm.
In its assessment to income-tax, the taxpayer claimed relief in respect of interest earned on deposits and the difference between the interest charged and the interest allowed to clients on money lent claiming that the same were earned income. On these facts, it was held by the House of Lords that the taxpayer was not entitled to earned income relief as theinterest in question did not belong to him but to his clients. The taxpayer being in a fiduciary position was not authorised to keep the interest or anypart thereof by custom or by implied agreement.
(b) CIT v. Sandersons and Morgans : [1970]75ITR433(Cal) . In this case, the assessee was a firm of solicitors. Clients of the assessee used to advance money to the assessee in connection with cases entrusted to the assessee. After final adjustments of bills, small balances were continued to be carried forward in the accounts of the assessee. Finally, the assessee closed the said accounts and transferred the balance to its own profit and loss account. The question arose whether the said balance transferred to the profit and loss account of the assessee was assessable as income in the hands of the assessee. On these facts, it was held by a Division Bench of this court that the said balance was not a revenue receipt in the hands of the assessee liable to income-tax. The amounts received by the assessee from its clients were not trading receipts but were received by the assessee as an agent and in a fiduciary capacity. The assessee remained liable to account for the money to its clients. It was held further that even though the remedy of some of the clients of the assessee had become barred by limitation, the amounts representing the claims did not become the income of the assessee.
(c) CIT v. Tanubai D. Desai : [1972]84ITR713(Bom) . In this case also, the assessee was a firm of solicitors. In the course of its business, the assessee used to receive money from and on behalf of its clients which was kept in deposit in a separate account. Money from the said account was later transferred to fixed deposits and earned interest. The interest accrued was not apportioned by the assessee to its clients nor disclosed in the returns of income by the assessee in the relevant assessment years. Later, the assessments were reopened and a question arose whether the said interest accruing on the deposits was income liable to be assessed in the hands of the assessee in the respective assessment years. On these facts, a Division Bench of the Bombay High Court, following the decision of this court in Sandersons & Morgans : [1970]75ITR433(Cal) and the decision of the House of Lords in Brown [1965] 51 ITR 729, held that under the rules of the Bombay High Court, a solicitor was not entitled to treat the money received from or on account of his clients as his personal money and the amounts were received in a fiduciary capacity. The income arising from such money must equally be held by the solicitor in a fiduciary capacity. If the assessee appropriated the said amounts, it would amount to a breach of his fiduciary relationship and whatever may be the consequences in law that will follow, the unauthorised act of the assessee in converting any part of the said amounts or the income derived therefrom could not convert the 'money held in a fiduciary capacity into money held beneficially.
(d) Addl. CIT v. Brijlal Gupta : [1974]94ITR88(All) . In this case, it was held by a Division Bench of the Allahabad High Court that 10% of an advocate's fee which represented the fee of the clerk of the advocate could not be held to be a part of the professional income of the advocate and exigible to income-tax.
22. On a consideration of the facts as found, the provisions of the relevant agreements between the assessee and its foreign buyers, the respective submissions of the parties and the decisions cited, it appears to us that under the agreements it was made clear that the assessee would be entitled to receive the excise duty rebate and customs duty drawback only on account of the foreign buyers and not on his own account. Under the said agreements, the assessee was also under an obligation to remit the said amounts received to the foreign buyers after obtaining the permission from the Reserve Bank of India, It follows that the said amount never reached the hands of the assessee as its own receipt or income. The assessee received the same on behalf of its foreign buyers and the foreign buyers were entitled to the same and to hold the assessee accountable for the same. Even if the permission of the Reserve Bank was not received for remittance of the said amount outside India, it was open to the foreign buyers to receive the said money in India and spend the same in India.
23. There is no reason why the principles laid down in the decisions cited on behalf of the assessee should not apply to the facts of the case. If such principles are applied, it would follow that the said amounts received on account of excise duty rebate and customs duty drawback were never the real income of the assessee. The principles laid down in Bengal and Assam Investors Ltd. : [1983]142ITR156(Cal) , Devatha Chandraiah and Sons : [1985]154ITR893(AP) , Tollygunge Club Limited : [1977]107ITR776(SC) , Bijli Cotton Mills (P.) Ltd. : [1979]116ITR60(SC) and Karam Chand Thapar and Bros. : [1979]117ITR621(Cal) are clearly applicable to the facts of this case.
24. We hold that the amounts received on account of customs duty drawback and the excise duty rebate never constituted the real income of the assessee as they were diverted at the inception by an overriding title in favour of the foreign buyers under the agreements entered into by the assessee with them.
25. In that view, as the amounts collected by the assessee on account of customs duty drawback and the excise duty rebate are not the real income of the assessee and hence, being held by the assessee for and on behalf of the foreign buyers, any accretion to the said amounts, while in the hands of the assessee, by way of interest or otherwise, cannot also be held to be theincome of the assessee. The parties beneficially entitled to the said amounts, namely, the foreign buyers, can also claim the accretion thereto from the assessee and hold the assessee accountable for the same. The same view was taken by the Bombay High Court in Tanubai D. Desai : [1972]84ITR713(Bom) and by the House of Lords in Brown [1965] 57 ITR 729.
26. For the above reasons, we find no reason to interfere with the order of the Tribunal. Question No. 1 is, therefore, answered in the negative and in favour of the assessee. Question No, 2 is also answered in the negative and in favour of the assessee. In the facts and circumstances, there will be no order as to costs.
Monjula Bose, J.
27. I agree.