COMMISSIONER OF INCOME TAX versus KARAM CHAND THAPAR AND OTHERS

Citation: [1996] SUPP. 4 S.C.R. 651 · Decided: 14-08-1996 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Appeal(s) allowed

Judgment (excerpt)

COMMISSIONER OF INCOME TAX 
A 
v. 
KARAM CHAND THAPAR AND OTHERS 
AUGUST 14, 1996 
[B.P. JEEVAN REDDY AND SUHAS C. SEN, JJ.] 
B 
Income Tax: 
Income Tax Act, 1961/Indian Income Tax Act, 1922:-Agency-{Jn-
c/aimed Balance.1-Assessee acting as de/ credere agent of collieiies and also C 
as agent of purchasers of coal-Amount claimed and received from the 
collie1y as under charges-Payments made therefrom to purchaseiJ as and 
when c/aimed-Swplus over amounts claimed by purchase!J credited to profit 
and loss account and assessed as inconie in earlier years---A1nount received 
during the cozme of business-Held, these payments will have to be treated 
as trading expenses and the excess brought to tax as profits of business. 
D 
Trading receipt-Amount initially not received as a trading receipt can 
becon1e a trading receipt subsequently. 
E 
F 
The Respondent-assessee carried on the business as del credere 
agent of the purchasers of coal. The coal sold by the collieries was sent by 
wagon to various purchasers FOR. The purchasers paid for the freight. 
Even if the wagons were not filled to their full capacity, the practice of the 
railways was to charge for the full wagon load. In such circumstances the 
assessee used to claim from the colliery companies, what was described as 
under- charges. These amounts were realised by the assessee even without 
any claim being made by the purchasers. The assessee used to pay off the 
claims on account of underloading of wagons out of the money received 
from the colliery companies as and when demanded by the purchasers. But 
every year, there used to be an excess of receipts over pa)'Dlents which was 
taken to the profit and loss accounts. The surplus amount was assessed 
as the assessee's income, year after year, till the assessment year 1953-54. G 
For the first time, in its assessment for the assessment year 1953-54, the 
assessee claimed that these amounts of surplus receipts on account of 
'under-charges' were not its1ncome at all. The Income tax Officer held that 
the amount was assessable and the view of the Tribunal was upheld by the 
Appellate Assistant Commissioner. However, the Tribunal held that the H 
. 651 
652 
SUPREME COURT REPORTS [1996] SUPP. 4 S.C.R. 
A amount did not constitute income and this was upheld by the High Court. 
Hence this appeal by the Revenue. 
Allowing the appeal, this Court 
HELD : 1.1. The assessee collected the amounts of under charges in 
B advance even before any claim was lodged. It realised the amounts from 
the colliery company not because any demand was made against it, but 
possibly, in order to protect itself from the eventuality of any demand being 
made against it as the del credere a~ent of the seller. [663-E] 
c 
1.2. Also, there was no finding that when the assessment was made, 
there was an existing liability to pay. [663-E] 
Morely (H.M. Inspector of taxes) v. Messrs Tattersall, (22 Tax Cases 
51), referred to. 
13. It has not been explained as to why the assessee year after year, 
D brought these payments on account of under-charges into the profit and 
loss account. The onus lay on the assessee to explain its conduct. Usually 
what is entered in the profit and loss account is the profit or the loss of 
the business. (663-F] 
E 
2. The money in question was not received by the assessee l;y selling 
properties of the customers. The consignees could not claim that a portion 
of the sale proceeds in the hands of the collieries was their own money. 
Till they were paid, the money did not belong to them nor was it held in 
trust for them. Similarly, when the del credere agent was paid, the consig-
nees could not claim that the money belonged to them even before making 
F 
any claim. The plea of trust was not borne out by the assessee's conduct. 
A trustee normally should not mingle his own money with the money held 
in trust. The conduct of the assessee did not indicate that the assessee was 
treating the amount as anything Iiut his own. There was no deeming clause 
or any scheme by which it could be said that the amount was deemed to 
G have been collected on behalf of the consignees. [668-G; 669-B; 659-H] 
3. The assessee in the course of its business collected every year 
substantial amounts on account of under-charges. The sums so collected 
were the property of the assessee subject to certain contingencies. They did 
not cease to be trading receipts because they might or might not have to be 
H debited again. The assessee's accou

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