Commissioner Of Income Tax,Kolkata Xix, Kolkata v. M/S. Sanderson & Morgans

O-23 A. F. R. ITA/155/2011 IN THE HIGH COURT AT CALCUTTA SPECIAL JURISDICTION (Income Tax)ORIGINAL SIDE COMMISSIONER OF INCOME TAX,KOLKATA XIX, KOLKATA -Versus- M/S. SANDERSON & MORGANS BEFORE :THE HON’BLE JUSTICE SURYA PRAKASH KESARWANIAndTHE HON’BLE JUSTICE RAJARSHI BHARADWAJDate : 7[th] February, 2024 Appearance:Mr. Vipul Kundalia, Adv.Mr. Soumen Bhattacharjee, Adv....for the appellant. Mr. J. P. Khaitan, Sr. Adv.Mr. Ananda Sen, Adv.Ms. Swapna Das, Adv.Mr. Asit Kumar De, Adv....for the respondent. 1.Heard Sri Vipul Kundalia, learned senior standing counsel along withSri Soumen Bhattacharjee, learned junior standing counsel for theappellant/Department and Sri J. P. Khaitan, learned senior counselassisted by Sri Ananda Sen, Smt. Swapna Das and Sri Asit Kumar De,learned Advocates for the respondent/assessee. 2.This appeal was admitted by an order dated 24.08.2011 on the followingsubstantial question of law:substantial question of law: Facts : “Whether the learned Tribunal below committedsubstantial error of law in overlooking the fact that the alleged “outof pocket expenses” had been exclusively kept out of the books andon reimbursement of the sum by the clients to the assessee, it wasthe duty of the assessee to route the same through the profit andloss account and in the absence of such course being taken, theAssessing Officer was quite justified in adding the same amount tothe total income of the assessee.” 3.Briefly stated facts of the present case are that the respondent/assesseeis a very old solicitor firm. During the assessment year in question i.e.,Assessment Year 2007-08, the respondent/assessee disclosed receiptsfrom profession amounting to Rs.1,82,02,958/-. As per the TDScertificate the amount received was Rs.5,56,88,817/-. Therefore, theAssessing Officer sought explanation from the respondent/assessee forthe difference of Rs.3,74,85,859/-. The assessee explained that it hasbeen receiving advances from its clients, a portion of which was spenton behalf of the client for counsels’ fees, stamp paper, court-fees stamp,payment to rent controller, bank draft in lieu of stamp duty andregistration fees etc. He also gave complete details of payments madehead-wise.is a very old solicitor firm. During the assessment year in question i.e.,Assessment Year 2007-08, the respondent/assessee disclosed receiptsfrom profession amounting to Rs.1,82,02,958/-. As per the TDScertificate the amount received was Rs.5,56,88,817/-. Therefore, theAssessing Officer sought explanation from the respondent/assessee forthe difference of Rs.3,74,85,859/-. The assessee explained that it hasbeen receiving advances from its clients, a portion of which was spenton behalf of the client for counsels’ fees, stamp paper, court-fees stamp,payment to rent controller, bank draft in lieu of stamp duty andregistration fees etc. He also gave complete details of payments madehead-wise. 4.The Assessing Officer recognized that the money was spent by theassessee on behalf of his clients and yet he added the aforesaiddifferential amount of Rs.3,74,85,859/- in the income of the assessee.assessee on behalf of his clients and yet he added the aforesaiddifferential amount of Rs.3,74,85,859/- in the income of the assessee. 5.Aggrieved with the assessment order dated 24.12.2009 under Section143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act,1961’) passed by the Assessing Officer, the assessee preferred an appealNo.921/CIT(A)–XXXVI/Kol/Cir-54/09-10 which was allowed by theCommissioner of Income Tax (Appeals)-XXXVI, Kolkata by order dated30.04.2010.143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act,1961’) passed by the Assessing Officer, the assessee preferred an appealNo.921/CIT(A)–XXXVI/Kol/Cir-54/09-10 which was allowed by theCommissioner of Income Tax (Appeals)-XXXVI, Kolkata by order dated30.04.2010. 5.Aggrieved with the assessment order dated 24.12.2009 under Section143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act,1961’) passed by the Assessing Officer, the assessee preferred an appealNo.921/CIT(A)–XXXVI/Kol/Cir-54/09-10 which was allowed by theCommissioner of Income Tax (Appeals)-XXXVI, Kolkata by order dated30.04.2010.143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act,1961’) passed by the Assessing Officer, the assessee preferred an appealNo.921/CIT(A)–XXXVI/Kol/Cir-54/09-10 which was allowed by theCommissioner of Income Tax (Appeals)-XXXVI, Kolkata by order dated30.04.2010. 6.Aggrieved with the aforesaid order of the CIT(A), the appellant herein,i.e., the Income Tax Department filed an appeal before the Income TaxAppellate Tribunal being ITA No.1513/Kol/2010 (Deputy Commissionerof Income Tax, Circle-54, Kolkata vs. M/s. Sanderson & Morgans). Theassessee also filed a cross-objection challenging some other additionmade by the Assessing Officer and sustained by the CIT(A). The ITATdismissed the appeal of the revenue and partly allowed the cross-objection of the assessee by the impugned order dated 14.10.2010.i.e., the Income Tax Department filed an appeal before the Income TaxAppellate Tribunal being ITA No.1513/Kol/2010 (Deputy Commissionerof Income Tax, Circle-54, Kolkata vs. M/s. Sanderson & Morgans). Theassessee also filed a cross-objection challenging some other additionmade by the Assessing Officer and sustained by the CIT(A). The ITATdismissed the appeal of the revenue and partly allowed the cross-objection of the assessee by the impugned order dated 14.10.2010. 7.Aggrieved with the aforesaid order of the ITAT, the appellant herein hasfiled the present appeal under Section 260A of the Act, 1961.filed the present appeal under Section 260A of the Act, 1961. Submission(s) : 8. Learned counsel for the appellant referred to the provisions of Section145 of the Act, 1961 and submits that the respondent assessee should145 of the Act, 1961 and submits that the respondent assessee should have first included the aforesaid differential amount of Rs.3,74,85,859/-in the books and thereafter should have claimed expenses. In otherwords, the entire receipts of the amounts from the clients should havebeen routed by the assessee through his books of account. Since it wasnot done, therefore, the entire amount was correctly added in theincome of the assessee. 9.When confronted with the inter-parties judgment on similar issuepassed by this Court in Income Tax Reference No.69 of 1964, decided on24.04.1968, learned counsel for the appellant submits that the saidjudgment relates to unclaimed clients’ amount which was credited/written off by the assessee and as such, that judgment is of no help tothe respondent assessee.passed by this Court in Income Tax Reference No.69 of 1964, decided on24.04.1968, learned counsel for the appellant submits that the saidjudgment relates to unclaimed clients’ amount which was credited/written off by the assessee and as such, that judgment is of no help tothe respondent assessee. 9.When confronted with the inter-parties judgment on similar issuepassed by this Court in Income Tax Reference No.69 of 1964, decided on24.04.1968, learned counsel for the appellant submits that the saidjudgment relates to unclaimed clients’ amount which was credited/written off by the assessee and as such, that judgment is of no help tothe respondent assessee.passed by this Court in Income Tax Reference No.69 of 1964, decided on24.04.1968, learned counsel for the appellant submits that the saidjudgment relates to unclaimed clients’ amount which was credited/written off by the assessee and as such, that judgment is of no help tothe respondent assessee. 10.Sri J.P. Khaitan, learned senior advocate for the respondent assessee,submits that the findings recorded by the CIT(A) and the ITAT arefindings of fact based on consideration of relevant evidences on record.He submits that the assessee being a solicitor firm was acting as anagent of its clients for the purposes of making payment of court fees,stamp and advocates’ fees etc. which the assessee paid as an agent ofthe clients. Since the amounts received in advance for making paymenton behalf of the clients as agent were not professional receipts of theassessee, therefore, there was no question to enter it in the books ofaccount as professional receipts or receipts of the assessee or as part ofsubmits that the findings recorded by the CIT(A) and the ITAT arefindings of fact based on consideration of relevant evidences on record.He submits that the assessee being a solicitor firm was acting as anagent of its clients for the purposes of making payment of court fees,stamp and advocates’ fees etc. which the assessee paid as an agent ofthe clients. Since the amounts received in advance for making paymenton behalf of the clients as agent were not professional receipts of theassessee, therefore, there was no question to enter it in the books ofaccount as professional receipts or receipts of the assessee or as part of the income of the assessee. He further submits that payments made bythe solicitor firm on behalf of the clients as agent have neither beendisputed nor doubted by the assessing officer. Therefore, in any case,the effect stands neutralised. He further submits that since the moneyreceived by the assessee from its clients were not trade receipts but wereclients’ money, to be held in fiduciary capacity, there can be nojustifiable reason to reflect it in the books of account as receipts. Hedrew our attention to the details of account head and particulars of eachaccount head with respect to the aforesaid differential amount, whichwere noted by the CIT(A) in its order. He also drew our attention to ownfinding of the assessing officer that the assessee firm incurs expenditureon behalf of its clients and the expenses are reimbursed by the clients inpre/post expenditure basis and the resultant sum is shown as liabilitieson “advance from clients” account in the balance sheet. He also drewour attention to the complete details furnished before the assessingofficer, as has been noted in the assessment order, that the assesseehas submitted summary position of clients’ account as on 31.03.2007,the list shows net opening balance, receipts, reduction of out-of-pocketexpenses and professional fees. He submits that when the bills aresettled by the clients, the fees are credited in the books of account withthe net figure. He relied upon an inter-parties judgment of this Court inthe aforesaid ITR No.69 of 1964. He submits that the appeal is totallymeritless and deserves to be dismissed. Discussions and Finding 11.We have carefully considered the submissions of learned counsel for theparties and perused the paper book.parties and perused the paper book. Discussions and Finding 11.We have carefully considered the submissions of learned counsel for theparties and perused the paper book.parties and perused the paper book. 12.There is no dispute on facts to the extent that the clients of the assesseegave advance money of Rs.5,56,88,817/- during the assessment year inquestion, out of which, Rs.3,74,85,859/- was paid under different headsby the assessee as agent on behalf of the clients. Head-wise summaryof payments made by the assessee on behalf of the clients as agent havebeen noted by the CIT(A) in its order dated 30.04.2010. The assessingofficer himself has noted in the assessment order that when bills aresettled, only fees are credited to the profit and loss account with the netfigure only. The assessing officer admitted the fact in the assessmentorder that the assessee solicitor firm receives advances from clients inpre-post expenditure basis and the payments are made on behalf of theclients. The CIT(A) has extensively dealt with the issue and afterscrutiny of facts, recorded its findings as under:- “I have carefully considered the above. The appellant is afirm of advocates and Solicitors carrying on legal profession. Asstated by the AO in the Assessment order, the appellant hasbeen receiving advances from its clients a portion of whichwas spent for meting expenses like on counsel fee, stamppapers, travel etc. The balance amount of advances wasshown as liability in the Balance sheet. Further theappellant recognizes income when the job assigned to them is completed. In other words the bills are raised when the job iscompleted. On raising bills a portion of the amount received asadvances from the client is recognized as income. This, as per theappellant, is categorized as “in pocket fee”. Further, the expenseslike Travelling expenses, purchase of stamp papers, payments torent controller, Registration fee, counsel fee etc. incurred on behalfof their clients, met out of the advances received by the appellantis as per the appellant, treated as “out of pocket expenses”.Further these “out of picket expenses” were kept out of profit &loss account for the year. The AO took the view that the appellant, by not bringingthese receipts and expenses into profit and loss account hadunder stated the Business profit to that extent. This view of the AOis clearly incorrect. If these receipts are taken to the P&L A/c, thenthe corresponding expenses also are required to be taken to theP&L A/c which will neutralise the effect. Further, the advanceswhich are subjected to TDS can not be treated as income becausethe job is to be performed and bills are raised and income isrecognized. Further it’s not the AO’s case that the expenses werenot actually laid out or they were not laid out for thepurpose of the Appellant’s business. It is also not the AO’scase that all amounts, including advances, received by theappellant should be treated as Income of the appellant. Further, the AO himself recognized that the expensesincurred by the appellant were only on behalf of theappellant’s clients. Then how the same can be treated asappellant’s income ? The Hon’ble High Court of Kolkata in the appellant’s own case, reported in 75 ITR 438, referred to above,has taken the same view. Considering the above, I am of the view that there is nojustification for treating the amount of Rs.3,74,85,859/- asappellant’s income. Accordingly, the AO is directed to delete Rs.3,74,85,859/-.” (Emphasis supplied) Further, the AO himself recognized that the expensesincurred by the appellant were only on behalf of theappellant’s clients. Then how the same can be treated asappellant’s income ? The Hon’ble High Court of Kolkata in the appellant’s own case, reported in 75 ITR 438, referred to above,has taken the same view. Considering the above, I am of the view that there is nojustification for treating the amount of Rs.3,74,85,859/- asappellant’s income. Accordingly, the AO is directed to delete Rs.3,74,85,859/-.” (Emphasis supplied) 13.The ITAT has critically analysed the assessment order as well as theorder of the CIT(A) and held that there is no justification for treating theamount of Rs.3,74,85,859/- as appellant’s income. The ITAT has foundno infirmity in the order of the CIT(A) and accordingly dismissed theappeal of the revenue and affirmed the findings of the CIT(A).order of the CIT(A) and held that there is no justification for treating theamount of Rs.3,74,85,859/- as appellant’s income. The ITAT has foundno infirmity in the order of the CIT(A) and accordingly dismissed theappeal of the revenue and affirmed the findings of the CIT(A). 14.The concept of solicitor firm in India has in fact originated fromEngland. While dealing with the position of solicitors in India, Marten,C.J., observed in Tyabji Dayabhai & Co. v. Jetha Devsi & Co., AIR 1927Bom 542 as under:England. While dealing with the position of solicitors in India, Marten,C.J., observed in Tyabji Dayabhai & Co. v. Jetha Devsi & Co., AIR 1927Bom 542 as under: “In the first place it must be clearly understood that therights and duties of attorney are in no way part of theindigenous law or practice in India. Their profession originatesfrom England; it grew up under the English Common Law and itis clear that it was the Common Law which governed theirrights and duties in the King’s Courts established by theSupreme Court charter of 1823 to which Courts our presentHigh Court is the successor.” 15. This Court in Damodar Das V. Morgan & Co., reported in AIR 1934 Cal341 quoted the above observation of Bombay High Court and held asunder:- “Mutatis mutandis those words appear to me to apply to theCalcutta High Court. I take the learned Chief Justice’s wordsas amounting to a statement that the rights of an attorney inIndia are the same as the rights of a solicitor in England, exceptin so far as the latter have been diminished or increased bystatute.” There are good reasons why the English Common Lawprinciples should be applied in relation to Indian solicitors, thoseprinciples are based on justice, equity and good conscience and,in the absence of statutory provisions in this country, shouldgovern the relationship between solicitors and clients. This viewwas expressed by Jenkins, J., (as he then was) in KhetterKristo Mitter v. Kally Prosunno Ghose, (1898) ILR 25 Cal 887, inthe following language:- “These principles appear to me to be the clear result of theauthorities in England; and founded, as they are, on justice,equity and good conscience, I see no reason why they shouldnot apply in this country.” 16.In Halsbury’s Law of England (Simonds Edition), Volume 36, therelationship of a solicitor with his clients in respect of clientsmoney has been described as under:- “(Aritcle 85): “The relationship between solicitor and client isa fiduciary one, but it does not follow that a solicitor is in allrespects a trustee in relation to his client. Ordinarily therelationship between solicitor and client is that of agent and principal and therefore time will run against the client in respectof money left in his solicitor’s hands; but special circumstances,as where money is paid by the client to his solicitor for aparticular purpose, may constitute the solicitor a trustee of thatmoney in relation to the client, so that time will not run againstthe client to preclude his recovery of money, not applied for theparticular purpose.” “(Aritcle 85): “The relationship between solicitor and client isa fiduciary one, but it does not follow that a solicitor is in allrespects a trustee in relation to his client. Ordinarily therelationship between solicitor and client is that of agent and principal and therefore time will run against the client in respectof money left in his solicitor’s hands; but special circumstances,as where money is paid by the client to his solicitor for aparticular purpose, may constitute the solicitor a trustee of thatmoney in relation to the client, so that time will not run againstthe client to preclude his recovery of money, not applied for theparticular purpose.” (Article 131): “The obligations of a solicitor towards his clientmay be viewed from two aspects, namely, that of equity, andthat of the Common Law. In equity the relationship of solicitorand client is recognised as a fiduciary relationship and carrieswith it obligations on the solicitor’s part to act with strictfairness and openness towards his client; for failure to fulfil thisobligation a solicitor will be liable to make compensation inrespect of any resulting loss to his client, though thecircumstances are not such as would sustain an action fordeceit at common law. By the common law a solicitor’s retainerimposes on him an obligation to be skilful and careful; for failureto fulfil this obligation he may be made liable in contract fornegligence, whether he is acting for reward or gratuitously, andwhether he has or has not a practising certificate in force at thetime. (Article 275): “A solicitor who, as solicitor for a client, hasreceived and has in his hands money of the client, may beordered, on application being made by or on behalf of that clientor his personal representatives, under the Court’s inherentjurisdiction over its officers, to account for money received orpaid and to pay over to the client, or into Court, the balance due to the client after deducting any money owing to the solicitor bythe client for costs or other reason. If misconduct was notalleged the application was formerly a proper one to make atchambers, and it is now usually made there by summons undera special rule of Court, and the order may be enforced byattachment if it comes within an exception to the Debtors Act,1869, and the payment is defined with sufficient certainty.” 17.After referring to the history of solicitors in India, the Halsbury’s Law ofEngland (Simonds Edition), Cordery’s Law relating to Solicitors’(5[th]Edition) English Rules known as Solicitors’ Accounts Rules, 1945,Section 38 of the Bankruptcy Act, 1914 and Section 88 of the IndianTrusts Act, 1882, this Court in the above referred ITR No. 69 of 1964decided on 24.04.1968 reported in AIR 1969 (Cal) 211 in the caseof the respondent/assessee itself, held as under:- “4. In Cordery's ‘Law Relating to Solicitors" (5[th] Edition) at pp.144-145, the same view appears:144-145, the same view appears: "The usual relation of solicitor and client is that of agent andprincipal, and this is so in respect of the client's moneysreceived by the solicitor in the ordinary course of business. Inthe absence of special circumstances, therefore, the LimitationAct, 1939, Section 2 (q), which bars the action in six years, willrun from the time of the receipt by the solicitor or lastacknowledgment or part payment." * * * * "Special circumstances are needed to raise the relation oftrustee and cestuique trust between solicitor and client, as where the solicitor receives his client's money not for remittance,nor as banker merely, but for a particular purpose, and with theduty of holding it for the benefit of the client, and keeping it untilit is called for." At p. 441 of the same book the following passage appears:- "Every solicitor who holds or receives client's moneyincluding money proper to be paid in under Rule 4, is bound tokeep and maintain separate bank account for clients' moneyand without delay to pay such money into his client account;and any solicitor may keep more than one client account. * * * * "Special circumstances are needed to raise the relation oftrustee and cestuique trust between solicitor and client, as where the solicitor receives his client's money not for remittance,nor as banker merely, but for a particular purpose, and with theduty of holding it for the benefit of the client, and keeping it untilit is called for." At p. 441 of the same book the following passage appears:- "Every solicitor who holds or receives client's moneyincluding money proper to be paid in under Rule 4, is bound tokeep and maintain separate bank account for clients' moneyand without delay to pay such money into his client account;and any solicitor may keep more than one client account. Clients' money is trust money in the wider sense demandedby the general law of trusts; and thus, for example, on asolicitor's bankruptcy the chose in action represented by theclient account is 'property held by the bankrupt on trust foranother person' within Section 38 of the Bankruptcy Act, 1914,and does not vest in the trustee in bankruptcy." The expression client's money has a well-known meaning,as appears from the definition of the expression in the Englishrules known as Solicitors' Accounts Rules, 1945. In the saidrules client's money is defined as:- "Client's money shall mean money held or received by asolicitor on account of a person for whom he is acting in relationto the holding or receipt of such money either as a solicitor or, inconnection with his practice as a solicitor, as agent, bailee,stakeholder or in any other capacity; provided that theexpression 'client's money' shall not include:- (a) money held or received on account of the trustees of atrust of which the solicitor is solicitor-trustee, or (b) money to which the only person entitled is the solicitorhimself, or in the case of a firm of solicitors, one or more of thepartners in the firm." Although we have no rules like the Solicitor's Accounts Rulesin this country, we think that the expression 'client's money'should not be given a different meaning in this country. 5. In this context we need remind ourselves of the provisions ofSection 88 of the Indian Trusts Act, 1882, which reads asfollows:- "Where a trustee, executor, partner, agent, director of acompany, legal adviser, or other person bound in a fiduciarycharacter to protect the interests of another person, by availinghimself of his character, gains for himself any pecuniaryadvantage, or where any person so bound enters into anydealings under circumstances in which his own interests are, ormay be, adverse to those of such other person and therebygains for himself a pecuniary advantage, he must hold for thebenefit of such other person the advantage so gained." Now, a solicitor in this country fulfils the description of legaladviser and the advantages, if any, gained by him in hisfiduciary character must be governed by the provisions ofSection 88 of the Trusts Act. Although standing in a fiduciarycapacity a solicitor, as agent of his principal, namely the client,has a lien on client money and over goods bailed to him for hiscosts. This appears from Section 171 of the Indian Contract Act.. . . . . . . . . A solicitor in this country fulfils the description of legaladviser and the advantages, if any, gained by him in hisfiduciary character must be governed by the provisions of Section 88 of the Trusts Act. Although standing in a fiduciarycapacity a solicitor, as agent of his principal, namely the client,has a lien on client money and over goods bailed to him for hiscosts. This appears from Section 171 of the Indian Contract Act.. . .” A solicitor in this country fulfils the description of legaladviser and the advantages, if any, gained by him in hisfiduciary character must be governed by the provisions of Section 88 of the Trusts Act. Although standing in a fiduciarycapacity a solicitor, as agent of his principal, namely the client,has a lien on client money and over goods bailed to him for hiscosts. This appears from Section 171 of the Indian Contract Act.. . .” “13. Mr. Pal argued that we should not be guided byTattersall’s case, (1939) 22 Tax Cas 517 ITR 316 (C.A.) becausein that case there was no money initially paid, as was done inthe instant case. He submitted that what was done in that casewas to put a horse belonging to a client to auction. The proceedsof the sale was money belonging to the auctioneer's client, asmuch as the animal itself had belonged to the client. Theauctioneer might have been entitled to some remuneration out ofthe money received but for all practical purposes the saleproceeds did not belong to the auctioneer but to the client. Onthe other hand, he submitted, when money was made over tothe solicitor, in the instant case, the solicitor received the moneyas trading receipt. That character, he submitted, was impressedupon the money throughout and the balance of that money,even though refundable to the client, when transferred to theprofit and loss account would be profit out of trading receipt andconsequently assessable to Income-tax. In our opinion, thisargument should not be accepted. The argument proceeds on anentire misconception of the character of client's money receivedby a solicitor. The solicitor is the agent of the client. The clientmakes over the money to the solicitor for some work being doneby the Solicitor as his agent. This position is not altered by thefact that the solicitor retains a lien upon the balance of themoney for his costs. The result of solicitor having a lien on the balance of the money is no more than a person having a chargeon somebody else’s money from this client, he does not do so asa trading receipt but he receives the money of the principal inhis capacity as an agent and that also in a fiduciary capacity.The money so received does not have any profit-making qualityabout it when received. It remains money received by a solicitoras “client’s money” for being employed in the client’s cause.The solicitor remains liable to account by this money to thisclient. . . . . . . . . . Since we are convinced that money received by theassessee from its clients were not trading receipts butwere clients' money, to be held in a fiduciary capacity, weare of the opinion that the decision in Tattersall's case will applyto the facts of the instant case and should not be ignored aswas contended by Mr. Pal.” “16. . . . . . . . . . In the instant case, we have already observed, themoney received was money of the principal received bythe agent in a fiduciary capacity, for being employed forthe work of the principal entrusted to the agent. We havealready seen that the balance of the money wasrefundable by the agent to the principal. Since the moneywas impressed with the character of somebody else'smoney, namely,clients' money, it did not become theincome of the assessee. It may be, in the absence of a Rulelike the Solicitors' Account Rules in this country, the assesseemixed up this money with its own money and may havedeposited the money in its own bank account; it may be that this money remained part of the general assets of the assesseefor a long time; but this mixing up did not have the result ofconverting the money into the assessee's money or tradingreceipt or income. That being the position, we do not think thatthe Tribunal was wrong in not relying upon the Punjab case,(1953) 24 ITR 597: (AIR 1954 Punj 61) and being guided byTattersall case, (1939) 22 Tax Cas 51: 7 ITR 316 (C.A.) in thismatter.” (Emphasis supplied) this money remained part of the general assets of the assesseefor a long time; but this mixing up did not have the result ofconverting the money into the assessee's money or tradingreceipt or income. That being the position, we do not think thatthe Tribunal was wrong in not relying upon the Punjab case,(1953) 24 ITR 597: (AIR 1954 Punj 61) and being guided byTattersall case, (1939) 22 Tax Cas 51: 7 ITR 316 (C.A.) in thismatter.” (Emphasis supplied) 18.The principle laid down in the above referred judgment of this Court inSandersons & Morgans (supra) has been referred/followed by AllahabadHigh Court in Bijli Cotton Mill (P) Ltd. vs. Commissioner of Income Tax,(1971) 81 ITR 400 (All) and by Delhi High Court in Commissioner ofIncome Tax vs. Motor General Finance Ltd. (1974) ITR 582 (Del.)Sandersons & Morgans (supra) has been referred/followed by AllahabadHigh Court in Bijli Cotton Mill (P) Ltd. vs. Commissioner of Income Tax,(1971) 81 ITR 400 (All) and by Delhi High Court in Commissioner ofIncome Tax vs. Motor General Finance Ltd. (1974) ITR 582 (Del.) 19.In Commissioner of Income Tax vs. Sundarm Iyengar & Sons Ltd. (1996)6 SCC 294 (paras 13, 17) Hon’ble Supreme Court impliedly approvedthe principle laid down in Sandersons & Morgans (supra) as under:-6 SCC 294 (paras 13, 17) Hon’ble Supreme Court impliedly approvedthe principle laid down in Sandersons & Morgans (supra) as under:- “13.In the case of CIT v. Sandersons and Morgansprinciple of Morley v. Tattersall was applied. In that case, thequestion was whether interest received by a solicitor on theamounts belonging to his clients was taxable as his income.This Court held that amounts received from his clients bya solicitor were not trading receipts, but were infiduciary capacity. Therefore, the principles laid down inTattersall case will apply.”principle of Morley v. Tattersall was applied. In that case, thequestion was whether interest received by a solicitor on theamounts belonging to his clients was taxable as his income.This Court held that amounts received from his clients bya solicitor were not trading receipts, but were infiduciary capacity. Therefore, the principles laid down inTattersall case will apply.” “17.There is no dispute that the deposits in the casebefore us where received from trade parties who had not madeany claim for repayment of the balance. The Income Tax Officerhas pointed out that the amount had arisen as a result oftrading transaction and had a character of income. TheTribunal has, however, held that the amount received in courseof trade was of capital nature. The Tribunal, thereafter,straightaway applied the principle of Morley v. Tattersall andheld since it was of a capital nature at the time of the receipt, itcould not become the assessee’s income later on.” 20.In Commissioner of Income Tax, Calcutta vs. Karam Chandra Thapar &Ors. (1996) 10 SCC 575 (paras 4, 30, 34) the Hon’ble Supreme Courtagain impliedly approved the principle laid down in Sandersons &Morgans case (supra), as under:- “4. The assessee made a further appeal to the Tribunal. TheTribunal after referring to a large number of decisions includingthree English cases – Morley (H.M. Inspector of Taxes) v.Tattersall, Jay's The Jewellers Ltd. v. IRC and Elson (Inspectorof Taxes) v. Prices Tailors Ltd. – concluded that the amountsreceived by the assessee from the colliery companies on accountof under-charges were not its trading receipts. The Tribunalstrongly relied on the observations of the Calcutta High Court inthe case of CIT v. Sandersons & Morgans wherein it washeld that the amounts received by a firm of solicitors onbehalf of its clients was not its income when it wasreceived and will not be treated as its income later onmerely because the amount remained with the firm and was utilised by the firm in its business. The Tribunal strongly reliedon the following observations of the Court "... The solicitor is the agent of the client.... We are of utilised by the firm in its business. The Tribunal strongly reliedon the following observations of the Court "... The solicitor is the agent of the client.... We are of the opinion that when a solicitor receives money fromhis client, he does not do so as a trading receipt buthe receives the moneys of the principal in hiscapacity as an agent and that also in a fiduciarycapacity. The money so received does not have anyprofit-making quality about it when received.... Thesolicitor remains liable to account by this money tohis client." and observed: “We think these observations fully apply to the factsof the present case. It was then contended for the Revenuethat since the solicitor did not stand in the position of atrustee to the client and since the Limitation Act applied,the remedy of the clients to recover some of the balancesmay have become barred by limitation. This contentionwas rejected, their Lordships observing: 'We do not think that this consideration in any wayalters the legal position.... Thus even though theremedy of some of the clients may have becomebarred by limitation, even then the barred debt did notbecome the income of the assessee....' These observations apply with equal force here and make itclear that the transfer of some of the balances to the Profit andLoss Account by the assessee does not convert it into a tradingreceipt, even if such transfer is based on the ground oflimitation. We may only add that, on this aspect of the case, it is true that their Lordships were not asked to consider Jay's casebut their decision is binding on us. We see no differencebetween the character of the assessee's receipts in that caseand here except that the amounts involved are larger." “30. To our mind, the case is a very simple one. The assessee,in the course of his business collected every year substantialamounts on account of under-charges. The sums so collectedwere the property of the assessee subject to certaincontingencies. It did not cease to be a trading receipt because,in the words of Ungoed-Thomas, J., they might or might nothave to be debited again. The assessee's account all alongshowed a steady surplus in this account. The claims made bythe consignees were always less than the amounts received bythe assessee from the collieries. As and when the consigneesmade their claims, they were paid. These payments will have tobe treated as trading expenses. We do not see the case as acase of transaction on capital account. On the contrary, this is asimple case where trading receipts were more than expenditure.The balance will have to be brought to tax as profits ofbusiness. As pointed out by Atkinson, J. in the case of Jay's TheJewellers a common sense view will have to be taken in suchcase.” “34. In the case of CIT v. Sandersons and Morgans it washeld that the assessee-firm of solicitors had credited a sum ofRs.4078 being the aggregate of unclaimed balances in as manyas 83 personal ledger accounts of the assessee's clients, whohad advanced money to the assessee in connection with thecases conducted by the assessee for a few years. It was heldby the Court that the amount was not taxable as themoney belonged to the assessee's clients. I do not see how this case helps the respondents in this case. In this case, it wasfound that the money was entrusted to the assessee by theclients. The money was their money and after deduction ofexpenses, the balance amount continued to be held by theassessee on behalf of various parties. Since the moneybelonged to the clients of the firm of solicitors from thevery beginning, it could not be equated with the money ofthe solicitors in the relevant year of account. Nothing hadhappened in this particular year to convert the clients' moneyinto income of the solicitors” (Emphasis supplied) this case helps the respondents in this case. In this case, it wasfound that the money was entrusted to the assessee by theclients. The money was their money and after deduction ofexpenses, the balance amount continued to be held by theassessee on behalf of various parties. Since the moneybelonged to the clients of the firm of solicitors from thevery beginning, it could not be equated with the money ofthe solicitors in the relevant year of account. Nothing hadhappened in this particular year to convert the clients' moneyinto income of the solicitors” (Emphasis supplied) 21.Thus, the principle of law laid down by this Court in assessee’s owncase i.e., in Sandersons & Morgans (supra) has been followed byAllahabad High Court and Delhi High Court and has also been approvedby Hon’ble Supreme Court in the above quoted two judgments. Thus,the principle of laid down in Sandersons & Morgans case (supra) isbinding upon the appellant herein i.e., the Commissioner of Income Tax-XIX, Kolkata. 22.Thus the solicitor is the agent of the client. The client makes over themoney to the solicitor for some work being done by the Solicitor as hisagent. The money must be employed to that purpose and must not betreated as money received for any other purpose. This position is notaltered by the fact that the solicitor retains a lien upon the balance ofthe money for his costs. The result of solicitor having a lien on themoney to the solicitor for some work being done by the Solicitor as hisagent. The money must be employed to that purpose and must not betreated as money received for any other purpose. This position is notaltered by the fact that the solicitor retains a lien upon the balance ofthe money for his costs. The result of solicitor having a lien on the balance of the money is no more than a person having a charge onsomebody else's money. We are of the opinion that when a solicitorreceives money from his client, he does not do so as a tradingreceipt but he receives the money of the principal in his capacityas an agent and that also in a fiduciary capacity. The money soreceived does not have any profit-making quality about it whenreceived. It remains money received by a solicitor as "client'smoney” for being employed in the client’s cause. The solicitorremains liable to account by this money to his client. 23.In view of the aforesaid, we are of the view that the monies received bythe respondent/assessee from clients were held by the assessee in afiduciary capacity. The money received by the assessee was the moneyof the principal which was received by him as the agent in a fiduciarycapacity for being employed for the work of the principal (clients)entrusted to him. It was not trading receipt. Therefore, therespondent/assessee was not under any legal obligation to show it ashis receipts of money from the clients. Even factually, since the moneyreceived from clients by the respondent/assessee was not his money,therefore, the assessee could not have entered it in his accounts as hismoney. That apart, the payments made by the assessee as agent onbehalf of his client (principal) under various heads, have not beendoubted or disputed and instead a finding of fact regarding suchpayments have been arrived at by the CIT(A) and the Tribunal. In any event, the effect of receipt of money as agent stood neutralised bypayment thereof on behalf of the principal (clients). Hence, effect ofreceipts stood neutralised in so far as the determination of income liableto tax is concerned. event, the effect of receipt of money as agent stood neutralised bypayment thereof on behalf of the principal (clients). Hence, effect ofreceipts stood neutralised in so far as the determination of income liableto tax is concerned. 24.Learned Counsel for the appellant has placed much reliance upon theprovisions of Section 145 of the Act, 1961. We find on facts of thepresent case that no adverse inference on the basis of Section 145 canbe drawn against the assessee inasmuch as it is not the case of therevenue that sub-Section (3) of Section 145 is attracted on facts of thepresent case. Even, learned Counsel for the appellants, despite beingasked by us repeatedly, could not point out from the assessment orderthat any of the conditions as contained in sub-Section (3) of Section145, factually existed.provisions of Section 145 of the Act, 1961. We find on facts of thepresent case that no adverse inference on the basis of Section 145 canbe drawn against the assessee inasmuch as it is not the case of therevenue that sub-Section (3) of Section 145 is attracted on facts of thepresent case. Even, learned Counsel for the appellants, despite beingasked by us repeatedly, could not point out from the assessment orderthat any of the conditions as contained in sub-Section (3) of Section145, factually existed. 25. For all the reasons aforestated, we do not find any merit in this appeal.Consequently, the substantial question of law as framed is answered infavour of the assessee and against the revenue. The appeal(ITA/155/2011) is dismissed.Consequently, the substantial question of law as framed is answered infavour of the assessee and against the revenue. The appeal(ITA/155/2011) is dismissed. (SURYA PRAKASH KESARWANI, J.)