Income Tax Appellate Tribunal - Ahmedabad
Assistant Commissioner Of Income Tax vs Suresh N. Shelat on 4 March, 1998
Equivalent citations: (1998)62TTJ(AHD)464
ORDER
B.L. Chhibber, A.M. These cross-appeals arise out of the order of the Commissioner (Appeals)-III, Ahmedabad.
2. The assessee is an advocate by profession. The only grievance projected in the revenue's appeal (ITA No. 1007) is that the learned Commissioner (Appeals) is not justified in deleting the addition of Rs. 39,548 being surplus in client's account. The assessee advocate filed his return of income as per the books of accounts regularly maintained by him on case completed basis. The amounts of advance received from the clients are credited in the clients' account, and according to the assessee they do not constitute his income as the income is accounted for when the case is completed. This plea of the assessee was rejected by the assessing officer. On appeal the Commissioner (Appeals) following the three judgments referred to in para 2.1 of his order deleted the addition.
3. We have heard both the parties. It is now well-settled that the money received from the clients is held by an advocate in fiduciary capacity in the nature of a trust and does not belong to the advocate. It has been so held by the Hon'ble Gujarat High Court in the case of CIT v. D.C. Gandhi (1994) 210 ITR 929 (Guj). A similar issue has been decided by the Tribunal Ahmedabad Bench in the case of Dy. CIT (Asstt.) S.R.V v. Giriraj N. Desai, Ahmedabad in ITA No. 4002 (Ahd) 1992 relating to the assessment year 1989-90 to which both of us were parties. Accordingly we do not find any infirmity in the finding of the learned Commissioner (Appeals) and decline to interfere. The ground raised by the revenue is accordingly dismissed.
4. In the appeal filed by the assessee i.e. ITA No. 641 (Ahd) 1992 the dispute is that whether interest of Rs. 1,02,178 earned on clients' money is or is not income of an advocate. The assessing officer treated the amount of interest as assessee's income.
5. On appeal the Commissioner (Appeals) confirmed the addition. Reliance was placed before him in the case of CIT v. P.D. Himatsinghka (1987) 168 ITR (St) 27, the learned Commissioner (Appeals) noted that P.D. Himatsinghka was a famous solicitor who was governed by the High Court Rules pertaining to the solicitors. The assessee is an advocate who is governed by Bar Council Rules and not by the guidelines of the High Court which are applicable to the solicitors. Thus he held that the case of the assessee was distinguishable from the judgment of the Bombay High Court in the case of P.D. Himatsinghka (supra).
6. S.N. Divetia, the learned counsel for the assessee submitted that the interest received by the advocate on clients' money is held by him in fiduciary capacity and therefore is not the income of the advocate. In support of this contention he relied upon the decisions in CIT v. Tanubhai D. Desai (1972) 84 ITR 713 (Bom), CIT v. Sandersons & Morgans (1970) 75 ITR 433 (Cal), and the judgment of Supreme Court in the case of CIT v. T. V. Sundaram Iyengar (1996) 222 ITR 344 (SC). K.K. Kanwat, the learned Departmental Representative relied upon the orders of the authorities below.
7. We have considered the rival submissions and perused the facts on record. In CIT v. TD. Desai (supra) the question of law referred in that case to the High Court was as under:
"Whether, on the facts and in the circumstances of the case, the interest accruing on the fixed deposits with chartered bank was income liable to be assessed as the assessee's income for the respective assessment years 1956-57, 1957-58, 1958-59 and 1959-60?"
The Hon'ble Bombay High Court held that the rights and obligations of a solicitor in India are practically similar to those of a solicitor in England. The Hon'ble High Court referred to rules 25 to 28 and the provisions of sections 94 and 95 of the Indian Trusts Act and at page 719 held that:
"As the account built up to a sum exceeding 5,000 that sum was placed on deposit receipt in the firm's name and the solicitor retained the interest therefrom and used it for his own benefit. When a considerable sum standing to the credit of any client was not likely to be required for some time, it was put on deposit earmarked as belonging to that client to whom the accrued interest was credited, and no question arose in that case in regard to such cases. The firm also lent clients' money at its disposal to other clients, these loans bearing interest. Interest was paid at a lower rate to clients who deposited money with the firm which retained the difference between the higher and lower rates of interest. The solicitor was assessed to income-tax on the deposit interest and on the difference between the interest charged and the interest allowed to clients on their accounts with the firm. The relevant principle laid down by the House of Lords in its judgment in that case is that if a person in a fiduciary position receives any financial benefit arising out of the use of the property of the beneficiary, he cannot keep it unless he is authorised to do so. Applying that principle the House of Lords held that on the facts of the case the solicitor was not authorised to keep the interest either by custom or by implied agreement, although, as a matter of fact, a similar practice had long been followed by a number of solicitors in the United Kingdom. As seen earlier, the relevant rules of this High Court do not permit a solicitor to treat the moneys received by him from or on account of his clients as his personal moneys and such moneys are held by him in a fiduciary capacity. Even the income received from such moneys must equally be held by the solicitor in a fiduciary capacity. What the solicitor actually does with the income, i.e., whether he appropriates it to himself or not, is, in our opinion, a matter of no consequence. If he appropriates it to himself, it would simply amount to a breach of his fiduciary relationship and whatever may be the consequences in law would follow. But his unauthorised act of converting any part of the corpus or even the income derived therefrom which is not in accordance with the provisions of the rules of this High Court would not convert those amounts held by him in a fiduciary capacity into moneys held by him beneficially for himself. In the said case before the House of Lords the solicitor had in fact converted the interest earned in that case to his own use, but nonetheless the House of Lords, on the basis that the moneys and, therefore, the interest also was held by the solicitor in a fiduciary capacity, held that the taxation must proceed on the basis that the income did not in fact belong to him and was not liable to be taken into computation in his personal assessment. A similar view has been taken by a Division Bench of the Calcutta High Court in CIT v. Sandersons & Morgans (1970) 75 ITR 433 (Cal).
In our opinion, therefore, the conclusion reached by the Tribunal is correct in law and we, therefore, answer the question in negative. Revenue to pay the costs of the assessee."
The Hon'ble Bombay High Court also noted that the view taken by it was similar to the view taken by the Hon'ble Calcutta High Court in the case of CIT v. Sandersons & Morgans (supra). Further the Hon'ble Supreme Court in the case of CIT v. T. V. Sundaram Iyengar (supra) held as under:
"In the case of CIT v. Sandersons & Morgans (1970) 75 ITR 433 (Cal), the principle of Morley v. Tattersall (1939) 7 ITR 316 (Cal) was applied. In that case, the question was whether interest received by a solicitor on the amounts belonging to his clients was taxable as his income. This Court held that amounts received from his clients by a solicitor were not trading receipts but were in a fiduciary capacity. Therefore, the principle laid down in Tattersall's case (supra) will apply."
From the above it is clear that the Hon'ble Supreme Court has held that the amounts received from clients by a solicitor were not trading receipts but were receipts in fiduciary capacity. Thus the Hon'ble Supreme Court has impliedly approved that the interest on clients' money was not the income of a solicitor.
Further when the principal amount is held by the advocate under fiduciary capacity how can the interest thereon have a different character; character other than funds held in fiduciary capacity. Accordingly we do not find any merit in the findings of the Commissioner (Appeals) and allow the ground raised by the assessee.
8. In the result, the revenue's appeal is dismissed and the assessee's appeal is allowed.