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The Appellate Assistant Commissioner in appeal upheld the order of the Income Tax Officer with the following observations :-
"the appellant claims to act as brokers for supply of coal to the permit holders by placing orders thereon with the various collieries. the collieries supply the coal directly to the permit holders "with railway freight to pay: at the destination but it raised a debit note against the appellant from the permit holders. It sometimes happens, more often than not, that the collieries for not load the wagons to its full carrying capacity but the railways charges the full freight as if the wagon is full loaded. The appellant immediately prefers a claim with the collieries for the excess freight paid in respect of coal actually not supplied and realised the same. The payments are made to the ultimate buyers from these receipts as and when claims are preferred by them. Transactions of the appellant by way of purchase and sale of coal amount to several crores of rupees and the excess freight charges by the railways for the coal actually not supplied by the collieried and realised by the appellant from collieries comes to a very sizable figure of the order of 1 or 2 lacks of rupees. The same is paid over to the permit holder, when a claim is preferred by them and after meeting this claim there is always a sizable balance left whcih is transferred to the profit & loss account under the head miscellaneous receipts. The I.T.O. taxed the same as the appellant's income from business inasmuch as the same has arisen in the course of the appellant's trading activity and in view of the treatment given by the appellant itself treating these amounts as income in its accounts. At the time of hearing the learned Advocate contended that these unclaimed balances transferred to the profit & loss account could not be treated as the appellant's income since they did not have the characteristics of income at the time of receipt and reliance was placed on the decision on Morley V, Tattersall (22 Tax Cases page 51). Reference was made to this passage "The money which was received was money which had not got any profit making quality about is; is was money which, in a business was the client's money ans nobody else's. It was money for which they were liable to account to the clients, and the fact that they paid it into their own account, do they clearly did, and the fact that it remained in their assets until paid out do not alter that circumstances". In a nutshell his argument was that if the receipt did not partake of the nature of a trading receipt it could not be taxed merely because the appellant treated the same as income in its accounts.

We are unable r uphold this contention made on behalf of the assessee. first of all, from the facts narrated above, it is difficult to hold that the money on account of under-charges was received by the assessee for and on behalf of the their customers. Even before the customers made any demand, the assessee lodged its claim with the colliery companies and received payments. It has been noted in the order of the Tribunal, "It is not clear whether the terms of the contract between the colliery and the consignee entitle the latter to call upon the former to refund to him the excess freight charged on the ground that such excess freight was charges because of the colliery's negligence in loading the wagon to full capacity. It is not also clear whether in the absence of a contract to that effect the colliery will have valid defence against such claim, if made." It has not been established by producing the contract or any other evidence that the colliery was bound to supply coal in such quantity as would load a railway wagon to its full capacity. Freight was payable by the purchaser. That was a matter between the purchaser and the railways. The onus lies on the assessee to prove facts which entitle his it claim a deduction. The tribunal has noted that is not clear upon the seller (colliery company) to refund to him the excess freight charges. It is difficult to see how the tribunal without the facts being clear came to the conclusion that the colliery companies were under legal obligation to reimburse to the consignee for underloading of the wagons.

In any event, the finding of fact is that only some of the consignees demanded reimbursement of excess freight paid. But even if no specific demand was made, the assessee use to realised large amounts every year on account of under-charges. For example, the Appellate Assistant Commissioner has noted that during the year appeal, the assessee realised Rs.208913/59 as under-charges but paid out only Rs.99863/11/9. The surplus amount was ultimately taken to assessee's profit and loss account as miscellaneous receipts. The assessee did not contest assessment of these amounts as profits from its agency business till the assessment year 1953-54. The departure from the long standing practice was justifies on the ground that the amount received as under-charges from the collieries were held in trust by the assessee for and on behalf of the purchasers of coal. Mr. Verma, appearing on behalf of the assessee, has contended that the assessee may have committed breach of trust in treating the amounts as its own but the fact remains that the money was held in trust for the consumers of coal. The character of receipt will not change merely because of the accounting practice of the assessee. As has been noted earlier, the case of the assessee's conduct. The assessee has brought the surplus amounts as miscellaneous receipts to is profit and lass account year after year. A trustee normally should not mingle his own money with money held in trust. The conduct of the assessee does not indicate that the assessee was treating the amount as nothing but his own. It was using it as part of its profits of business. The natural presumption from such a conduct will be that these amounts were the assessee's own profits from its coal agency. The sum and substance for the case is that the assesssee without any demand from the purchasers of coal, claimed from the colliery companies large amounts of money year after year as under-charges. Some of the purchasers demanded payment on account possibly as del credere agent of the collieries. But the fact remains that this was the mode in which the assessee was doing its business and year after year, surplus was generated which was taken by the assessee to its profit and loss account. There is nothing in trust. Even if a purchaser demands reimbursement for underloading of coal, any payment by the assessee will be entitled to usual deduction. But that facts brought on record and the conduct of the assessee belies the case of any entrustment of money for and on behalf of some purchasers of coal. There are actual four findings of fact made by the tribunal in this regard. The first is that the freight charges have to be paid the consignees and not by the colliery nor by the assessee who was only an agent. The second finding of fact is that the assessee has realised from the colliery company in course of its business from time to time various amounts on account of under-charges. The third finding is that only a portion of the amount thus realised by the assessee was utilised to pay the consignees. The fourth fact found by the tribunal is that the surplus amounts, year after year, has been taken by the assessee to its profit and loss account and had been assesses to tax without contest as its income from business in the earlier years of assessment.