T.P. Mukerjee, J. - (1.) THE question referred to this court under Section 66(1) of the Income-tax Act, 1922 (hereinafter referred to as the Act), relates to the taxability of the sum of Rs. 4,042 as the income of the applicant for the assessment year 1959-60, THE facts of the case agreed to by both the parties as set out in the statement of the case submitted by the Appellate Tribunal are as follows.
(2.) THE applicant, M/s. Upper India Sugar Exchange Ltd., Kanpur (hereinafter referred to as the assessee or the Exchange), is a public limited company. It manages the business of forward transactions of its constituent members in sugar, etc. Such transactions are carried on through the agency of approved brokers who are registered with the Exchange. THE members are not permitted to deal directly with one another in such transactions. For the services rendered the assessee charges from the members commission at prescribed rates. THE assessee also realises from its constituents brokerage " for and on behalf of the brokers " besides a small amount as contribution towards dharmada or charitable purposes. THE rates are specified ,ih bye-law 130 of the assessee-Exchange which runs as follows : " THE charges of the Exchange on all transactions, registered with the Exchange, shall be Re. 1.10 nP. (half from the buyer and half from the seller) per unit of 30 kilograms as detailed below : JUDGEMENT_331_ITR72_1969Html1.htm Bye-law 131, which is quoted below, provides for the liability of the assessee for payment of the brokerage received by it from the members to the concerned brokers : " Brokerage at the rate of 88 nP. per unit of 30 kilograms shall be paid by the Exchange to a broker for the transaction made through him and registered with the Exchange." The assessee keeps its accounts on mercantile basis and it closes its accounts on the 31st March every year. It maintains a brokerage account which gives all necessary particulars regarding the amounts of brokerage received and paid. For each particular transaction the brokerage account is credited with the amount of brokerage realised and, similarly, payments made to the brokers are debited to the account. The Appellate Tribunal noticed that the brokerage account gives all details including the names of the brokers through whom the transactions have been conducted and the amount of brokerage paid or payable to them. In some years it so happens that the entire amount of brokerage realised is not paid out. The surplus of brokerage received in any particular year over the brokerage paid in that year is carried over to the balance sheet as a liability at the end of its accounting year. It may be mentioned here that, since the inception of the assessee-Exchange, such surplus brokerage had never been treated by the department as a trading receipt of the assessee and assessed to tax. There was, however, a departure from the usual practice during the assessment year under reference 1959-60 and in the preceding assessment year 1958-59. During the accounting year ending on the 31st March, 1958, relevant to the assessment year 1958-69, such surplus amounted to Rs. 12,420 and it was assessed by the Income-tax Officer as the income of the assessee for that year. The Income-tax Officer, however, remarked that if any payment were made to any broker in a subsequent year it would be allowed as a deduction in computing the assessable income for that year. The order of the Income-tax Officer was reversed by the Appellate Assistant Commissioner, who held that such surplus could not be treated as a trading profit in the hands of the assessee but the Appellate Tribunal, on appeal by the department, upheld the order of the Income-tax Officer.
(3.) AS already stated, the present reference relates to the assessment year 1959-60, the corresponding accounting year being the financial year ending on the 31st March, 1959. In this financial year the amount of such surplus brokerage was Rs. 13,350, which was treated by the Income-tax Officer as profit of the assessee for that year. Daring this year, however, the assessee paid a sum of Rs. 9,308 to brokers in respect of last year's transactions, out of the previous surplus amounting to Rs. 12,420 mentioned above. The Income-tax Officer allowed deduction in respect of the payment of Rs. 9,308 against this year's surplus of Rs. 13,350 and added the balance of Rs. 4,042 to the total income of the assessee for the assessment year 1959-60. The assessee again appealed and the addition was knocked off by the Appellate ASsistant Commissioner as before, but the Appellate Tribunal again confirmed the action of the Income-tax Officer and sustained the addition. At the instance of the assessee, the following question has been referred to this court for decision : " Whether, on the facts and in the circumstances of the case, the sum of Rs. 4,042 was rightly treated as the income of the assessee ? " ;