JUDGMENT
B.N. Srikrishna J.
1. This reference is in relation to the assessment year 1961-62. The Revenue has obtained a reference under section 256(1) of the Income-tax Act, 1961 (“the Act”), of the following two questions for the opinion of this court :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the sum of Rs. 4,78,522 (including interest of Rs. 66,350) received by the assessee as per the decree of the Supreme Court from the Poona Municipal Corporation did not constitute trading receipt and was not taxable income ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal ought to have in any case held that the transaction in filing the suit for refund of octroi duty, obtaining a decree and recovering the decretal amount along with interest was an adventure in the nature of trade ?”
2. The assessee is a legal heir of one deceased, M. M. Bhapkar, who was carrying on business as partner of a partnership firm in the name and style of N. L. Bhapkar and Co. The partnership carried on business as carting agent. After the original assessment for the assessment year 1961-62 had been completed, the Revenue issued notices under section 147(a), read with section 143(3) of the Act for reopening of the assessment proceedings. The reason given was that the assessee had received a sum of Rs. 4,12,172 plus an amount of Rs. 66,350 (as interest upon the former amount) from the Poona Municipal Corporation. The said amount represented ten per cent. of the octroi duty which was retained by the Poona Municipal Corporation on behalf of the merchants who transported their goods through its territorial jurisdiction for whom the assessee had acted as an agent with the Poona Municipal Corporation. The ten per cent. of the octroi duty paid which had been initially retained by the Poona Municipal Corporation came to the refunded by the said corporation in view of the decision of the Supreme Court in Poona City Municipal Corporation v. Dattatraya Nagesh Deodhar, . The Supreme Court took the view that the corporation did not have any authority to retain the ten per cent. of octroi duty which it had charged on transit good from the merchants transporting the goods through its territorial jurisdiction. It was, in consequence of the law laid down by the Supreme Court in Dattatraya Nagesh Deodhar’s case, , that the corporation had to refund the amount as aforestated to the assessee, N. L. Bhapkar and Co., from whom it had collected the said amount initially. Since the amount had been retained in is hands illegally, the corporation had to pay interest on the principal amount which has been already stated.
3. The Income-tax Officer, in the assessment proceedings, held that the amount refunded by the Poona Municipal Corporation to the assessee was a trading receipt which would be liable to be include as income in its hands. This view was reversed by the Appellate Assistant Commissioner in appeal. On further appeal, the Tribunal confirmed the view of the Appellate Assistant Commissioner and held that the assessee had received the said amount from the said corporation merely as an agent or trustee of person on whose behalf it acted as an agent and that there was no element of trading receipt involved in the receipt of the said amount on the part of assessee. In arriving at this decision, the Tribunal followed the earlier decision of the High Court in the case of Smt. Lilavati F. Shah [1990] Tax LR 946 (Bom).
4. On the aforesaid facts, the questions as indicated earlier, have been referred to us for the opinion of this court. At the hearing of the reference, counsel for the assessee made available to us the decision of this court in Smt. Lilavati F. Shah’s case [1990] Tax LR 946 (Income-tax Reference No. 469 of 1976, dated September 14, 1989) (per Bharucha and Sugla JJ.). After perusing the judgment in Smt. Lilavati F. Shah’s case [1990] Tax LR 946. Here also, the assessee was an agent who used to import goods within the territory of the Poona Municipal Corporation. There also an agreement had been entered into between the importers and the agent that for the work carried out by the agent, the agent would receive a stated commission at the rate of two and half per cent. and further that at the time of importing the goods the agent had to pay an amount equivalent to 90 per cent. of the octroi duty levied on the goods. This, the agent used to do on behalf of his customers, the balance ten per cent. being paid by the customers. There also the amount of ten per cent. retained in the hands of the municipality was challenged as illegal retention of money and pursuant to the decision of the Supreme Court in Dattatraya Nagesh Deodhar’s case, , the Poona Municipal Corporation became obliged to refund the ten per cent. of the octroi amount retained in its hands. The question arose in the income-tax proceedings as to whether the refunded amount was assessable as trading receipt or income in the hands of the agent. The Revenue having failed in the proceedings at the level of the Tribunal, two questions were referred for the opinion of this court and the questions are more or less similar to the questions that have been referred in the present case also. In Smt. Lilavati F. Shah’s case [1990] Tax LR 946, the court opined that the amount refunded by the Municipal Corporation and received by the assessee could not be held to be a trading receipt liable to tax as income. The second question therein was not pressed by the Revenue.
5. Having examined and compared the facts of the present case, the assessee with those in Smt. Lilavati F. Shah’s case [1990] Tax LR 946, we are of the view that the ratio of the judgment in Smt. Lilavati F. Shah’s case [1990] Tax LR 946, would equally apply to the case of the assessee before us. The facts, as we said earlier, are almost the same.
6. Dr. Balasubramanian faintly attempted to argue that the interest of Rs. 66,350 earned on the capital amount of Rs. 4,78,522 refunded to the assessee, at least, should be treated as income in his hands. The Tribunal has considered this aspect of the matter and in paragraph 10 of its decision, in appeal, rightly held that this amount had been received by the assessee from the corporation on behalf of its principals and the interest merely represented an accretion to the capital amount. The basic character of both would, therefore, be the same as far as the assessability to tax in the hands of the assessee was concerned. In our view, both the capital amount of Rs. 4,78,522 and the accretion by way of interest of Rs. 66,350 thereupon, was retained in the hands of the assessee as the assessee, when called upon, was liable to refund the same to its principals. This is the reason given by the Tribunal which also held that the interest also was not liable to tax in the hands of the assessee. We are in agreement with this view.
7. In the result, the two questions referred for the opinion of this court are answered as under :
Question No. 1 : Is answered in the negative and in favour of the assessee.
Question No. 2 : is also answered in the negative and in favour of the assessee.
8. No order as to costs.