1. SALEEM AKBTAR, J. We propose to dispose of these five references by this judgment as common question of law has been referred. The applicant has filed application under section 66 of the Income-tax Act, in which the following question has been raised in I.T.R. 413/72.
2. "Whether the amount of Rs. 56,160 received by the applicants on behalf of the various employees can under any provision of Income-tax Act. 1922 be treated as income of the applicant?"
3. Similar question with variation in the amount has been referred in all the other references. The applicant i: private l4mited Company, which runs a Three Star Hotel. The hotel building is owned by Karachi Property Invest--ment Company Ltd. And is leased out to the applicant-assessee. For the charge years 1966-67, 1967-68, 1968-69, 1969-70 and 1970-71, the Income-tax Officer noticed amounts of Rs. 63,029, Rs. 73,172, Rs. 52,153, Rs, 56,651 and Rs. 56,160, respectively in the assessee's books under the head "service charge". The source of these amounts is that the bills issued to the boarders and lodgers include an additional charge at 10 % of the amount of the bills under the heads "service charge". The Income-tax Office added back these amounts to the income. The applicant filed an appeal before the Tribunal which relying upon its decision on similar point in respect of the charge years 1959-60, 1960-61 and 1963-64, treated these amounts as assessee's income and were added back during the relevant charge years.
4. The income-tax Officer added back the "service charges" on the ground that the amount bad not been disbursed for years and, therefore, it was taxable income of the Company. The Tribunal in appeal upheld the of Income-tax Officer on additional grounds, namely, (1) the, fact that the same were credited to a general account showed that none of the employee have exclusive lien on the amount, (2) there is a possibility that some of the employees may go out of the service without receiving their share and (3) that the amounts were not disbursed for years. These reasonings were given by the learned 'tribunal to its decision made in I. T. A. No: 799/1964--65 and I. T. A.
5. No.545/1965-66. Against these decisions he applicant filed application under section 66 (1) of the Income-tax Act and similar question as raised in these cases was referred to the High Court (Civil Reference No. 14/1967) which was decided on 20th April, 1973 and reference was answered in the negative. It is pertinent to note that in all the subsequent years the learned Tribunal has only relied on the findings and reasoning given in its decision which had been subject-matter of Civil Reference No.14/1967. No fresh finding or reasonings were given in the present cases. In this background we will now discuss the contentions raised by the learned counsel for the res-- pondent/Department.
6. Mr. A. A. Dareshani, learned counsel for the Department has referred to the judgment in, Hotel Metropole Limited, Karachi v. Commissioner of Income-tax (Central), Karachi 1973 PTD 371. In fact Mr. Ali Athar has also relied upon this judgment. Mr. A. A. Dareshani has particularly referred to the follow--ing observation in that judgment: - "In any case, our answer to the question would not apply to cases where there is a finding based on evidence, that practice of recovery of service charges is resorted to by an assessee for the purpose of mak--ing tax free income. Such a finding would make it necessary to ascertain whether any moneys under the title service charges had actually been received and remained undisbursed for such length of time as to raise the inference that the whole practice was colour--able procedure to enable the assessee to make tax-free income. But as has been stated above, no such finding has been given by the assessing officer."
7. Mr. Dareshani has heavily relied upon this part of the judgment and contended that during the years 1566-67 to 1970-71 the amount has con--tinued to accumulate in the control of the applicant and, therefore, infer--ence should be drawn that it is a colourable device adopted by the applicant to avoid levy of income-tax. The learned counsel has not been able to show from the orders of the Income-tax Officer or the Tribunal that any such finding as indicated above has been given. The learned Tribunal in its judgment has merely relied upon its earlier decision which was not accepted by the High Court. It was open to the Department to have pro--duced sufficient evidence and given s definite finding that the practice of recovery of service charge is resorted by the assessee, for the purpose of making tax-free income. Nor there is any finding that the amount received as service charges has not been disbursed for a very long time raising an inference that the whole practice was a colourable procedure to make tax-free income. On the other hand, Mr. Ali Athar, the learned counsel for the applicant has pointed out that the amount of service charges has been varying from year to year and is not accumulating. He has contended that in fact from the variation of figures it is clear that disbursement was made to the staff members. In this state of affair on record it is not possible to draw an inference against the assessee. The Department has, not made any inquiry and merely relied on the finding and reasons which were not accepted by the High Court as reported in 1973 PTD 371.
8. Mr. A. A. Dareshani, the learned counsel for the Department relied upon Punjab Steel Scrap Merchants Association Limited v. Commissioner of Income-tax, Punjab (1961) 43 I T R 164. In this case the assessee Company was a dealer in scrap iron and received from its constituents deposit in advance for the supply of scrap required by them. If the price of scrap delivered was more than .The amount deposited then the assessee used to recover the excess amount. But where the price of scrap delivered was less than the amount deposited then the surplus not claimed by the constituents remained with the assessee to their credit. Such unclaimed credit balance of over 3 years old was transferred by the Company to its profit and loss account and dividends were delivered out of the new profits in the accounts the question arose whether the amounts so transferred were revenue receipts. On facts it was held that the advance payments made were towards price of the scrap iron which was to be supplied to the constituents. They were, therefore, essentially trading receipts in the nature of revenue and liable to be included in the computation of the assessee's taxable income. This case is completely distinguishable as amount of deposit was made by the assessee towards price of scrap iron which was supplied to them. In the present case the disputed amount has no B been received by the applicants/assessee as a part of trading transaction.
9. Mr. Dareshani also referred to General Fibre Dealers Ltd. v. Commissioner of Income-tax (Central), Calcutta (1970) 77 I T R 23. In this case the assessee had entered into a contract for supply of hessian cloth. The agreement inter alia pro--vided that the payment of export duty was used on current rates and any alteration shall be on buyers account. The assessee supplied part of the goods. After the first shipment the duty was reduced from Rs. 275 per ton to Rs. 120 per ton. The assessee prepared bill with full price without any adjustment for the reduced export duty and the entire amount was realised. For purposes of accounting assessee prepared fresh invoices giving reduc--tion in export duty and the amount which represented the difference in the amount realised and reduced price due to reduction of export duty was credited to the duty account of the buyer. The Tribunal found that in terms of contract the net price payable by the buyer was not to vary on increase or decrease of export duty. The contract was so interpreted by the assessee who had sent bills at full contractual rates despite reduction in the duty. It received payment of the full amount and the buyers never made any demand from the assessee on account of reduction in the export duty and, therefore, it was held that the amount credited to the account of the buyer was an income of the assessee. This case is also comp--letely distinguishable on facts and has no application to the present one.
10. While determining the present question it has to be seen what was the nature of the amount received by the assessee. In this regard we refer to the following observation of Noorul Arfin, J.
11. Reported in 1973 PTD 371 Taxation 96: - "The quality and nature of the amount is fixed at the time either on its receipt or its accrued notwithstanding subsequent change in the nature of the posting of the amount in the assessee's book. The money which was received or which approved under the bead "service charges" did not have any profit making quality about it. It was the money which belong to the employees or which the assessee was liable to account to them. If the disputed amount was not income at the time of its receipt or its accrual, then subsequent change in the load of the account under which the disputed amount is posted would not make the amount income of the assessee."
12. Reliance was placed on Tettersall Space (1935-39) 22 Tax Cas. 51.
13. In view of this discussion and particularly due to the absence of any finding that the practice of collecting "service charges" adopted by the as lessee is colourable device for making tax-free income, we answer these references in the negative.