I. MAHMUD, J.-The following question of law (along with another question which has not been pressed) has been referred to this Court by the Income-tax Appellate Tribunal, Karachi Bench, Karachi, by its order in R. A. 334/66-67 dated 30-10-68 at the instance of the assessee, Pakistan International Airlines Corporation, the applicant herein, under section 66(1) of the Income-tax Act, 1922 (hereinafter referred to as the Act) t- "Whether in the facts and circumstances of the case, the Tribunal was right in holding that the sum of Rs 6,95,171 representing unclaimed balances consisting of the value of unutilised tickets was taxable income of the applicant 7"
2. The applicant, Pakistan International Airlines Corporation, is a statutory corporation and, as its name indicates, carries on business as a service airline. While adopting the mercantile system of amounting, it followed a special practice in the matter of recording receipts from sales of passengers' tickets. Receipts from sales of the passengers tickets were entered in a deposit register and were shown as liability in the balance-sheet under the head "Unearned Transportation Receipts" and were not treated as revenue until the tickets were actually utilised and, only thereafter, was the value of the utilised tickets allocated as revenue in the Profits & Loss Account under the head "Operating Revenues". If the tickets remained unutilised, the passengers were entitled to claim refunds within a period of three years. Unclaimed refunds after three years were then transferred to the Profit & Loss Appropriation Account, but they were not declared as income of the year in which they were transferred by it, as in its view, notwithstanding that the legal remedy was barred to the passengers for claiming the refunds, still they were debts payable and would be paid as and when claimed. The above practice adapted by the applicant was accepted by the Department throughout in the earlier assessments.
3. During the relevant charge year 1960-61, the applicant transferred a sum of Rs. 6,95,171 to the Profit & Loss Appropriation Account. The Income-tax Officer did not accept the plea of the applicant and added back the said sum as income of the year under consideration. On appeal by the applicant, the Tribunal held that the applicant's own conduct in transferring the amount to the Profit 8c Loss . Appropriation Account was itself a clear indication that it had treated the money as its income and accordingly, it confirmed the add back and dismissed the appeal. At the request of the applicant under section 66(L) of the Act, the Tribunal has referred the question to this Court for opinion.
4. The main questions, which arise for .Consideration, are (1) whether the receipts, which have been described as "unearned transportation receipts" were trading receipts and (2) ii so, whether they were trading receipts of the year in which they were received or of year in which they were transferred to the Profit & Loss Appropriation Account.
5. On the first question, the submission of Mr. A.I Athar, the learned counsel for the applicant, was that the amount paid by as intending passenger for the purchase of the ticket was in the nature of a refundable deposit, whereby the intending passenger acquired the right of travelling by a certain flight or in the case of an open date ticket, by any flight he chooses to avail of within the specified period. In other words, according to counsel, the tran--section was a contingent contract to carry the passenger if he chose to travel, otherwise the amount was refundable to him. Therefore, it was submitted that the price paid by the Intending passenger for the ticket being a deposit, was not a trading receipt. In our opinion, this submission is entirely misconceived and is without any substance. Immediately a ticket is issued to an intending passenger for a price, a completed contract of sale take place between him and the airline. He acquires an immediate right in the ticket, it being, however, a term of the contract that in case the ticket is not utilised, the purchaser would be entitled to obtain a refund of the purchase price. The contract of carriage is not contingent or dependent on the happening of any uncertain future event, namely the choice of the passenger whether to travel or not and the price paid by him cannot be considered a deposit until the ticket is utilised. The nature and character of the amounts received or receivable by the applicant from the sale of the tickets, leave us in no doubt that they are essentially trading receipts.
The moneys are received by the applicant in the course of its business, the very nature of which was that of issuing tickets to intending passengers. They were money? Of the applicant when received, notwithstanding that there was superimposed a condition of the contract of sale that the price would be refundable in full or in part, if the ticket remains unutilised. The moneys bad clearly a profit---making character about them and they were trading receipts at the point and at the time of their receipt, irrespective of the bead "unearned transportation receipts", to which the amounts were credited by the applicant, according to the special practice followed by it. In this connection, a reference may be made to Punjab Steel Scrap Merchants' Association Ltd. v.
Commissioner of Income-tax, Punjab ((1961) 43 I T R 164). In that case, the assesses, a dealer in scrap iron received from its constituents an advance deposit in round figures for the supply of scrap, which they required. If the price of scrap delivered was less than the amount deposited, a surplus remained with the assessee which, if not claimed within three years, was transferred by the assesses to its profit and loss account and dividends were declared out of the not profits in the account. While considering whether the unclaimed credit balances so transferred were assessable to tax, the question arose as to the nature of the advance payment deposited with the assessee. It was held by the High Court that the deposits in question were advance payments of the price of the scrap iron which was to be supplied to the constituents and they were essentially trading receipts. They were assessee's moneys and even If portions of them were refundable to the constituents on the happening of a certain event, that did not make them the moneys of the constituents who might become entitled to the refund. The High Court followed the principles of law laid down in two earlier decisions of the Indian Supreme Court in Lakshmanier d Sons v.
Commissioner of Income-tax ((,1953) 23 I T R 202 (SC)) and Punjab Distilling Industries Ltd. v.
Commissioner of Income-tax ((1959) 35 I T R 519 (SC)).
6. Having held that the "unearned transportation receipts" were trading receipts of the year, in which they were received, there is no question that they became trading receipts in the year when they were transferred to the Profit & Lone Appropriation Account. They should have been assessed to tax in the year of their receipt and bad the applicant adopted the cash basis method of accounting, there would have been no question but that the receipts could not be assessed in subsequent years, as was observed in Ratanchand Lallumal ((1936) 4 I T R 189), except by resort to other provisions of the Act, relating to income escaped assessment'. But where the assesses t adopts the mercantile system of accounting or a hybrid system, whereby the assessee himself chooses to allocate and treat as income portions of the receipts, not in the year of their receipt or accrual, but in later years, according to the particular system adopted by him, as to the instant case, by transferring the "unclaimed transportation receipts" to the Profit & Lose Appropriation Account, there is high authority for the view that the income may be said to arise when he chooses to so treat it. In Commissioner of Income-tax, Bihar & Orissa v. Maharaja Dhiraia Kameshwar Singh of Darbhanga ((1933)11 T R 94) at page 100, the Privy Council observed :- "Where an assessee keeps his books on a case basis disclosed to the Revenue Authorities and the Officer accepts that basis, it is clear that the calculation must be based on actual receipts in the year of computa--petition. Here, however, the assessee kept his books on a hybrid system and it was his practice to enter sums as he received them in a deposit register not made available to the Revenue Authorities, without discriminating between interest and capital payments, and then subsequently to allocate and treat as income certain portions of these sums which be attributed to interest. What the Officer is directed to commute is not the assessee's receipts but the assessee's income and to dubio what the assessee himself chooses to treat at income may well be taken to be income and to arise when he act chooses to treat it, (see per Lord Dunedin in delivering the judgment of the Board in Commissioner of Taxes v. Melbourne Trust Ltd). The sums which the officer has brought into account from the interest register in so far as consisting of allocations from sums received in previous years have never borne tax and in their Lordships' opinion the assessee cannot complain if the Officer agrees with the assessee in treating them as income of the year in which the assessee himself first thought fit so to regard them. Their Lordships see nothing contrary to principle in the computation of an assessee's total income for a particular year as consisting in part of actual receipts in that year and in part of sums earned by the assessee to income account in that year out of the receipts of previous years which have been held in suspense and no part of which has previously been returned as income. Their Lordships do not find that the Income-tax Officer in the present case has acted in soy way illegally in computing the profits of the transactions In question for the year 1332 Fasli by taking into account both actual receipts of interest in that year and sums treated by the assessee in that year as receipts of interest by their transference to the interest register from what for this purpose may be regarded as a suspense account."
7. The cases of the Morley v. Tattarshal (22 Tax Cas. 51), Hotel Metropole Ltd,, Karachi v.
Commissioner of Income-tax, Central, Karachi (1973 8 T D 371) and Commissioner of Income-tax, Punjab and another v. Mrs. E. V. .'Miller and others (PLD 1959 SC (Pak.) 219) were referred to for the proposition of law that whether a trading receipt is so or not depends on the fact of each case and sums of money which were not trad--ing receipts on the date of their receipt, did not make them trading receipts or income by their transfer or posting to another account in later years. We have examined these cases, but in our opinion, they are clearly distinguishable.
8. In Morley v. Tattershal, moneys received by Tattershal auctioneering agents on behalf of their clients on auction of their horses were not trading receipts at the time of their receipt, because they were moneys of the clients (less their commissions), and they did not change their character by transfer to the partners' accounts in the later years on reconstitution of the firm. In the case of Hotel Metropole Ltd. Service or tipping charges which were received or which had accrued from boarders and lodgers for payment to employees of the hotel, were not trading receipts and their posting in the later years under the head "General Account" did not change the quality and nature of the receipts so as to become liable to tax in the bands of the hotel. In the Miller's case, agricultural income, which was exempt from tax in the bands of the company, did not cease to be agricultural income when it was distributed to the shareholders by way of dividends. As stated earlier, these cases are distinguishable, because in each of these cases, the original receipts of the amounts were clearly held not to be trading receipts.
9. For the foregoing reasons, we would answer the question referred to us in the affirmative. In oar opinion, the Tribunal was right in holding that tie sum of Re. 6,95,171 representing unclaimed balances consisting of the value of un-utilised tickets which was transferred to the Profit & Loss Appropriation Account was taxable income of the applicant.
10. In the circumstances of the case, there would be no order as to costs.