COMMISSIONER OF INCOME TAX Vs. TANUBAI D DESAI

JUDGEMENT

(1.) THE basic point of law falling for our determination in this reference under section 66(1) of the Indian Income-tax Act, 1922, is whether interest earned by a practicing solicitor on moneys held by him in the client's account are includible in the computation of total income in his personal assessment. THE reference concerns four assessment years 1956-57 to 1959-60, the relevant accounting periods being the calendar years 1955 to 1958, respectively.

(2.) THE assessee is a practicing solicitor of this court. In the course of carrying on his profession the assessee used to receive moneys from or on behalf of his clients. THE moneys so received were deposited by him in a separate current account with the then Imperial Bank of India up to 13th August, 1954. On 13th August, 1954, the assessee withdrew from that account a sum of Rs. 3,25,000 and placed it in a fixed deposit with the Chartered Bank. THE assessee, thereafter, renewed from time to time the said deposit together with interest earned thereon, but whenever necessary he withdrew from the said current account small amounts, not exceeding three figures, to make up the amount of the fixed deposit to the nearest higher multiple of Rs. 1,000. During the four accounting years relevant to the four assessment years the assessee in that manner earned interest on the fixed deposits in the amounts of Rs. 11,472, Rs. 15,790, Rs. 23,032 and 25,328, respectively. THE assessee, however, never adjusted the interest so earned by apportioning it to the different clients whose moneys were held in the said current account. THE assessee did not show the interest so earned in any of the returns of his personal income filed by him for the said four years. THE assessment was completed on the basis of the returns, but, thereafter, necessary proceedings were taken under section 34 to reopen the assessments for the purpose of including the amounts of the said interest in the relative assessments of the said four years on the ground that such interest had escaped assessment.

(3.) THE system of solicitors or Attorneys-at-law owes its existence in India to the existence of a similar system in England. THE rights and obligations of a solicitor in India are practically similar to those of a solicitor in England. THE profession of solicitors is created and controlled in so far as the High Court is concerned by the rules applicable to this High Court on its original side. So far as they are relevant to this decision of the question before us, rules 25 to 28 are relevant and they read :