Unclaimed balances and trading receipts: later accounting entries cannot turn customer money into taxable income.

Unclaimed balances received by auctioneers were not trading receipts assessable to income tax because the money belonged to customers when received and was recorded only as a liability. Later partnership arrangements and internal transfers to partners' capital or current accounts did not create a fresh receipt or convert a non-trading amount into taxable trading income. A liability written down or eliminated in the accounts cannot change the character of the original receipt for tax purposes, and the customer liability was not merely contingent in the relevant sense. The assessment on the disputed balances was therefore set aside in favour of the taxpayers.

---

---

Issues: Whether unclaimed balances received by auctioneers and later transferred to partners' capital or current accounts became trading receipts assessable to income-tax under Case I of Schedule D.

Analysis: The money was received from customers and, from the outset, belonged to the customers, notwithstanding that it was paid into the firm's banking account and shown in the accounts as a liability. The later partnership arrangements did not create a fresh receipt; they merely wrote down or eliminated a liability item in the balance-sheet and transferred the resulting credit internally among the partners. A receipt for income-tax purposes is characterised when received, and a later internal accounting adjustment cannot convert a non-trading receipt into a trading receipt. The liability to customers also was not a mere contingent liability in the relevant sense, and the authorities relied on by the Crown did not support the contrary proposition.

Conclusion: The unclaimed balances were not trading receipts and were not assessable to income-tax on the footing adopted by the Revenue.

Final Conclusion: The appeal succeeded and the assessment made on the disputed unclaimed balances was set aside by restoring the decision in favour of the taxpayers.

Ratio Decidendi: A sum that is not a trading receipt when received does not become taxable as a trading receipt merely because the recipient later writes down the corresponding liability or transfers the resulting credit within its own accounts.

---