Brokerage held as liability, not income, where the assessee was bound to pass it on to the brokers.

Brokerage received by the assessee on behalf of brokers, and required under the relevant bye-laws to be passed on in full, was a liability at the time of receipt and not a trading receipt. The character of the amount had to be determined when received; later retention or appropriation could not convert a liability into income. On that basis, the unutilised balance of brokerage carried forward as a liability did not acquire the character of taxable income and was held not to be assessable as the assessee's income.

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Issues: Whether the unutilised balance of brokerage received by the assessee and carried forward as a liability constituted the assessee's income.

Analysis: The brokerage was received by the assessee for and on behalf of the brokers and, under the relevant bye-laws, the assessee was bound to pass the whole of it on to the concerned brokers. The amounts were initially a liability of the assessee and not its trading receipt. The nature of the receipt had to be determined at the time it was received, and its subsequent retention or appropriation could not convert a liability into income. On that footing, the unclaimed balance of brokerage did not acquire the character of taxable income.

Conclusion: The question was answered in the negative and the amount was held not to be taxable as the assessee's income.

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