Fiduciary client-account interest not taxable as personal income where solicitor holds funds without beneficial ownership.

Interest earned on fixed deposits made from clients' moneys held in a solicitor's client account was treated as fiduciary income, not the solicitor's personal income. The client account rules and the Indian Trusts Act showed that the solicitor held the funds without full beneficial ownership and could withdraw them only within limited circumstances. Because the corpus and any accretions remained subject to that fiduciary character, wrongful appropriation of the interest did not change its legal nature. The assessment scheme likewise supported separate treatment of income received in a representative capacity. The interest was therefore not includible in the solicitor's personal assessment.

---

---

Issues: Whether interest earned on fixed deposits made out of clients' moneys held in a solicitor's client account was assessable as the solicitor's personal income.

Analysis: Under the rules governing solicitors of the court, clients' moneys had to be kept in a separate client account and could be withdrawn only within strictly limited circumstances. Those rules, read with the Indian Trusts Act, showed that the solicitor did not have the whole beneficial interest in the money and held it only in a fiduciary capacity. The corpus in the client account, and any income generated from it, were held subject to that fiduciary relationship. The fact that the solicitor may have appropriated the interest to himself did not alter the legal character of the receipt, because an unauthorised conversion could not make fiduciary property beneficially owned by him. The statutory scheme of assessment also supported separate treatment of income received in a representative capacity rather than inclusion in the personal assessment of the holder.

Conclusion: The interest on the fixed deposits was not assessable as the solicitor's personal income, and the answer to the reference was in the negative, in favour of the assessee.

Ratio Decidendi: Money received and retained in a client account under fiduciary obligations, together with income derived from it, is not taxable in the recipient's personal assessment merely because the recipient is the legal holder or has wrongfully appropriated the interest.

---