Sukhdev Singh Kang, J.
1. Whether the amount of money received as Central sales tax on his taxable turnover by an assessee under the I.T. Act in a particular accounting year, who follows the mercantile system of accounting and which amount has separately been credited to the Central Sales Tax account, though not actually paid to the State Government in that accounting year, can be added to the total income of the assessee for the accounting year by the ITO, is, inter alia, the significant question to be determined in this bunch of four writ petitions (Nos. 883, 2196, 2367 and 2376 of 1976).
2. Messrs, Sirsa Industries, Sirsa, the petitioner-firm, is engaged in the business of cotton ginning and pressing factory at Sirsa, whereas the second petitioner-firm, M/s. Haryana Cotton Corporation, Sirsa, is doingbusiness in cotton on commission basis. Both the firms are liable to pay Central sales tax on the sales of cotton. They have been collecting Central sales tax from their constituents on the sales of bales of cotton in the accounting years in dispute, but did not pay the same to the State Government. Both the petitioner-firms follow and have previously been following the mercantile system of accounts. The amounts realised as Central sales tax were credited to the Central sales tax account. This account along with other accounts was shown in the balance-sheets for all these years. The balance-sheets used to be attached with the income-tax returns for all these years. The ITO treated these amounts of Central sales tax as payable to the State Government and for that reason these amounts were not added to the total income of the petitioner-firms and assessments were completed for the years, in dispute, on that basis.
3. The ITO, 'A' Ward, Sirsa, issued three notices under Sections 154 and 155 of the I.T. Act (for short 'the Act') to M/s. Sirsa Industries, Sirsa, petitioner-firm (hereinafter called 'petitioner No. 1' for brevity sake) intimating that he intended to rectify mistakes in the assessment orders passed on 24th February, 1972, 14th March, 1972, and 22nd November, 1972, relating to the assessment years 1968-69, 1969-70 and 1970-71, respectively. These notices are the subject-matter of Civil Writ Petition No. 883 of 1976. Similarly, the ITO issued notices to this firm under Sections 147 and 148 of the Act, with regard to the assessment years 1971-72, 1972-73 and 1973-74, requiring petitioner No. 1 to deliver returns of income within 13 days as he had reasons to believe that income had escaped assessment within the meaning of Section 147 of the Act. These notices have been challenged in Civil Writ Petition No. 2196 of 1976. Similarly, two notices under Sections 147 and 148 of the Act regarding 'the years 1972-73, 1973-74 and 1974-75 were issued to M/s. Haryana Corporation, Sirsa (hereinafter called 'petitioner No 2.'). It has filed Civil Writ Petitions Nos. 2367 and 2376 of 1976 for quashing these notices.
4. On the authority of the decision of the final court in Indermani Jatia v. CIT : 35ITR298(SC) Mr. P.S. Jain, the learned counsel for the petitioners, has contended that the mercantile system of accounting is sub-stantially different from the cash system of book-keeping. Under the former system, profits and gains are credited whenever they accrue even if they are not actually received. Similarly expenditure items for which legal liability has been incurred is debitable, even though these items may not be actually disbursed. In the case of the cash system, however, it is only actual cash receipts and actual payments that are regarded as credits and debits. As soon as a transaction of sale is completed, the petitioners' (1 and 2) liability to pay Central sales tax legally accrued under the Central Sales Tax Act. It does not depend on whether the petitioners Nos. 1 and 2have actually received the tax. They became liable to pay tax on accrual basis. As and when the sale was completed the liability to pay tax arose: So, it is not relevant whether the tax was actually paid or not in that accounting year. The petitioners Nos. 1 and 2 were entitled to the exclusion of the amount of Central sales tax from their income. Support for this submission was sought from the decision of the Supreme Court in Morvi Industries Ltd. v. CIT : 82ITR835(SC) .
5. Mr. Jain further contended that an assessee maintaining accounts on mercantile system is entitled to claim deductions of the unpaid amount of sales tax, which he was liable under the law to pay during the relevant accounting year, which he realized from his constituents and which he was liable to pay during the relevant accounting year, even though he has not paid the same to the State. He cited Kedarnath Jute Mfg. Co. Ltd. v. CIT : 82ITR363(SC) .
6. On the other hand, Shri Ashok Bhan, senior advocate, the learned counsel for the Revenue, argued that it is evident from a perusal of the balance-sheets submitted by the petitioners Nos. 1 and 2 that the amounts collected by them on account of Central sales tax were shown on the liabilities side for each year like any other trading liability towards the creditors of petitioners Nos. 1 and 2. The money was thus inextricably mixed up with the other amounts of the petitioners Nos. 1 and 2 and was thus being utilized by the assessee in their trading and business. The Central sales tax was part of the trading receipt which entirely went into the business of petitioners Nos. 1 and 2, who have realized Central sales tax from their constituents. However, they have not paid this tax to the State Government. These amounts have been mixed up with the other trading receipts and utilized for their business.
7. The decisions' cited by Mr. Jain may be taken to be supporting the contentions made by him that the law has undergone a sea-change because of a decision of the apex court in Chowringhee Sales Bureau P. Ltd. v. CIT : 87ITR542(SC) . The decision in Kedarnath's case : 82ITR363(SC) was rendered by two Hon'ble Judges of the Supreme Court, whereas the decision in Chowringhee Sales Bureau's case has been given by a Bench consisting of three Hon'ble Judges. This will have preference over the earlier decision by two Hon'ble Judges. He has further argued that in view of the decision in Chowringhee Sales Bureau's case, the ITO was fully justified in issuing the impugned notices. The petitioners can urge all these points before the ITO. He has not finally decided the matter. He has only sought to examine the cases in the light of the latest position of law declared by the final court.
8. There is merit in the contentions of Mr. Ashok Bhan. No doubt, Kedarnath's case fully, supports the contentions raised by Mr. Jain, but the latter case by a larger Bench has taken a contrary view. It has been observed therein that when an assessee liable to pay Central sales tax realized by him to the State Exchequer, does hot do so, he cannot claim deduction of this amount, simply because he had credited the amount of sales tax to a separate account. The following observations made by their Lordships are instructive :
'that as the amount of sales tax was received by the assessee in its character as an auctioneer, the amount should be held to form part of its trading or business receipt and as such liable to be included in his business income. He could claim the deduction only when he paid it to the Government. It is the true nature and the quality of the receipt and not the head under which it is entered in the account books as would prove decisive. If a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would hot prevent the assessing authority from treating it as trading receipt'.
9. It is sought to be urged by Mr. Jain that the assessee in Chowringhee Sales Bureau's case : 87ITR542(SC) did not follow the mercantile system of accounting. It has not been said in the body of the judgment. It is evident therefrom that the assessee used to credit the amounts received as sales tax in the books of account under the head 'Sales tax collection account'. He was continuing this practice from the years 1946 to 1960. This in itself indicates that the assessee was not following the cash system of accounts. In view of Chowringhee Sales Bureau's case, it cannot be said that the ITO has acted illegally or in excess of jurisdiction.
10. There is no dispute with the proposition that the ITO can take recourse to proceedings under Section 154 of the Act only if there is an error on the face of the order. It is also well settled that the proceedings under Section 147 of the Act emanate when there is information received by the ITO regarding the escapement of income. Both these conditions are fulfilled in the present case. In view of the decision in Chowringhee Sales Bureau's case, the assessment framed by the ITO allowing deductions on the amount of Central sales tax will prima facie be against law. If a mistake of fact apparent on the record of the assessment order can be rectified under Section 154 of the Act, there is no reason why a mistake of law which is glaring and obvious, cannot be similarly rectified. (In this connection, see M. K. Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. : 34ITR143(SC) ). Similarly when a decision of the final court regarding construction of a particular statutory provision comes to the notice of an ITO, it constitutes information as envisaged by Section 147 of the Act. In this connection,reference may be made to Maharaj Kumar Kamal Singh v. CIT : 35ITR1(SC) CWT v. Imperial Tobacco Co. of/India Ltd. : 61ITR461(SC) and V. Jaganmohan Rao v. CIT : 75ITR373(SC) .
11. The last submission of Mr. Jain has simply to be stated to be rejected.If certain set of facts can form the subject-matter for action under twoseparate and different statutory provisions, it is for the competent authority to decide under which particular section he has to take action. It isthe petitioners' (1 and 2) case that the notices which are the subject-matterof Civil Writ Petition No. 883 of 1976 were, beyond time prescribed fortaking action under Section 147 of the Act. They were, however, within limitation, prescribed for proceedings under Section 154 of the Act. So, the action ofthe ITO in proceedings under Section 154 of the Act, after the proceedingsunder Section 147 of the Act have Mecome time barred, cannot be said to bemala fide.
12. For the foregoing reasons, I find no merit in these writ petitions(Nos. 883, 2196, 2367 and 2376 of 1976) and the same are dismissed withcosts.