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Commissioner of Income-tax Vs. Bird and Co. (P.) Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 421 of 1974
Judge
Reported in[1981]128ITR600(Cal),[1982]50STC135(Cal)
ActsIncome Tax Act, 1961 - Sections 41(1) and 256(1); ;U.P. Sales Tax Act - Sections 3 and 8A(2)
AppellantCommissioner of Income-tax
RespondentBird and Co. (P.) Ltd.
Appellant AdvocateAjit Kr. Sengupta, Adv.
Respondent AdvocateNone
Excerpt:
- .....a part of the sale price and as such it would be a revenue receipt. it was held that where a dealer collected the sales tax as such from his customers but only paid a portion of that amount to the sales tax department, the balance of that amount would be the revenue income in the hands of the assessee-dealer chargeable to income-tax and it was further held that as and when this amount was paid to the government it would be allowed to the assessee as deduction. the calcutta high court in its decision in the case of ikrahnandi coal co. v. cit : [1968]69itr488(cal) has proceeded on the said principle. the gujarat high court applied the same principle in the case of motilal ambaidas v. cit [1977] 108 itr 36. in view of the ratio of the aforesaid decisions, we are of the view that the.....
Judgment:

Sabyasachi Mukharji, J.

1. In this case under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court:

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 76,103 representing the excess of collection made from the customers on account of Central sale tax over the actual liability for the said sales tax did not represent the assessee's taxable income under the provisions of the income-tax Act, 1961?'

2. The assessee is a resident company and the assessment year involved is 1968-69. The relevant accounting period was the financial year which ended on 31st March, 1968. In this accounting period, the assessee had transferred a sum of Rs. 76,103 from the Central sales tax account to an unclaimed deposit account. The amount represented what remained of the sales tax collected by the assessee from its customers during a long period past but not paid to the Government. The ITO held that the sales tax collected by the assessee formed part of the trading receipts and as corresponding amounts had been originally allowed on the assumption that the assessee had an equivalent sales tax liability, any amount no longer payable on account of sales tax, the amount would be assessable under Section 41(1) of the I.T. Act, 1961. He, accordingly, added back the amount in the computation of the total income of the assessee. Being aggrieved by the aforesaid order, the assessee went up in appeal before the AAC. It was urged before the AAC that since the amount in question was refundable as and when the same would be claimed, the ITO was not justified in its conclusion that it was no longer payable. It was also pointed out that some amounts had been paid subsequently, while some others had been adjusted. The AAG held that from these facts it was clear that the position regarding the balance in the sales tax account had not yet become final and that in any case since the same was kept to the credit of the sales tax account, there was no reason to treat it as income of the assessee. The AAC, therefore, upheld the contention of the assessee.

3. The revenue felt aggrieved by the decision of the AAC and went up in appeal before the Tribunal. After discussing the relevant authorities which were placed before the Tribunal, the Tribunal rejected the contention of the revenue and held that this amount could not be treated as trading receipts of the assessee. It appears to us that in view of the decision of the Supreme Court in the case of Chowringhee Sales Bureau P. Ltd. v. C1T : [1973]87ITR542(SC) , this question is well settled. There, the assessee, a private company dealing in furniture, was also acting as auctioneer. In respect of the sales effected by it as auctioneer, the assessee realised during the relevant period, in addition to the commission, Rs. 32,986 as sales tax. This amount was credited separately in its account under the head 'Sales Tax Collection Account'. The assessee did not pay the amount of sales tax to the actual owner of the goods nor did it deposit the amount realised by it as sales tax to the State Exchequer because it took the position that the statutory provision creating that liability upon it having failed it was liable to be refunded to the person from whom it had been collected. The assessee also did not refund the money from whom he had collected. In the cash memos issued by the appellant to the purchasers in the auction sales the appellant was shown as seller. It was held by the Supreme Court that the sum of Rs. 32,986 realised as sales tax by the assessee in its character as auctioneer formed part of its trading business or business receipts and it was further held that the fact that the assessee had credited the amount received as sales tax under the head 'Sales Tax Collection Account 'did not make any material difference. The Supreme Court observed that the assessee would be entitled to claim deduction of the amount as and when paid to the Government. The same principle was again reiterated by the Supreme Court in their decision in the case of Sinclair Murray and Co, P. Ltd. v. CIT : [1974]97ITR615(SC) . There also the Supreme Court held that the amount collected constituted its trading receipt and had to be included in its total income. The Supreme Court also observed that if and when the assessee paid the amount collected to the State Government or refunded any part thereof to the purchaser the assessee would be entitled to claim deduction of the sum so paid or refunded. The same principle was also applied by the Allahabad HighCourt in the case of CIT v. Sheo Nath Prasad Hari Kishan : [1974]93ITR282(All) . There, Section 3 of the U.P. Sales Tax Act imposed a tax on every dealer on the turnover of sales during the assessment year. The liability to pay sales tax was, therefore, on the dealer and there was no liability on the purchaser. Under Section 8A(2)(b) of the U.P. Sales Tax Act, a registered dealer had been given the right to recover from his customers an amount equivalent to the sales tax payable by him but he was not obliged to do so. The liablity to pay sales tax was solely of the dealer whether he realised such tax from his customers or not. Therefore, the tax charged by the dealer from his customer was in reality a part of the sale price and as such it would be a revenue receipt. It was held that where a dealer collected the sales tax as such from his customers but only paid a portion of that amount to the sales tax department, the balance of that amount would be the revenue income in the hands of the assessee-dealer chargeable to income-tax and it was further held that as and when this amount was paid to the Government it would be allowed to the assessee as deduction. The Calcutta High Court in its decision in the case of Ikrahnandi Coal Co. v. CIT : [1968]69ITR488(Cal) has proceeded on the said principle. The Gujarat High Court applied the same principle in the case of Motilal Ambaidas v. CIT [1977] 108 ITR 36. In view of the ratio of the aforesaid decisions, we are of the view that the Tribunal was in error in holding that the amount in question did not represent the assessee's taxable income in the facts found by the Tribunal.

4. In the premises, the question is answered in the negative and in favour of the revenue.

5. There will be no order as to costs.

Sudhindra Mohan Guha, J.

6. I agree.


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