1. The facts found and/or admitted in these proceedings are shortly as follows. Messrs. Ashoka Cement Ltd., the assessee, carries on business in the manufacture and sale of cement and maintains its accounts on the mercantile basis. In the course of its business, the assessee collects from its customers sales tax payable respectively under the Bihar Sales Tax Act and the Central Sales Tax Act.
2. In the assessment year 1962-63, the relevant previous year ending on the 31st March, 1962, the ITO in the course of assessing the assessee to income-tax found that in the accounts of the assessee, the credit balance under the head 'Bihar sales tax' amounted to Rs. 81,036 after adjusting Rs. 69,146, being the balance in the earlier year. The difference of Rs. 11,890 was found to have been collected by the assessee in the year in question. As in the earlier year, the ITO added back the said amount in computing the income of the assessee. Credit balance under the head 'Central sales tax' was found to be Rs. 9,072 at the close of the accounting year, without any debit during the year, and the said amount was similarly added back.
3. Being aggrieved, the assessee appealed to the AAC, who confirmed the additions holding that the amounts collected as sales tax were part of the turnover of the assessee and that the assessee would only be entitled to a deduction when sales tax would actually be paid and/or would become an ascertained liability.
4. There was a further appeal by the assessee to the Income-tax Appellate Tribunal. The Tribunal considered its earlier order in the assessment year 1961-62, where it had held that on a mercantile system of accounting, where the liability to pay an amount collected as sales tax was undisputed, the same could be allowed as deduction in the year of collection in anticipation of actual payment. The Tribunal found that the said sum of Rs. 11,890 collected on account of Bihar sales tax was, in fact, paid subsequently. The -Tribunal also found that out of Rs. 9,072 collected on account of Central sales tax, Rs. 1,380 was paid in the subsequent year and the balance amount of Rs. 7,692 was assessed as income in the assessment year 1965-66. Following its earlier order, the Tribunal held that the said sums of Rs. 11,890 and Rs. 1,380 would be allowed as deduction in the assessment year in question. The Tribunal held further that the balance of Rs. 7,692 collected as Central sales tax, having been assessed in the assessment year 1965-66, could not be assessed again in the assessment year 1962-63 and, therefore, should be allowed.
5. On the application of the CIT under Section 256(1) of the I.T. Act, 1961, the Tribunal has drawn up a statement of case and has referred the following questions as questions of law arising out of its aforesaid order:
'(1) Whether, on the facts and in the circumstances of the case, the sums of Rs. 11,890 and Rs. 1,380 being the Bihar and Central sales tax collections respectively and paid over in the very next year to the Government could be allowed as deduction in the assessment for 1962-63 on the assessee which maintains its accounts on mercantile basis ?'
'(2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 7,692 having been taxed in the assessment year 1965-66 could also be added in the assessment year 1962-63 ?'
6. At the hearing no one appeared on behalf of the assessee. Mr. B. K. Bagchi, learned counsel for the revenue, contended before us that sales tax realised formed part of the trading receipt of dealers and had to be included in their gross income but deduction could be claimed if and when such sales tax was paid. Mere collection on account of sales tax did not create any liability. Mr. Bagchi contended further that liability for sales tax could only be allowed as a deduction in the year in which the transactions took place and not in any other year. Mr. Bagchi, lastly, contended that, in any event, the assessee had not claimed any deduction on the basis of estimated liability. An estimate must be made and deduction claimed on that basis before the same could be allowed. In support of his contentions, Mr. Bagchi cited several decisions which are considered hereafter in their chronological order.
(a) Kedarnath Jute Mfg. Co. Ltd. v. CIT : 82ITR363(SC) . This decision was cited for the following observations of the Supreme Court (at page 367):
'The assessee who was maintaining accounts on the mercantile system was fully justified in claiming deduction of the sum of Rs. 1,49,776 being the amount of sales tax which it was liable under the law to pay during the relevant accounting year.' We also note the further observations of the Supreme Court in the same case at page 366 :
'Now under all sales tax laws including the statute with which we are concerned, the moment a dealer makes either purchases or sales which are subject to taxation, the obligation to pay the tax arises and taxability is attracted. Although that liability cannot be enforced till the quantification is effected by assessment proceedings, the liability for payment of tax is independent of the assessment... An assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed. It can again not be disputed that the liability to payment of sales tax had accrued during the year of assessment even though it had to be discharged at a future date.' (b) Chowringhee Sales Bureau P. Ltd. v. CIT : 87ITR542(SC) . The facts in this case were that the assessee carried on business, inter alia, as an auctioneer. In respect of sales effected by it, as auctioneer, the assessee realised an amount by way of sales tax and credited the same separately in its account books under the head 'Sales tax collection account'. The assessee neither made over this amount to the actual owners of the goods, sold nor deposited the same with the State Government but contended that it was not legally bound to pay sales tax. It was held by the Supreme Court on these facts that the said amount formed part of the assessee's trading or business receipts. The Supreme Court also observed that if and when the assessee paid the amount to the State Government it would be entitled to claim deduction.
(c) Sinclair Murray and Co. P. Ltd. v. CIT : 97ITR615(SC) . The facts in this case were that the assessee which had its head office in Calcutta sold jute in Orissa to certain mills for being used in Andhra Pra-desh and charged sales tax to be paid to the Orissa Government. The entire amount collected was not paid to the Orissa Government on the ground that the sales were inter-State. On a reference, it was held by this court that the sales tax collected was part of the trading receipt and had to be included in the total income of the assessee. This decision of the High Court was affirmed by the Supreme Court. The Supreme Court held that if the assessee paid the amount or any part thereof to the State Government or to the purchaser it would be entitled to claim deduction of the sum so paid.
(d) Chowringhee Saks Bureau P. Ltd. v. CIT : 110ITR385(Cal) , where it was reiterated by this court as follows (p. 391) : 'As clearly enunciated by the Supreme Court, the liability to pay sales tax arises the moment sale or purchase is effected. The fact that that liability has not been quantified for payment, which the law enjoins an assessee to do, is not relevant in determining accrual of legal liability. It is also clearly established by the decision of the Supreme Court in the case of Kedar-nath Jute . v. Commissioner of Income-tax : 82ITR363(SC) . If that is the position, in order to determine that liability where the assessee had not paid the amount, it must be, according to the scheme of the Sales Tax Act, an estimate of the assessee. In a particular case, however, where there are materials to show that the estimate is either frivolous or false or the estimate is disputed, other considerations might arise..... Therefore, for an assessee who was maintaining accounts underthe mercantile system of accounting the liability has arisen and if the assessee has estimated his liability, that liability the assessee is entitled to deduction.'
7. In the instant case, the assessee never disputed its liability to pay sales tax and it has been found by the Tribunal that the assessee had collected the amounts on account of such sales tax. It is the further finding of the Tribunal that the said sums of Rs. 11,890 and Rs. 1,380 were in fact subsequently paid by the assessee on account of sales tax. On a mercantile basis, such liability should, therefore be treated as having accrued in the accounting year in question in view of the law laid down by the Supreme Court. The assessee had claimed deduction of the entire amount collected on account of sales tax, both State and Central, including the said amounts, Rs. 11,890 and Rs. 1,380, and there was no question of any further estimate by the assessee and such liability was in fact discharged at a future date by payment. For the above reasons, we are unable to accept the contentions of Mr. Bagchi and we answer question No. 1 in the affirmative and in favour of the assessee.
8. So far as question No. 2 is concerned the facts found are that the said sum of Rs. 7,692, though collected on account of Central sales tax, was never paid and the assessee offered the said amount for taxation in the assessment year 1965-66. Admittedly, the amount had been collected in the assessment year 1962-63 and formed part of the trading receipts of the assessee in that year. It was not the case of the assessee before the Tribunal that the said amount should be allowed as a deduction because the same was genuinely estimated to be a liability. The only contention was that this amount had been offered for taxation and assessed in the assessment year 1965-66 and, therefore, it should not be again assessed in the year 1962-63. This contention is erroneous and we do not accept the same. The amount in dispute, that is, Rs. 7,692, having been collected in the assessment year 1962-63 by the assessee as part of its trading receipt ought to have been taxed as such in the said assessment year, if at all. For the reasons as aforesaid we answer the question No. 2 in the affirmative and in favour of the revenue.
9. In the facts and circumstances there will be no order as to costs. We make it clear that our answer is given without prejudice to the assessee's rights, if any, to agitate in appropriate proceedings for relief against double taxation in respect of the said sum of Rs. 7,692.
10. I agree.