Appeal No 1357 of 1970
From the Judgment  Order dated the 10th February 1969 of the Calcutta High Court in l TRef
No 164 of 1963
630 D Pal T A Ramanchandran and D N Gupta for the appellant B Sen and section P Nayar for the respondent
The Judgment of the Court was delivered by KHANNA J
This appeal on certificate is directed against the Judgment of the Calcutta High Court whereby that court answered the following question referred to it under section 661 of the Indian Income tax Act 1922 against the assessee appellant and in favour of the revenue Whether on the facts and in the circumstances of the case the sum of Rs 714398 was liable to be included in the total income of the assessee under the Indian Income tax Act 1922  The matter relates to the assessment year 1953 54 the corresponding accounting period for which ended on June 30 1952
The assessee is
a limited company with its head office at Calcutta
One of its activities was the purchase and sale of jute in the State of Orissa and for this purpose the assessee was a registered dealer under the Orissa Sales Tax Act 1947
During
the accounting year the assessee sold jute to Ms McLeed  Co Ltd for being used in two jute miffs situated in Andhra Pradesh under the management of the purchaser company
The assessee used to charge from the purchaser sales tax on the purchase of goods at the rate of one anna per rupee of the value of the goods
The sales tax was charged under a separate head in the bill
The words used in the bill in this respect were Sales tax buyers  account  at the rate of 1 per rupee to be paid to Orissa Government
The total amount shown as Liabilities for expenses in the balance sheet as on June 30 1952 included a sum of Rs 1654 455 on account of sales tax
The said sum was however not paid to the State Government as the sale by the assessee to the purchaser company were stated to be inter State sale
The assessee contended before the income tax officer that the sales tax realised from the purchaser did not form part of the sale price of the jute and as such did not constitute receipt in jute business
The contention was rejected by the income tax officer who held that the sales tax formed a part of the consideration for the sales and therefore the accumulation on that account represented the assessee s income
The income tax officer accordingly added the aforesaid sum of Rs 1654455 to the assessee s total income
On appeal by the assessee the Appellate Assistant Commissioner found that the actual amount received as sales tax during the relevant period amounted to only Rs 741962 out of which Rs 27564 had been paid to the Orissa Government
He therefore held that the amount which was to be added to the assessee s total income was Rs 714398
The contention of the assessee that the sales tax realised was not part of the taxable receipt of the assessee was rejected
The assessee preferred second appeal before the Tribunal and submitted that the purchaser paid the sales tax and the price of goods to the assessee on the understanding that if ultimately no sales tax 631 was exigible on those sales the amount collected as sales tax would be refunded to the purchaser
The amount collected as sales tax according to the assessee company could not belong to it but belonged to the purchaser and as such could not be treated as income of the assessee
The Tribunal held that where a dealer collects sales tax under the provisions of section 9B of the Orissa Sales Tax Act the amount of the tax does not form part of the sale price and the dealer doe not acquire any beneficial interest in that amount
According to the Tribunal if at the time of the collection the amount was collected as sales tax the subsequent failure of the assessee to deposit the amount in the Orissa Treasury could not transform the character of that amount
The Tribunal consequently came to the conclusion that the Appellate Assistant Commissioner had erred
in treating Rs 714398 as part of the total income of the assessee
On the application of the Commissioner of Income tax the Tribunal referred the question reproduced above to the High Court
The High Court held that if tax which is validly exigible is realised by a trader from his customer and is then utilised in his business the tax so realised
cannot but form part of the sales price
According to the High Court the tax would be included in the trading receipt of the dealer and would become part of his income as the money realised from the purchaser on account of tax was employed by the dealer for the purpose of making profit and was not separated from price simpliciter
The High Court in this context referred to the fact that the assessee did not earmark the amount realised as sales tax and did not put it in a different account or deposit it with the Government
It was further found that the assessee had treated the amount of sales tax as his own money
Reference was made in the High Court to subsection 3 of section 9B of the Orissa Sales Tax Act which reads as under  3 The amount realised by any person as tax on sale of any goods shall notwithstanding anything contained in any other provision of this Act be deposited by him in a Government treasury within such period as may be pres cribed if the amount so realised exceeds the amount payable as tax in respect of that sale or if no tax is payable in respect thereof
 The High Court in the above context observed  There is no finding that the trader did not use that money for his trading purpose and because of the fact that money was not deposited in terms of section 9B3
In such circumstances simply because the trader had a duty to refund we cannot say it would not constitute trading receipt
If a trader received money as trading receipt and employs that money as his own fund and is then called upon to refund the money even then it is trading receipt of the trader but when he pays back that money the amount refunded may be considered for deduction at the time when it is refunded 632 In appeal before us Dr Pal on behalf of the assessee appellant has contended that the amount received as sales tax retained its character as such and could not be considered to be a part of trading receipt
As against the above Mr Sen on behalf of the revenue submits that the amount in question constituted trading receipt
According to Mr Sen the matter is concluded by a decision of this Court in the case of Chowringhee Sales Bureau P Ltd vs Commissioner of Income tax West Bengal1 The submission of Mr Sen in our opinion is well founded
In the case of Chowringhee Sales Bureau P Ltd the appellant company was a dealer in furniture and also acted as an auctioneer
In respect of sales effected by the appellant as auctioneer it realised during the year in question in addition to the commission Rs 32986 as sales tax
This amount was credited separately in its account books under the head sales tax collection account
The appellant 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 in the State exchequer because it took the position that statutory provision creating that liability upon it was not valid
The appellant also did not refund the amount to persons from whom it had been collected
In the cash memos issued by the appellant to the purchasers in the auction sales the appellant was shown as the seller
This Court held that the sum of Rs 32986 realised as sales tax by the appellant company in its character as an auctioneer formed part of the trading or business receipts
The fact that the appellant credited the amount received as sales tax under the head sales tax collection account did not make any material difference
According to this Court it is the true nature and 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 not prevent the assessing authority from treating it as trading receipt
The Court further observed that the appellant company would be entitled to claim deduction of the amount as and when it paid it to the State Government
The above decision in our opinion fully applies to this case and in view of it there is no escape from the conclusion that the amount of Rs 714398 should be treated as trading receipt
Dr Pal has tried to distinguish the decision of this Court in the case of Chowringhee Sales Bureau P Ltd on the ground that there was no provision in the Bengal Finance Sales Tax Act 1941 under which the sales tax was realised by the appellant in that case corresponding to sub section 3 of section 9B of the Orissa Sales Tax Act 1947
This circumstance in our opinion hardly constitutes a suffi cient ground for not applying the dictum laid down in the case of Chowringhee Sales Bureau P Ltd to the present case
The provisions of sub section 3 of section 9B of the Orissa Sales Tax Act have already been reproduced above
It is not necessary for the purpose of the present case to express an opinion on the point as to whether in view of the decisions of this Court in the cases of R Abdul Qyader  Co vs Sales Tax Officer Second Circle Hyderabad 2 1 2 1964 15 STC 403
633 Ashoka Marketing Ltd vs State of Bihar Anr1 and State of UP  Anr
vs Annapurna Biscuit Manufacturing Co 2 the State legislature was competent to enact that provision and whether the same was constitutionally valid
Assuming that the said provision is valid that fact would not prevent the applicability of the dictum laid down in Chowringhee Sales Bureau P Ltd The aforesaid decision did take into account the possibility of the appellant in that case being com pelled to deposit the amount of sales tax in the State exchequer
It was accordingly observed that the appellant company would be entitled to claim deduction of the amount as and when it paid the amount to the State Government
Likewise we would like to make it clear in the present case that if any when the appellant pays the sum of Rs 714398 or any part
thereof either to the State Government or to the purchaser the appellant would be entitled to claim deduction of the sum so paid
Dr Pal points out that the appellant may have to refund the amount realised by it as sales tax to the purchaser
So far as this aspect is concerned we have already mentioned above that if and when the appellant refunds any part of the amount of sales tax to the purchaser the appellant would be entitled to claim deduction on that account
Lastly reference has been made by Dr Pal to the case of Morley H M Inspector of Taxes vs Messrs Tattersall3 and it is submitted that once an amount was received as sales tax by the appellant it could never be treated as trading receipt
We find it difficult to accede to the above submission because the case of Chowringhee Sales Bureau P Ltd is a direct authority for the proposition that an amount even though realised as sales tax can in a case like the present be treated as trading receipt
It would be pertinent in this context to refer to the finding  of the High Court that the assessee appellant in the present case did not separately earmark the amount realised as sales tax or put it in a different account
The assessee also did not deposit the amount with the Government as and when realised nor did  the assessee refund it to the purchaser from whom the amount had been realised
The High Court has further found that the assessee company mixed up the amount of sales tax with its own funds and treated the same as its own money
Nothing cogent has been brought to our notice to justify interference with the above findings
the case of Messrs George Oakes Private Ltd vs The State of Madras  Ors
4 the Constitution Bench of this Court held that the Madras General Sales Tax Definition of Turnover and Validation of Assessments Act 1954 was not bad on the ground of legislative incompetence
In that context this Court observed that when the seller passes on the tax and the buyer agrees to pay sales tax in addition to the price the tax is really part of the entire consideration and the distinction between the two amounts tax and price loses all significance
This Court in that case relied upon the following observation of Lawrence J in Paprika Ltd  Anr
vs Board of Trade5 1 1970 26 STC 254
2 1973 32 STC 1
3 4 1961 12 STC 476 5 634 Whenever a sale attracts purchase tax that tax presumably affects the price which the seller who is liable to pay the tax demands but it does not cease to be the price which the buyer has to pay even if the price is expressed as X plus purchase tax
 Reliance was also placed upon the following observation of Goddard L J in Love vs Norman Wright Builders Ltd1 Where an article is taxed whether by purchase tax customs duty or excise duty the tax becomes part of the price which ordinarily the buyer will have to pay
The price of an ounce of tobacco is what it is because of the rate of tax but on a sale there is only one consideration though made up of cost plus profit plus tax
So if a seller offers goods for sale it is for him to quote a price which includes the tax if be desires to pass it on to the buyer
If the buyer agrees to the price it is not for him to consider how it is made up or whether the seller has included tax or not
 After referring to these observations section K Das J speaking for the Constitution Bench of this Court observed We think that these observations are apposite even in the context of the provisions of the Acts we are considering now and there is nothing in those provisions which would indicate that when the dealer collects any amount by way of tax that cannot be part of the sale price
So far as the purchaser is concerned he pays for the goods what the seller demands viz X price even though it may includes tax
That is the whole consideration for the sale and there is no reason why the whole amount paid to the seller by the purchaser should not be treated as the consideration for the sale and included in the turnover
 We are therefore of the view that the submission which has been made by Dr Pal that the sales tax should not be treated to be a part of the price realised by the assessee from the purchaser is not well founded
The case of Tattersall can be of no help to the appellant because the amount with which the court was concerned in that case was never received by the assessee as income or trading receipt
In any case as already observed the question with which we are concerned  stands concluded by the case of Chowringhee Sales Bureau P Ltd As a result of the above we dismiss the appeal with cost
PBR Appeal dismissed


Summary:
The assessee collected sales tax from the purchaser but did not pay the collections to the State Government alleging that the sale was interstate sale
The Income Tax Officer treated the sales tax as income of the assessee
The assessee claimed that the sales tax realised from the purchaser did not form part of the sale price of the goods and as such did not constitute taxable receipt
The Income tax Officer held that the sales tax formed part of the consideration for the sales and therefore the accumulation on that account represented the assessee s income
The Appellate Assistant Commissioner also rejected the contention of the assessee that the sales tax realised was not part of the taxable receipt of the assessee
The Appellate Tribunal held that where a dealer collected sales tax under the provisions of the Orissa Sales tax Act the amount of tax did not form part of the sale price and the dealer did not acquire any beneficial interest in that amount and that the failure of the assessee to deposit the amount with the Government could not transform the character of that amount
The High Court held that if a validly eligible tax was realised by a trader which had been utilised in his business the tax so realised could not form part of the sale price and that the tax would be included in the trading receipt of the dealer and would become part of his income as the money realised from the purchaser on account of tax was employed by the dealer  for the purpose of making profit and was not separated from price simpliciter
On appeal to this Court it was contended that the amount received as sales tax retained its character as such and could not be considered to be a part of trading receipt
Dismissing the appeal HELD  It is the true nature and 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 not prevent the assessing authority from treating it as trading receipt
If and when the appellant paid the sum or any part thereof either to the State Government or to the purchaser it would be entitled to claim deduction of the sum so paid
In the instant case there is no escape from the conclusion that the amount should be treated as a trade receipt
632B F 633C Chowringhee Sales Bureau P Ltd vs Commissioner of Income tax West Bengal followed
The purchaser pays what the seller demands that is the price even though it may include tax
That is the whole consideration for the sale and there is no reason why the whole amount paid to the seller by the purchaser should not be treated as the consideration for the sale and included in the turn over
634F Messrs George Oakes Private Ltd vs The State of Madras  Ors
1961 12 STC 476 followed Morley H M Inspector of Taxes vs Messrs Tattersall REFERRED TO Paprika Ltd  Anr
vs Board of Trade and Love vs Narman Wright Builders Ltd 1944 1 All ER 618 held inapplicable