Case: Chowringhee Sales Bureau Ltd Vs. Commissioner of Income Tax, West Bengal

2. The matter relates to the assessment year 1960-61 for which the relevant previous year ended on March 31, 1960. The appellant assessee is a private limited company dealing in furniture. It also acts as an auctioneer. In respect of the sales effected by the appellant as auctioneer, it realised during the year in question, in addition to the commission, Rs. 32,986 as sales tax. This amount was credited separately in the books under the sales tax collection account. The total balance standing to the credit of this account since 1946 up to the end of the relevant previous year stood at Rs. 2,71,698. This sum was neither paid over to the exchequer nor was it refunded to the persons from whom it had been collected. In the earlier years these collections were not added to the appellants income. For the year in question, however, the Income Tax Officer held that the said sum was in reality a portion of the sale price itself because the sales tax was not the liability of the purchasers of the goods but was the liability of the sellers of the goods only. The owners of the goods who sent them to the appellant for being auctioned had received only their sale price less the amount charged by the appellant as sales tax from the purchasers. The Income Tax Officer held that the sum of Rs. 32,986 was a part of the appellants income of the same nature as was the commission received by it on the auction sales. The said sum was accordingly added to the appellants income.3. The appellant preferred appeal to the appellate Assistant Commissioner who took note of the fact that the appellant had not treated the amount as part of its income. The appellate Assistant Commissioner referred to a decision of a single Judge of the Calcutta High Court in a Writ petition filed by the appellant against the State of West Bengal. The decision in that case is reported in (1961) 12 S.T.C. 535 = (AIR 1961Cal 328). It was held by the High Court that where an auctioneer is selling specific chattel or goods for an unknown or a disclosed principal and where the buyer knows that the auctioneer is not the owner, the auctioneer cannot be considered as the seller and there is no contract of sale between him and the buyer. In such a case the auctioneer according to the High Court, is not even a party to the sale and cannot be made liable for payment of sales tax. The definition of the word "dealer" in Explanation 2 of S. 2 (c) of the Bengal Finance (Sales Tax) Act 1941 (hereinafter referred to as the Bengal Act) was held to be ultra vires in so far as it included an auctioneer.4. As an appeal was pending against the above decision of the learned single judge in the Calcutta High Court, the Appellate Assistant Commissioner observed that it was only when the matter was finally decided by the High Court or when the assessee itself treated the said sales tax receipt as income that the said sum could be included in the assessees total income and only in the year in which that event came to pass. The amount of Rs. 32,986 was accordingly excluded from the assessees income.5. On further appeal the decision of the Appellate Assistant Commissioner was affirmed by the Income Tax Appellate Tribunal. The question reproduced above was thereafter referred to the High Court. The High Court, as already stated, answered the question against the assessee appellant.6. When the appeal came up for hearing before us on September 21, 1972 Dr. Pal on behalf of the appellant assailed the correctness of the answer given by the High Court and in this connection relied upon the dictum laid down in the appellants case reported in (1961) 12 S.T.C. 535 = (AIR 1961 Cal 328  ). As against that the learned Additional Solicitor General on behalf of the respondent questioned the correctness of that decision. As the said decision related to the vires of the provisions of Section 2 (c) of the Bengal Act we directed that notice be issued to the State of West Bengal as well as its Advocate General. Arguments have thereafter been addressed before us by Mr. Sen on behalf of the appellant and the Additional Solicitor General on behalf of the respondent. Mr. Mukhoty on behalf of the State of West Bengal has adopted the arguments of the Additional Solicitor General.

Reasoning:
12. It is apparent from the order of the Appellate Assistant Commissioner and has not been disputed before us in the present case that in the cash memos issued by the appellant to the purchasers in the auction sales it was the appellant who was shown as the seller. The amount realised by the appellant from the purchasers included sales tax. The appellant, however, did not pay the amount of sales tax to the actual owner of the goods auctioned because the statutory liability for the payment of that sales tax was that of the appellant. The appellant company did not also deposit the amount realised by it as sales tax in the State exchequer because it took the position that the statutory provision creating that liability upon it was not valid. As the amount of sales tax was received by the appellant in its character as an auctioneer, the amount, in our view, should be held to form part of its trading or business receipt. The appellant would, of course, be entitled to claim deduction of the amount as and when it pays it to the State Government.13. The fact that the appellant credited the amount received as sales tax under the head "sales tax collection account" would not, in our opinion, make any material difference. 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 not prevent the assessing authority from treating it as trading receipt. We may in this context refer to the case of Punjab Distilling Industries Ltd. v. Commissioner of Income tax, Simla, (1959) 35 ITR 519   = (AIR 1959 SC 346  ). In that case certain amounts received by the assessee were described as security deposits. This Court found that those amounts were an integral part of the commercial transaction of the sale of liquor and were the assessees trading receipt. In dealing with the contention that those amounts were entered in a separate Ledger termed "empty bottles return security deposit account", this Court observedthe amount which was called security deposit was actually a part of the consideration for the sale and therefore part of the price of what was sold. Nor does it make any difference that the price of the bottles was entered in the general trading account while the so-called deposit was entered in a separate Ledger termed "empty bottles return deposit account" for, what was a consideration for the sale cannot cease to be so by being written up in the books in a particular manner.We, therefore, agree with the High Court in so far as it has answered the question referred to it in the negative and against the appellant.