Case: Sinclaire Murray &amp; Co. (P) Ltd Vs. Commissioner Of Income Tax, Calcutta

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 M/s. 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 use d 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 16, 54 455 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 assessees income. The income-tax officer accordingly added the aforesaid sum of Rs. 16, 54, 455 to the assessees totalappeal by the assessee the Appellate Assistant Commissioner found that the actual amount received as sales tax during the relevant period amounted to only Rs. 7, 41, 962, out of which Rs. 27, 564 had been paid to the Orissa Government. He, t herefore, held that the amount which was to be added to the assessees total income was Rs. 7, 14, 398. The contention of the assessee that the sales tax realised was not part of the taxable receipt of the assessee wasassessee 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 was exigible on those sales, the amount collected as sale s 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. 7, 14, 398 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 HighHigh 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 asThe 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 prescribed, 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 9B(3). 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."

Court's reasoning:
In the case of Chowringhee Sales Bureau P. Ltd. the appellant company was a dealer in furniture and also act ed 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. 32, 986 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. 32, 986 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 Stateabove 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. 7, 14, 398 should be treated as tradingare, 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.