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Issues Involved:
1. Whether the sales tax credited to the special contingency account was a trading receipt and includible in the computation of the total income for the assessment years 1971-72 and 1974-75. Issue-wise Detailed Analysis: 1. Sales Tax Credited to Special Contingency Account as Trading Receipt: The primary issue revolves around whether the sales tax amounts credited to the special contingency account by the assessee, a dealer in motor vehicles, should be considered trading receipts and thus included in the total income for the assessment years 1971-72 and 1974-75. Assessment Year 1971-72: The Assessing Officer added Rs. 2,58,868 to the assessee's total income, considering it surplus in the special contingency account. The assessee realized sales tax amounts from customers under hire purchase agreements and credited these to a special contingency account. The actual liability to sales tax was minimal as the vehicles were often sold at nominal amounts eventually. The Commissioner of Income-tax (Appeals) reduced this addition to Rs. 57,897, which was transferred to the sundry creditors account, providing relief of Rs. 2,00,971 to the assessee. The Tribunal upheld this decision, following its earlier order for the assessment year 1972-73, which stated that the credits in the contingency account did not represent trading receipts. Assessment Year 1974-75: The Assessing Officer added Rs. 1,43,161, considering it excess realization on account of sales tax transferred from the special contingency account to the sundry creditors account. The Commissioner of Income-tax (Appeals) found that only Rs. 1,42,134 was transferred and included in the appellant's profit, reducing the addition to Rs. 1,027. The Tribunal upheld this decision, again referencing its order for the assessment year 1972-73. Legal Precedents and Arguments: The Revenue relied on several Supreme Court decisions, including Punjab Distilling Industries Ltd. v. CIT [1959] 35 ITR 519 (SC), Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542 (SC), and Sinclair Murray and Co. P. Ltd. v. CIT [1974] 97 ITR 615 (SC). These cases established that amounts received as part of commercial transactions, including sales tax, are trading receipts and taxable. However, the court distinguished these cases, noting that in the present case, the amounts were not received as sales tax or part of the price for the goods at the time of receipt, as the liability for sales tax was contingent on future sales under hire purchase agreements. Court's Conclusion: The court concluded that the amounts credited to the special contingency account were not trading receipts at the time of receipt because there was no immediate sales tax liability. The Tribunal correctly upheld the Commissioner of Income-tax (Appeals)' decision, which only included the excess amounts transferred to the sundry creditors account as taxable income. Thus, the court answered the questions in the affirmative, in favor of the assessee and against the Commissioner.
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