1966 (2) TMI 72 - HC - VAT and Sales Tax

Issues Involved
1. Whether the sum of Rs. 41,125 refunded to the assessee by the Bombay Sales Tax Authorities was assessable to tax as the income of the assessee for the assessment year 1958-59.
2. Competence of the Appellate Assistant Commissioner to enhance the assessment.
3. Nature of the refund amount - whether it was a trading receipt or a liability.
4. Applicability of various legal precedents and statutory provisions.

Detailed Analysis

1. Assessability of the Refund Amount as Income
The primary issue was whether the sum of Rs. 41,125 refunded to the assessee by the Bombay Sales Tax Authorities was assessable to tax as the income of the assessee. The court analyzed the nature of the refund and determined that the refund constituted a trading receipt. The court emphasized that the transaction between the assessee and its buyers was a trade transaction, and the inclusion of sales tax in the price did not change the character of the transaction. The court cited the Supreme Court's decision in Tata Iron and Steel Co. v. Bihar State, which clarified that sales tax, even when shown separately, is part of the consideration for the sale of goods. Thus, the refund of sales tax was considered part of the assessee's income.

2. Competence of the Appellate Assistant Commissioner to Enhance the Assessment
The assessee contended that the Appellate Assistant Commissioner was not competent to enhance the assessment. However, the court did not find merit in this contention. The Appellate Assistant Commissioner had included the refunded amount in the total income of the assessee and allowed a deduction for legal expenses incurred in recovering the refund. The court upheld the Appellate Assistant Commissioner's competence to enhance the assessment.

3. Nature of the Refund Amount
The assessee argued that the refund was not a trading receipt but a liability, relying on the decision in Morley v. Tattersall. The court distinguished this case by stating that the amount refunded was part of the consideration for the sale of goods and not merely a deposit or liability. The court referred to the Supreme Court's decision in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax, which held that amounts collected as security deposits were part of the trading transaction and assessable as income. Similarly, the refunded sales tax was part of the trading receipt.

4. Applicability of Legal Precedents and Statutory Provisions
The court examined various legal precedents and statutory provisions to determine the nature of the refund. The court referred to the decisions in Bijoy Singh Dhudhuria v. Commissioner of Income-tax and Provat Kumar Mitter v. Commissioner of Income-tax to distinguish between diversion of income before it reaches the assessee and application of income after it reaches the assessee. The court concluded that the sales tax collected and subsequently refunded was part of the trading receipt and assessable as income.

The court also analyzed the provisions of the Bombay Sales Tax Act, particularly sections 5, 6, 8, 9, and 21. The court noted that the liability to pay sales tax was on the dealer, and the amount collected as sales tax formed part of the consideration for the sale of goods. The court rejected the assessee's contention that the refund was a liability and not assessable as income.

Conclusion
The court concluded that the sum of Rs. 41,125 refunded to the assessee by the Bombay Sales Tax Authorities was assessable to tax as the income of the assessee for the assessment year 1958-59. The court upheld the decision of the Tribunal and answered the reference in the affirmative, awarding costs to the revenue.

Separate Judgment by D. Basu, J.
D. Basu, J., concurred with the answer proposed by Ray, J., and provided a summary of the discussion. He emphasized that the refund received by the assessee was not a liability but a trading receipt. He reiterated that the purchasers were not liable under the statute to pay the tax, and the dealer was not merely a collector. The refund was received as a result of a change in government policy and was not subject to any statutory obligation to be returned to the purchasers. Therefore, the refund was assessable as income.

Final Decision
Reference answered in the affirmative.

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