1968 (6) TMI 55 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether sales tax charged by an auctioneer forms part of his trading receipts and is liable to be assessed to income-tax.

Issue-wise Detailed Analysis:

1. Nature of Sales Tax Receipts:
The primary issue is whether the sales tax amount collected by the assessee, a private limited company dealing in furniture and acting as auctioneers, forms part of the trading receipts and is thus liable to income tax. The Income-tax Officer included the sales tax amount of Rs. 32,986 in the assessee's total income, considering it part of the sale price since sales tax was the liability of the sellers and not the purchasers.

2. Appellate Assistant Commissioner's Findings:
The Appellate Assistant Commissioner observed that the cash memos issued by the assessee showed the assessee as the seller, making it liable for sales tax under the Bengal Finance (Sales Tax) Act. However, since the High Court of Calcutta had ruled that the assessee was not a dealer liable for sales tax, the amounts collected were treated as liabilities and not income, leading to the deletion of Rs. 32,986 from the assessment.

3. Tribunal's Decision:
The Tribunal noted that the assessee had collected sales tax since 1946, with a total balance of Rs. 2,71,698 standing to the credit of the sales tax account. The Tribunal upheld that the collected sales tax was not profit but a liability to be paid to the State or refunded to purchasers, depending on the final court decision. The Tribunal thus upheld the Appellate Assistant Commissioner's decision, dismissing the department's appeal.

4. Revenue's Argument:
The revenue argued that the sales tax collected was part of the gross sale price and thus a trading receipt, citing the case of Bata Shoe Co. Ltd. and Punjab Distilling Industries Ltd. The revenue contended that the character of the receipt as a trading receipt was fixed at the time of collection, making it assessable as income.

5. Assessee's Argument:
The assessee argued that the sales tax was collected due to an existing liability under the Bengal Finance (Sales Tax) Act and not as part of the sale price. The amounts were credited to a separate account pending the final court decision. The assessee relied on the High Court's ruling that an auctioneer is not a dealer and thus not liable for sales tax, making the collected amounts refundable to purchasers if no tax was payable.

6. Court's Analysis:
The court analyzed various precedents, including the Supreme Court's decision in Punjab Distilling Industries Ltd. and the case of Morley v. Tattersall. The court held that the amounts collected as sales tax were part of the commercial transaction and thus trading receipts. The court disagreed with the Tribunal's view that the character of the receipt remained as sales tax irrespective of the final liability decision.

7. Final Judgment:
The court concluded that the sales tax collected by the assessee was part of its trading receipts and thus liable to be included in the computation of income for tax purposes. The Income-tax Officer's inclusion of Rs. 32,986 in the assessee's total income was justified. The reference was answered in the negative and against the assessee, with the assessee required to pay the costs of the reference.

Conclusion:
The judgment clarifies that sales tax collected by an auctioneer forms part of the trading receipts and is assessable to income tax, irrespective of the pending final decision on the liability to pay sales tax. The court emphasized the commercial nature of the transaction and the fixed character of the receipt at the time of collection.