1969 (2) TMI 166 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 7,14,398 realized as sales tax should be included in the total income of the assessee under the Indian Income-tax Act, 1922.

Detailed Analysis:

1. Nature of Sales Tax Receipts:
The core issue revolves around whether the sales tax collected by the assessee forms part of the trading receipt and thus should be included in the total income for the purpose of income tax assessment. The assessee, a limited company dealing in jute, collected sales tax from its buyers and recorded it under "Liability for expenses" in its balance sheet. The Income-tax Officer included this amount in the total income, considering it as part of the sale price.

2. Arguments by the Assessee:
The assessee argued that the sales tax collected did not form part of the sale price and was merely held in trust, either to be refunded to the purchaser or deposited with the government if tax was exigible. The assessee maintained that this amount was not a trading receipt and hence should not be included in the total income.

3. Tribunal's Decision:
The Tribunal, referencing the Supreme Court decision in the case of State of Orissa v. Orient Paper Mills, concluded that the sales tax collected was not a trading receipt but a deposit meant to be paid to the government or refunded to the purchaser. Therefore, it allowed the appeal and excluded the sales tax amount from the total income.

4. Department's Argument:
The department, represented by Mr. Balai Pal, argued that sales tax should be included within the trading receipt of the vendor. It was contended that the total money received, including sales tax, was employed in the business as the seller's own money. Several precedents were cited, including Jay's the Jewellers v. Inland Revenue Commissioners and Tata Iron & Steel Co. v. State of Bihar, to support the contention that sales tax forms part of the sale price and should be included in the trading receipt.

5. High Court's Analysis:
The High Court examined whether the assessee mixed the sales tax with other funds and used it in the business for profit. It was noted that the sales tax was not kept separate but was mixed with other receipts and used in the business. The court emphasized that the nature of the receipt is determined at the time of receipt. Since the sales tax was mixed with the sale price and used in the business, it was considered a trading receipt. The court also referenced the Supreme Court's interpretation in the Orient Paper Mills case, which indicated that if the sales tax was not kept separate and was used in the business, it would be considered part of the trading receipt.

6. Legal Precedents and Interpretation:
The court referred to several Supreme Court decisions, including Punjab Distilling Industries Ltd. v. Commissioner of Income-tax and George Oakes (Private) Ltd. v. State of Madras, which established that sales tax forms part of the sale price and thus the trading receipt. The court also discussed the implications of the Supreme Court's ruling in Abdul Quader v. Sales Tax Officer, Hyderabad, which found similar provisions in the Mysore Sales Tax Act ultra vires.

7. Final Judgment:
The High Court concluded that the sales tax collected by the assessee was indeed part of the trading receipt and should be included in the total income for income tax purposes. The court held that the assessee did not treat the sales tax as a deposit but mixed it with other funds and used it in the business. Therefore, the sum of Rs. 7,14,398 was liable to be included in the total income of the assessee under the Income-tax Act, 1922.

Conclusion:
The High Court answered the reference in the affirmative, affirming that the sum of Rs. 7,14,398 realized as sales tax should be included in the total income of the assessee. The assessee was ordered to pay the costs of the Commissioner.