2012 (10) TMI 45 - HC - Income Tax

Revenue or capital receipt - Refund of the sales tax - amount was refunded to the assessee by the supplier on the ground that only sales tax was chargeable @ 2% and not @ 4% - Held that - Though assessee received the amount towards payment of sales tax at 2% but assessee retained the said sum to themselves - this amount, will have to be treated as a revenue receipt (trading receipt) and accordingly will have to be taxed in their hands during the assessment year in question - in favour of the Revenue

Summary

Issues:
Interpretation of sales tax refund as a trading receipt for taxation.

Analysis:
The High Court considered an Income Tax Reference made by the Revenue under Section 256(1) of the Income Tax Act. The question referred was whether a sales tax refund received by the assessee should be treated as a trading receipt for taxation. The case involved a contract between the assessee and the Rajasthan State Electricity Board (RSEB) for the supply of aluminium conductors. The contract included provisions for excise duty, additional excise duty, and central sales tax. The assessee was initially charged sales tax at 4%, but later, the supplier informed that only 2% was applicable, resulting in a refund of Rs. 80,701 to the assessee.

The Tribunal held that the refunded amount did not constitute a trading revenue receipt and was not taxable. However, the Revenue, disagreeing with this decision, sought a reference to the High Court. The Revenue relied on a Supreme Court decision in CIT v. Thirumalaiswamy Naidu & Sons [1998] 230 ITR 534, arguing that the refunded amount should be considered a revenue receipt for taxation. The High Court, after reviewing the Supreme Court decision, agreed with the Revenue's interpretation.

The Court noted that even though the assessee received the refund from the supplier, they retained the amount. Therefore, the refunded sum was deemed a revenue receipt and subject to taxation in the relevant assessment year. Consequently, the High Court answered the reference question in favor of the Revenue and against the assessee, ruling that the refunded amount should be taxed as a trading receipt.