2006 (7) TMI 98 - HC - Income Tax

Income - Revenue contended that tax collected by assessee forms an integral part of the trading receipt and therefore treated as income of the assessee to the extent not actually spent by the assessee by way of payment of tax - Held that revenue contention was correct and allowed the addition

Summary

Issues:
1. Reversal of Commissioner of Income-tax (Appeals) order by Tribunal.
2. Treatment of 'contingency deposit' as trading receipt.
3. Shifting of turnover tax burden to the appellant.
4. Consideration of the relationship between agent and principals for trading receipt determination.

Analysis:

Issue 1:
The Tribunal reversed the Commissioner of Income-tax (Appeals) order, contending that the amount collected by the assessee, a commission agent, should be treated as income, relying on the decision in CIT v. Thirumalaiswamy Naidu and Sons [1998] 230 ITR 534. The Tribunal considered the term "dealer" under the Sales Tax Act to include a commission agent, rejecting the argument that the agent's liability is limited to the principals. The Revenue's appeal was allowed based on this reasoning.

Issue 2:
The assessee argued that the 'contingency deposit' should not be considered a trading receipt, citing decisions like Chief CIT v. Kesaria Tea Co. Ltd. [2002] 254 ITR 434. The contention was that the liability towards payment of turnover tax remained unsettled, justifying the inclusion of the amount in the 'contingency deposit'. However, the Revenue argued that tax collections form part of trading receipts, referencing cases like Raghuvanshi Mills Ltd. v. CIT [1952] 22 ITR 484. The court held that the amount collected was for sales tax and turnover tax, constituting trading receipts.

Issue 3:
The Tribunal's decision was supported by the court, emphasizing that the collections made by the assessee, whether as a trader or commission agent, are part of trading receipts. The court reiterated that the Sales Tax Act recognizes commission agents as "dealers," thus justifying the inclusion of sales tax and turnover tax collections in the assessee's income.

Issue 4:
The court clarified that maintaining a 'Contingency deposit' head does not alter the nature of the receipt, as established in K. C. P. Ltd. v. CIT [2000] 245 ITR 421. Referring to Jonnalla Narashimharao and Co. v. CIT [1993] 200 ITR 588 (SC), the court held that collections made by the assessee, even under a 'Contingency deposit,' are considered part of trading receipts. The court upheld the Tribunal's decision, stating that the amount collected should be included in the assessee's income.

In conclusion, the court upheld the Tribunal's decision that the amount collected by the assessee forms part of trading receipts, dismissing the appeal raised by the assessee. The judgment favored the Revenue, emphasizing the inclusion of sales tax and turnover tax collections in the assessee's income as trading receipts.