2006 (7) TMI 99 - HC - Income Tax

Business expenditure - AO made addition in the assessee total income in respect to the unpaid amount of sales tax additional sales tax and handling charges as trading receipt - HC confirmed the addition made by AO

Summary

Issues:
1. Disallowance of unpaid sales tax under section 43B of the Income-tax Act.
2. Interpretation of Tribunal's order for the assessment year 1987-88 in relation to the assessment year 1986-87.
3. Treatment of unpaid amount towards sales tax as trading receipts for the assessment year 1986-87.

Issue 1: Disallowance of Unpaid Sales Tax:
The Commissioner of Income-tax appealed under section 260A of the Income-tax Act, questioning the disallowance of Rs. 4,23,681 unpaid towards sales tax under section 43B. The assessee, an auctioneer firm, collected sales tax and additional sales tax during the assessment year 1986-87 but did not pay the full amounts to the Sales Tax Department. The assessing authority included the unpaid amounts in the total income of the assessee. The Commissioner (Appeals) partially allowed the appeal, excluding the amount deposited by the assessee from the sales tax collection, but included the additional sales tax and surcharge in the income computation. The Tribunal upheld the Commissioner's decision, leading to the Revenue's appeal. The court held that the unpaid sales tax, additional sales tax, and handling charges should be treated as trading receipts and included in the total income for the year.

Issue 2: Interpretation of Tribunal's Order:
The Tribunal's order for the assessment year 1987-88 was referenced to determine its impact on the assessment year 1986-87. The Tribunal in the earlier case had held that the amount deposited by the assessee as per government direction should not be treated as trading receipt, but the balance remained unpaid should be considered as such. In the present case, the assessee had not deposited the entire amount collected, leading to the inclusion of the outstanding balance in the total income. The court emphasized that the nature of the receipt, not the accounting head, determines its treatment for taxation purposes.

Issue 3: Treatment of Unpaid Amount as Trading Receipts:
The court referred to legal precedents such as Chowringhee Sales Bureau's case and Sinclair Murray's case to establish that the collection of sales tax, additional sales tax, and handling charges constitutes trading receipts. Section 43B of the Income-tax Act governs the deduction of sales tax, allowing deductions only for amounts actually paid to the government account during the year. Therefore, the amounts collected but not paid over to the Sales Tax Department and remaining outstanding at the end of the accounting year must be included in the assessee's total income. The court ruled in favor of the Revenue, allowing the appeal and directing the communication of the judgment to the Income-tax Appellate Tribunal Cochin Bench.