1985 (8) TMI 26 - HC - Income Tax

Summary

Issues:
Application under section 256(2) of the Income-tax Act, 1961 regarding the treatment of amounts collected by the assessee as deposits against sales tax, leading to a dispute over whether they should be considered as revenue receipts for taxation purposes.

Analysis:
The case involved two applications under section 256(2) of the Income-tax Act, 1961, filed by the Commissioner of Income-tax, Rajasthan, Jaipur, seeking a reference from the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, regarding the treatment of amounts collected by the assessee as deposits against sales tax. The dispute arose when the Income-tax Officer included these amounts in the taxable income of the assessee for the assessment years 1973-74 and 1974-75, considering them as trading receipts. However, the Appellate Tribunal later held that these amounts were collected as security deposits against potential sales tax liability and, therefore, should not be treated as revenue receipts. The Tribunal directed the deduction of these amounts from the total income of the assessee, effectively nullifying the additions made by the Income-tax Officer.

The Department filed an application for rectification, arguing that since the Tribunal had accepted the credits on account of sales tax deposits, no further deductions should be allowed on account of sales tax liability. The Tribunal dismissed this application, stating that there was no mistake apparent on the face of the record and that the assessee was not granted any excessive or double relief. The Tribunal maintained that the amounts collected were not revenue receipts and were akin to security deposits.

Upon hearing arguments from both sides, the court observed that the applications for rectification were misconceived as there was no double relief granted to the assessee. The Tribunal's decision to deduct the amounts collected by the assessee as security deposits was justified, as it did not constitute revenue receipts. The court further explained that if the sales tax was not paid and not refunded to customers, the Income-tax Officer could still make additions to the business receipts under section 41 of the Income-tax Act. Consequently, the court held that no question of law arose from the Tribunal's order, and both applications for reference were dismissed.