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Issues involved: Determination of whether the Central sales tax amount received by an assessee under the I.T. Act, but not paid to the State Government in the same accounting year, should be added to the total income of the assessee.
Summary: The petitioners, two firms engaged in cotton business, collected Central sales tax but did not pay it to the State Government in the relevant accounting years. The Income Tax Officer (ITO) treated these amounts as payable to the State Government, not adding them to the total income of the firms for assessment purposes. The petitioners contended that under the mercantile system of accounting, they were entitled to exclude the unpaid Central sales tax amount from their income, citing relevant legal precedents. On the other hand, the Revenue argued that the collected Central sales tax amounts were utilized in the firms' trading and business activities, being shown as liabilities in their balance sheets. The Revenue contended that the ITO was justified in issuing notices to rectify the assessment orders based on the latest legal position. The court noted conflicting decisions on whether unpaid Central sales tax amounts should be included in the income of the assessee. While one decision supported the petitioners' contentions, a later decision by a larger bench took a contrary view, emphasizing that the nature of the receipt determines its treatment for tax purposes. Ultimately, the court found merit in the Revenue's arguments, stating that the ITO's actions were not illegal or in excess of jurisdiction based on the prevailing legal interpretations. The court dismissed the writ petitions challenging the notices issued by the ITO, upholding the decision to include the unpaid Central sales tax amounts in the firms' income for assessment. In conclusion, the court found no merit in the writ petitions and dismissed them with costs.
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