1978 (4) TMI 46 - HC - Income Tax

Summary

Issues:
1. Whether sales tax collected by the assessee can be allowed as a deduction in the assessment year on a mercantile basis?
2. Whether the amount collected on account of Central sales tax but not paid by the assessee can be added to the assessment in the relevant year?

Analysis:
1. The High Court of Calcutta considered the case where the assessee, engaged in cement manufacturing, collected sales tax under the Bihar Sales Tax Act and the Central Sales Tax Act. The Income Tax Officer (ITO) added the collected amounts back to the income of the assessee in the assessment year 1962-63. The assessee appealed, and the Appellate Tribunal allowed the deductions based on its earlier order for the assessment year 1961-62. The Tribunal held that on a mercantile system of accounting, the liability to pay collected sales tax could be deducted in the year of collection even before actual payment. The High Court, following Supreme Court precedents, affirmed that the liability for sales tax accrues when transactions occur, and if the assessee maintains accounts on a mercantile basis, the liability is deductible in the year of assessment. Therefore, the sales tax collected by the assessee was allowed as a deduction in the assessment year in question.

2. Regarding the amount of Central sales tax collected but not paid by the assessee, the Tribunal found that the sum was never paid and was offered for taxation in a subsequent year. The assessee contended that since it was assessed in a later year, it should not be taxed again in the year of collection. However, the High Court disagreed with this contention, stating that the amount collected in the assessment year 1962-63 should have been taxed in that year as part of the trading receipts. The Court held that the amount in dispute, though assessed in a later year, should have been taxed in the year of collection. Therefore, the Central sales tax amount not paid by the assessee was added to the assessment in the relevant year.

In conclusion, the High Court answered the first question in favor of the assessee, allowing the deduction of sales tax collected on a mercantile basis. However, the second question was answered in favor of the revenue, stating that the Central sales tax amount collected but not paid should have been taxed in the year of collection. The Court clarified that its decision was without prejudice to the assessee's rights to seek relief against double taxation in appropriate proceedings.