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Issues Involved:
1. Whether the sums of Rs. 59,330 and Rs. 20,060 are trading receipts assessable to tax in the hands of the assessee. 2. Whether the assessee is entitled to have a deduction in respect of the above amounts towards its liability to sales tax in respect of the goods sold by it in auction sale. Issue-wise Detailed Analysis: Issue 1: Assessability of Sums as Trading Receipts The court examined whether the sums of Rs. 59,330 and Rs. 20,060 collected as sales tax by the assessee, a private limited company engaged in auction business, are trading receipts assessable to tax. The assessee, following the mercantile system of accounting, collected sales tax from purchasers but did not deposit it with the government due to a dispute about its liability under the Bengal Finance (Sales Tax) Act, 1941. The Income-tax Officer, Appellate Assistant Commissioner, and Tribunal concluded that these sums were trading receipts based on the decision in Commissioner of Income-tax v. Chowringhee Sales Bureau P. Ltd. [1969] 71 ITR 131 (Cal). The Supreme Court in Chowringhee Sales Bureau P. Ltd. v. Commissioner of Income-tax [1973] 87 ITR 542 (SC) held that sales tax collected by an auctioneer forms part of its trading or business receipts, irrespective of whether it was credited under a separate head or not. Consequently, the court affirmed that these sums are part of the trading receipts and assessable to tax. Issue 2: Entitlement to Deduction for Liability to Sales Tax The second issue was whether the assessee is entitled to a deduction for the sales tax liability. The Tribunal had denied this deduction, following the decision in Chowringhee Sales Bureau P. Ltd. v. State of West Bengal [1961] 12 STC 535 (Cal), which held that the assessee had no such liability. However, the court referred to the Supreme Court's ruling in Kedarnath Jute Manufacturing Co. Ltd. v. Commissioner of Income-tax [1971] 82 ITR 363 (SC), which established that the liability to pay sales tax arises the moment sales are effected, and the assessee is entitled to deduct this liability from its income, even if the tax was not actually paid. The court emphasized that the legal liability for sales tax arises independently of its quantification or payment. Therefore, the assessee, maintaining accounts under the mercantile system, is entitled to a deduction for the estimated liability of Rs. 59,330 and Rs. 20,060, even though these amounts had not been paid to the sales tax authorities. Conclusion: The court answered both questions in the affirmative. The sums of Rs. 59,330 and Rs. 20,060 are trading receipts assessable to tax, and the assessee is entitled to a deduction for these amounts as they represent a liability for sales tax. Each party will pay and bear its own costs.
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