1973 (9) TMI 41 - HC - Income Tax

Summary

Issues:
1. Treatment of excess collections in sales tax accounts as income for assessment year 1962-63.

Analysis:
The judgment involved a dispute regarding the treatment of excess collections in sales tax accounts as income for the assessment year 1962-63. The assessee, engaged in the manufacture and sale of fireworks, maintained separate accounts for Central sales tax and Madras General Sales Tax Act collections and payments. The Income-tax Officer proposed to treat the excess collections as the assessee's income, considering sales tax collections as part of turnover. The Appellate Assistant Commissioner agreed that sales tax collections formed part of turnover but emphasized considering the assessee's liability to pay sales tax when calculating excess collections.

The department appealed to the Appellate Tribunal, arguing that sales tax collections were part of turnover and that the actual payment towards the liability should be considered to determine excess collections. The Tribunal, citing precedent, ruled that sales tax collected was a trust fund for the government and that excess collections were not trading receipts of the assessee. However, the High Court disagreed, stating that the primary liability to pay sales tax was independent of collection from buyers, and excess collections benefited the assessee. The High Court also referenced a Supreme Court decision to support the view that sales tax collections should be treated as trading receipts.

The assessee contended that excess collections should be calculated after deducting the actual sales tax liability incurred during the year. Referring to relevant case law, the assessee argued that the liability towards sales tax should be considered even if not entered in accounts. The High Court analyzed the method of accounting adopted by the assessee, noting that separate accounts were maintained on a cash basis, with collections credited and payments debited promptly. The court concluded that the assessee's method of accounting indicated a cash basis for sales tax collections, requiring deduction only upon payment to discharge the sales tax liability. Consequently, the court ruled against the assessee, holding that deductions could only be claimed upon payment of the sales tax liability.