1974 (11) TMI 3 - SC - Income Tax

Revenue Receipt - contention that the sales tax should not be treated to be a part of the price realised by the assessee from the purchaser is not well founded - assessee s appeal is dismissed

Summary

Issues Involved:
1. Whether the sum of Rs. 7,14,398 was liable to be included in the total income of the assessee under the Indian Income-tax Act, 1922.

Issue-wise Detailed Analysis:

1. Inclusion of Rs. 7,14,398 in Total Income:
The primary issue revolves around whether the sum of Rs. 7,14,398, collected as sales tax, should be included in the total income of the assessee under the Indian Income-tax Act, 1922.

Background:
The assessee, a limited company, sold jute to M/s. McLeod & Co. Ltd. and charged sales tax on the sales. The sales tax was shown separately in the bills and was included in the liabilities for expenses in the balance sheet. However, the amount was not paid to the Orissa Government, as the sales were considered inter-State sales. The Income-tax Officer added the amount to the assessee's total income, treating it as part of the sale price.

Appellate Proceedings:
- Appellate Assistant Commissioner: Reduced the amount to Rs. 7,14,398, rejecting the contention that sales tax did not form part of taxable receipts.
- Income Tax Appellate Tribunal (ITAT): Held that the sales tax collected did not form part of the sale price and should not be included in the total income.

High Court Judgment:
The High Court held that the tax realised, if used in business, forms part of the sale price and thus becomes part of the trading receipts. The court emphasized that the assessee did not earmark the sales tax separately or deposit it with the Government, treating it as its own money.

Supreme Court Analysis:
- Reference to Chowringhee Sales Bureau P. Ltd. Case: The Supreme Court referred to the precedent set in Chowringhee Sales Bureau P. Ltd. v. Commissioner of Income-tax, where sales tax collected by an auctioneer was treated as trading receipts. The court highlighted that the true nature of the receipt, not its entry in the account books, determines its character.
- Section 9B(3) of Orissa Sales Tax Act: The court noted that the provision requiring the deposit of collected tax does not alter the nature of the receipt as trading income.
- Refund and Deduction: The court clarified that if the assessee refunds the sales tax to the purchaser or pays it to the Government, it would be entitled to claim a deduction for the refunded amount.

Conclusion:
The Supreme Court concluded that the amount of Rs. 7,14,398 should be treated as trading receipt and included in the total income of the assessee. The appeal was dismissed with costs.

Summary:
The Supreme Court upheld the inclusion of Rs. 7,14,398 in the total income of the assessee under the Indian Income-tax Act, 1922. The court emphasized that the sales tax collected formed part of the trading receipts, as the assessee did not segregate or deposit the amount with the Government, treating it as its own funds. The court referred to the precedent set in Chowringhee Sales Bureau P. Ltd. and clarified that the true nature of the receipt determines its character, not the entry in the account books. The court also noted that the assessee could claim a deduction if the amount was refunded to the purchaser or paid to the Government. The appeal was dismissed with costs.