1966 (2) TMI 18 - HC - Income Tax

Bombay Sales Tax Act, 1963 - sum which was refunded to the assessee by the Bombay sales tax authorities was assessable to tax as the income of the assessee

Issues Involved:
1. Competency of the Appellate Assistant Commissioner to enhance the assessment.
2. Inclusion of the refunded sales tax amount as income.
3. Nature of the refunded sales tax amount - whether it constitutes a trading receipt.
4. Applicability of legal precedents and statutory provisions.

Detailed Analysis:

1. Competency of the Appellate Assistant Commissioner to Enhance the Assessment:
The assessee contended that the Appellate Assistant Commissioner was not competent to enhance the assessment. However, this contention was not accepted by the Tribunal, and the enhancement of the assessment by the Appellate Assistant Commissioner was upheld. The enhancement included the sum of Rs. 41,125 refunded to the assessee by the Bombay Government as the income of the assessee from business for the assessment year, after allowing the deduction of legal expenses of Rs. 6,982.

2. Inclusion of the Refunded Sales Tax Amount as Income:
The central issue was whether the sum of Rs. 41,125 refunded to the assessee by the Bombay sales tax authorities was assessable to tax as the income of the assessee. The assessee argued that the refund was not a trading receipt and should not be included as income. The Tribunal, however, did not accept this contention and included the refunded amount as part of the assessee's total income.

3. Nature of the Refunded Sales Tax Amount - Whether it Constitutes a Trading Receipt:
The assessee argued that the refunded sales tax amount was not a trading receipt, relying on the decision in Raja Bijoy Singh Dhudhuria v. Commissioner of Income-tax, which distinguished between diversion of income before it reaches the assessee and application of income after it reaches the assessee. The Supreme Court in Proval Kumar Mitter v. Commissioner of Income-tax clarified that the payment of sales tax by the assessee arises after entering into a contract of sale, making it an application of income rather than a diversion before it becomes income.

The Court examined whether the refunded sales tax amount was part of the trading transaction. The provisions of the Bombay Sales Tax Act, particularly sections 5, 6, 8, 9, and 21, were scrutinized. It was concluded that the sales tax collected formed part of the consideration for the sale and was thus a trading receipt. The Court also referred to Punjab Distilling Industries Ltd. v. Commissioner of Income-tax, where the Supreme Court held that additional amounts collected as security deposits were part of the trading receipt.

4. Applicability of Legal Precedents and Statutory Provisions:
The Court relied on several precedents and statutory provisions to determine the nature of the refunded amount. It was noted that the Bombay Sales Tax Act did not confer any right on the purchasers to demand a refund from the seller, nor did it compel the seller to refund the amount. The Court emphasized that the refunded amount was part of the trading transaction and thus constituted a trading receipt.

The Court also addressed the argument based on Morley v. Tattersall, where unclaimed balances appropriated by the assessee were not considered income. However, in the present case, the refunded amount was immediately a trading receipt, not subject to any subsequent change in character.

Conclusion:
The Court concluded that the refunded sales tax amount was a trading receipt and thus assessable to tax as the income of the assessee. The decision of the Tribunal was upheld, and the question was answered in the affirmative. The revenue was entitled to the costs of the reference. The concurring judgment emphasized that the refund did not impose any statutory obligation on the assessee to return the amount to the purchasers, reinforcing the conclusion that the refunded amount was part of the assessee's income.

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