1968 (6) TMI 1 - HC - Income Tax

Business income - sales tax - if the assessee is found liable to pay sales tax to the State Govt. the amounts so paid would be allowed as a deduction in the year of payment. Similarly if the assessee had to refund any moneys to the purchasers at the auctions then such refunds would also be allowed as deduction in the year in which they are made

Issues Involved:
1. Whether the sales tax charged by an auctioneer forms part of his trading receipts and is liable to be assessed to income-tax.

Detailed Analysis:

Issue 1: Sales Tax as Part of Trading Receipts
Background:
The assessee, a private limited company dealing in furniture and acting as auctioneers, collected a sum of Rs. 32,986 as sales tax from purchasers in auctions for the assessment year 1960-61. The Income-tax Officer included this amount in the assessee's total income, considering it part of the sale price, as sales tax was the liability of the sellers, not the purchasers.

Appellate Assistant Commissioner's Findings:
The Appellate Assistant Commissioner observed that the cash memo issued by the assessee to the purchasers showed the assessee as the seller. Under the Bengal Finance (Sales Tax) Act, the assessee was liable for sales tax as a dealer. However, since the High Court of Calcutta held that the assessee was not a dealer, the amounts collected as sales tax were treated as liabilities and not income. Consequently, the amount of Rs. 32,986 was deleted from the assessment.

Tribunal's Findings:
The Tribunal noted that the assessee had been following this practice since 1946, and the total balance in the sales tax account was Rs. 2,71,698. The Tribunal rejected the department's contention that the receipts by way of sales tax were trading receipts. It held that the amount collected as sales tax was a liability intended to be paid to the State, not a trading receipt.

Revenue's Argument:
Mr. B.L. Pal, counsel for the revenue, argued that the amount shown as sales tax was part of the sale price and thus a trading receipt. He cited the Supreme Court decision in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax, where additional amounts taken as security deposits were considered trading receipts. He also referenced a decision of the Andhra Pradesh High Court in Badri Narayan Balkishan v. Commissioner of Income-tax, which held that amounts collected as deposits formed part of the price and were trading receipts.

Assessee's Argument:
Mr. Chakraborty, counsel for the assessee, argued that the sales tax collected was not part of the sale price but a separate liability. He referred to the High Court decision in Chowringhee Sales Bureau P. Ltd. v. State of West Bengal, which held that an auctioneer could not be treated as the seller of the goods and thus not liable for sales tax. He also cited Commissioner of Income-tax v. Anwarkhan Mahboob Co., emphasizing that the actual contract terms, not the bill terms, determine the nature of the receipt.

Court's Conclusion:
The court concluded that the amounts collected as sales tax were part of the commercial transaction of sales by auction and were the moneys of the assessee as trading receipts when received. The Income-tax Officer was justified in including the amount of Rs. 32,986 in the assessee's total income for tax purposes. The reference was answered in the negative, against the assessee, affirming that the sales tax collected formed part of the trading receipts and was liable to be assessed to income-tax.

Final Judgment:
The court held that the amount of Rs. 32,986 collected as sales tax by the assessee was part of its trading receipts and should be included in its total income for the relevant assessment year. The assessee was ordered to pay the costs of the reference.

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