1970 (3) TMI 2 - HC - Income Tax

Collections on account of sales tax made by the assessee during the relevant period exceeded the payments made to the Government by the sum of Rs. 1,17,571 - Whether the sum of Rs. 1,17,571 represented taxable income of the assessee - held, no

Summary

Issues:
- Taxability of excess sales tax collected by the assessee as income for assessment year 1959-60.

Analysis:
The High Court's judgment addressed the issue of whether the sum of Rs. 1,17,571, representing excess sales tax collected by the assessee, should be considered taxable income. The assessee, a registered firm engaged in wholesale cloth business, maintained a separate "sales tax account" to record collections and payments related to sales tax. The Income-tax Officer included the excess sales tax collected in the assessment for the year 1959-60, leading to an appeal by the assessee to the Appellate Assistant Commissioner, which was unsuccessful. Subsequently, the assessee appealed to the Tribunal, arguing that the excess sales tax collected was not a trading receipt and, therefore, not taxable income.

The department initially contended that the sales tax collected but not paid to the government constituted the assessee's income. However, it later conceded that the sales tax collected did not become income at the time of sale but only when not accounted for to the government. The Tribunal held that the nature of a receipt for income tax purposes is determined when received, and it does not change with time. Therefore, the excess sales tax collected was not taxable income as it did not constitute a trading receipt. The Commissioner of Income-tax challenged this decision before the High Court.

The High Court rejected the Commissioner's argument, citing the principle that the taxability of an amount depends on the nature of the receipts at the initial stage. If the amount initially received is not a trading receipt, it cannot be taxed later, even if appropriated by the assessee subsequently. As the sales tax collected was not considered revenue receipts initially, the subsequent failure to pay the sum to the government did not alter the character of the receipts. Therefore, the High Court ruled in favor of the assessee, holding that the sum of Rs. 1,17,571 was not taxable income. The High Court directed the Commissioner to pay Rs. 200 as costs to the assessee.

In conclusion, the High Court answered the question of taxability of the excess sales tax collected by the assessee in the negative, ruling in favor of the assessee based on the nature of the receipts at the initial stage and rejecting the Commissioner's argument.