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TMI Blog1966 (2) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... sion as well as Bombay sales tax at 3 pies per rupee. In the accounts of the assessee the coal supplied by the colliery was shown as purchases and supply was shown as sales. Collections and payments of sales tax were shown in the separate account styled Bombay sales tax account. Sales tax collected from the buyers was credited by the assessee to the Bombay sales tax account while payment of sales tax to the Sales Tax Authorities of Bombay was debited to the same account and not to the sales account. The collections and payments of sales tax were not also shown in the profit and loss account with the result that in none of the preceding assessments the balance left after adjustment of payments was included in the assessee's total income. In the relevant year of account the assessee received a refund of sales tax amounting to Rs. 41,124-13-9 as a result of an order made by the Bombay Sales Tax Authorities, consequent upon a decision of the Supreme Court on the provisions of Article 286 of the Constitution. The assessee claimed a sum of Rs. 6,982 as legal expenses incurred in connection with the recovery of the amount of refund. The Income-tax Officer disallowed the assessee's claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not a trading receipt. It was said on behalf of the assessee that sales tax was collected by the assessee from the assessee's buyers and the same was under the statute to be paid to the Sales Tax Authorities and when the money representing the sales tax was refunded by the Sales Tax Authorities the identical money became refundable by the assessee to the assessee's buyers. Counsel for the assessee relied on the decision of the Judicial Committee in Raja Bijoy Singh Dhudhuria v. Commissioner of Income-tax(1), in support of the contention that if the sum representing sales tax was not income it would not be amenable to taxation. In other words, it was contended that inasmuch as by operation of the Sales Tax Act the amount of sales tax was payable by the assessee to the Sales Tax Authorities that portion did not come to the assessee as income and was, therefore, not amenable to taxation. In Bijoy Singh Dhudhuria's case' by the decree of a court the assessee's step-mother had a charge not only on the son's zemindary property from which his agricultural income was derived but also on all his other sources of income included in the assessment and the assessee's liability to the step-m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vat Kumar Mitter's case[1961] 41 I.T.R. 624; [1961] 3 S.C.R. 37., the Supreme Court said that the decision of the Judicial Committee in Bijoy Singh Dhudhuria's case[1933] 1 I.T.R. 135 (P.C.). would not apply because it was not a case of allocation of a sum out of revenue before it would become income in the hands of the assessee. The distinction to be noticed is whether the sum before it could come in the hands of the assessee was already diverted and could not and did not come to the hands of the assessee. Counsel for the assessee relied on the decision in Davies v. Shell Co. of China Ltd.(3), and relied on the observation appearing at page 157 of the report where the Court of Appeal dealt with an argument on behalf of the assessee that the deposits made by the agents were not trade receipts, but were anterior to the stage of trade receipts. Jenkins, L.J., said that it was an abuse of language to describe one of these agents, after he had made a deposit, as a trade creditor of the company but he was a creditor of the company in respect of the deposit, not on account of any goods supplied or services rendered by him in the course of its trade, but simply by virtue of the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any goods which are declared from time to time under section 7 as sales on which such taxes are not payable; secondly, it is provided that no person selling any goods shall collect from the purchaser any amount by way of sales tax unless such person is a registered dealer and is liable to pay tax in respect of such sale. In sub-section (4) of section 21 it is stated that if any person collects any amount by way of tax in contravention of the provisions of sub-section (1) or (2) to which reference has been made or if any registered dealer collects any amount by way of sales tax in excess of the amount payable by him, the amount so collected shall, without prejudice to any prosecution that may be instituted against such person or dealer for any offence under this Act, be forfeited to the State Government and such person or dealer as the case may be shall within the prescribed period pay such amount into a Government treasury and in default of such payment the amount shall be recovered as an arrear of land revenue. Relying on these provisions counsel for the assessee contended, first, that the sales tax payable by purchasers was on refund in the nature of a deposit in the hands of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de the contract of its character of trade contract whereby one party sells and the other party buys merchandise in respect of which business and trade was carried on. It has to be noticed that the seller does not levy tax on the purchaser or collect a tax from the purchaser. What the seller does is to increase the price of the articles so as to ensure that he as a dealer will not be a loser by having to pay sales tax levied upon him in determination of the gross turnover. This aspect of sale price was considered by the Supreme Court in Tata Iron and Steel Co. v. Bihar State[1958] 9 S.T.C. 267, 284; [1958] S.C.R. 1355. S.R. Das, C.J., in dealing with the contention that the sales tax was a direct tax on the dealer instead of an indirect tax to be passed to the consumer, said: "From the point of view of the economist and as an economic theory, sales tax may be an indirect tax on the consumers, but legally it need not be so. Under the 1947 Act the primary liability to pay the sales tax, so far as the State is concerned, is on the seller. Indeed before the amendment of the 1947 Act by the amending Act, the sellers had no authority to collect the sales tax as such from the purchaser. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he produce of the distillery to licensed wholesalers and, because of the difficulty of finding bottles, devised a scheme whereby the distiller was entitled to charge the wholesalers for bottles in which the liquor was supplied at rates fixed by the Government which he was bound to repay to the wholesaler on the latter returning the bottles and the moneys were described as security deposit and were returned as and when the bottles were returned. The question arose as to whether the assessee could be assessed to tax on the balance of the amount lying after refund had been made out. The Supreme Court held that the assessee in realising the amount described as security deposit was really charging extra price for bottles and the additional amount was actually part of the consideration and was a part of the price of what was sold and it did not make any difference as to whether the additional amount was entered in a separate loan ledger. In the present case a contention was advanced by counsel for the assessee that the Bombay sales tax all throughout represented a different ledger entry. The entry by itself is not indicative or decisive of the real character of the transaction. The Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived was towards prices of the horses sold but that they became income upon being transferred to the credit of the partners of the firm. In the present case, the contention of the revenue is that the amount which came to the hands of the assessee was at once a trading receipt. It is not the contention of the revenue in the present case that after the money came to the hands of the assessee there was any subsequent change in the character of the quality or character of the money to turn it into income. Counsel for the assessee relied on a recent decision of the Supreme Court in the case of R. Abdul Quader and Co. v. Sales Tax Officer, Second Circle, Hyderabad[1964] 15 S.T.C. 403 (S.C.)., in support of the proposition that the sales tax in the present case represented a sum of money which the company was, under an implied contract between it and its buyers, to return or refund. In Abdul Quader's case[1964] 15 S.T.C. 403 (S.C.)., section 11(2) of the Hyderabad General Sales Tax Act, which laid down that any amount collected by way of tax was to be paid over to the Government and in default of such payment the amounts would be recoverable from such person as if they were arrears o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the statute, namely, the Bombay Sales Tax Act, created any right in the purchasers to the return of the money. In the Supreme Court case, Punjab Distilling Industries Ltd. collected from its wholesalers certain security deposits for empty bottles and these deposits were to be refunded in full when 90 per cent of the bottles were returned. The Punjab Excise Rules made it compulsory for the wholesaler to return at least 90 per cent of the bottles issued to him by the distiller and also recognised that the distiller might demand security at certain rates up to 10 per cent of the bottles issued by the distiller and confiscate the security to the extent falling short of the 90 per cent limit. A question arose in that case as to whether the collections by way of "empty bottles return security deposit " were income assessable. It was held that the amounts collected by the assessee by way of "empty bottles return security deposit" both before and after the amendment of the Punjab Excise Rules were trade receipts and the Rules did not create a right in the distiller to the return of the bottles. It was also suggested by the distiller to take a deposit, but the deposit had to be taken unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal decision in Morley v. Tattersall[1938] 2 All E.R. 296; 22 Tax Cas. 51; [1939] 7 I.T.R. 316. But the ratio decidendi of that case, as has been explained by the Supreme Court, is whether the money which has been received by the assessee was another person's money. If it is so, certainly it is a liability which he got even at the inception. Now, in the instant case, if the purchasers were liable under the statute to pay the tax and the assessee was simply a collector, as has been argued, when the money was refunded the purchasers would obviously have been entitled to recover back their money. But this contention is not available after the explanation of the system of sales tax legislation by the Supreme Court in the Tata Iron & Steel Co.'s case[1958] 9 S.T.C. 267; [1958] S.C.R. 1355; A.I.R. 1958 S.C. 452, 462. It was, however, argued on behalf of the assessee that that was a decision under the Bihar Sales Tax Act, 1947. We must, therefore, turn to the provisions of the Bombay Sales Tax Act, 1953, to find out if there was anything contrary to what was dealt with by the Supreme Court. So far as the charging section is concerned, section 5 of the Bombay Sales Tax Act makes it clear ..... X X X X Extracts X X X X X X X X Extracts X X X X
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