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TMI Blog1971 (8) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... tatement of the case drawn up by the Tribunal. They may be stated in short. The assessee is an individual and during the relevant period was an unregistered dealer. The assessment year is 1959-60, for the accounting year ending with March 31, 1959. During the accounting year the assessee had obtained selling agency of Messrs. Hindusthan Motors Ltd. for sale of cars and spare parts at Berhampur in the district of Ganjam. He had realised a sum of Rs. 18,592 from his customers. The sales tax so realised was credited to a separate account and was shown on the liabilities side of the balance-sheet at the end of the year. Admittedly, there was no payment of sales tax to the State of Orissa in the accounting year. The stand of the assessee before the Income-tax Officer was that as he was an unregistered dealer he had to pay sales tax on the purchases made and the same was debited by him to the purchase account. The Income-tax Officer in the assessment order remarked that no regular account had been maintained by the assessee. He accordingly made an addition of Rs. 18,592 to the gross profit shown by the assessee. An appeal by the assessee before the Appellate Assistant Commissioner (h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans the aggregate of the amounts of sale prices and tax, if any, received and receivable by a dealer in respect of sale or supply of goods or carrying out of any contract effected or made during a given period. 5. (2)(A) In this Act, the expression ' taxable turnover ' means that part of a dealer's gross turnover during any period which remains after deducting therefrom-. . . . . . . (b) any amount by way of tax realised by the dealer." Sales tax is not excluded from the definition of " sale price ". what is excluded is specifically given in the definition. Sales tax passes from the purchaser to the dealer as a part of the consideration. " Sale " in the Sales Tax Act is to be construed in the same sense as in the Indian Sale of Goods Act (see State of Madras v. Gannon Dunkerley Co. (Madras) Ltd.). " Consideration " has not been defined either in the Sales Tax Act or in the Sale of Goods Act. In section 2(10) of the Sale of Goods Act " price " means the money consideration for a sale of goods. Section 2(15) of that Act says that expressions used but not defined in that Act and defined in the Indian Contract Act, 1872, have the meanings assigned to them in the Contract Act. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as such from the purchaser. The seller could undoubtedly have put up the price so as to include the sales tax, which he would have to pay but he could not realise any sales tax as such from the purchaser. That circumstance could not prevent the sales tax imposed on the seller to be any the less sales tax on the sale of goods. The circumstance that the 1947 Act, after the amendment, permitted the seller who was a registered dealer to collect the sales tax as a tax from the purchaser does not do away with the primary liability of the seller to pay the sales tax. This is further made clear by the fact that the registered dealer need not, if he so pleases or chooses, collect the tax from the purchaser and sometimes by reason of competition with other registered dealers he may find it profitable to sell his goods and to retain his old customers even at the sacrifice of the sales tax. This also makes it clear that the sales tax need not be passed on to the purchasers and this fact does not alter the real nature of the tax which by the express provisions of the law is cast upon the seller. The buyer is under no liability to pay sales tax in addition to the agreed sale price unless the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he price inclusive of the sales tax is paid. On receipt of sales tax as part of the price, it becomes a part of the trading capital of the dealer which is turned over in the business again and again until the same is paid. Mr. Mohapatra places strong reliance on Commissioner of Income-tax v. Shiv Nath Prasad, in support of his contention that sales tax does not constitute a part of the sale price. This case is wholly distinguishable on facts. Therein it had been conceded on behalf of the department before the Tribunal that the amount of sales tax when collected by a dealer did not become his income liable to tax immediately on receipt thereof and became his taxable income only when the dealer did not make payment thereof to the Government in the relevant accounting year. The question as to whether the amount of sales tax when received by the assessee was liable to tax or not was never agitated before the Tribunal and was not allowed by the High Court to be canvassed as it was not a point of law arising out of the appellate order. This case establishes no principle contrary to our view. We would close up the discussion on the first point by saying that sales tax is included in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a particular year. The firm contended that the unclaimed balances did not at any time become profits or trading receipts, but were always to be considered as liabilities, for the statute of limitations did not apply to the case. It was in those facts and circumstances it was held that the unclaimed balances were not trading receipts. The unclaimed balances were held by the firm of auctioneers on behalf of the sellers of horses. The amount was held by way of trust and, in whatever way the same may be entered in account, they cannot be, construed as trading receipts in the hands of the assessee. Reliance is also placed by Mr. Mohapatra on Bijli Cotton Mills (P.) Ltd. v. Commissioner of Income-tax. There the assessee was a manufacturer of yarn. Under the then existing arrangements governing the supply of yarn to the market, a number of dealers were selected and were granted a specific quota of yarn to be supplied by the manufacturers which they sold in the market. These dealers came to be known as " quota-holders". Subsequently, the arrangement was modified. The manufacturers were now required to sell their stocks directly to wholesale dealers with the result that the quota holde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnected with the sale transaction. Sales tax is levied on sales and purchases made by the traders and not on profits or gains made by them from business. It is payable irrespective of any profits being earned and without such payment the business of buying and selling cannot be carried on. Thus, it is a trading receipt and is incidental to and integrally connected with trading activity. As a trading receipt it would be included in the total income and as a liability it would constitute a part of the trading expenditure deductible from the total profits or income. As far as we have been able to see there is no dissentient voice on this question (See Punjab Distilling Industries Ltd. v. Commissioner of Income-tax, Badri Narayan Balkishan v. Commissioner of Income-tax, Travancore Titanium Products Ltd. v. Commissioner of Income-tax, Chhatrasinhji Kesarisinhji Thakore v. Commissioner of Income-tax, Ikrahnandi Coal Co. v. Commissioner of Income-tax, Commissioner of Income-tax v. Chowringhee Sales Bureau (P.) Ltd. and Commissioner of Income-tax v. Royal Boot House). Some of these cases may be noticed. The facts in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on every rupee. A holder of alienated land had therefore in addition to the land revenue to pay a local fund cess at the rate of three annas on the land revenue assessed on the land. Under the terms of the lease with the syndicate it was stipulated that the syndicate shall pay all taxes, rates, assessments and impositions of a public nature. The effect of the covenant was that the syndicate would reimburse the assessee for local fund cess and other taxes paid by him. The local fund cess paid for the two villages demised by the assessee was Rs. 270.45 being 3/16th of Rs. 1,222.92, the amount of land revenue assessed on the lands. But, the amounts paid by the syndicate for the two years in question considerably exceeded the local fund cess payable in respect of the lands. The syndicate believed that it was liable to pay to the assessee under the indenture of lease cess computed at the rate of three annas on a rupee of the amount of rent and royalty. On those facts their Lordships held that the rent and royalty under the mining lease were income taxable under the Act, and an amount which was paid under a covenant which directly related to the payment of rent and royalty would als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipts and disbursements are taken into account. In the former, sums which are due to the business are entered on the credit side immediately they are legally due and before they are actually received and expenditures are entered the moment a legal liability to pay arose and before the actual disbursements. The profit or loss at the end of the accounting year is therefore based, not on a difference between what was actually received and what was actually paid out, but on the difference between the right to receive and the liability to pay." As has been clarified in narrating the facts, no regular accounts were maintained by the assessee and at any stage before the assessing authorities he does not appear to have claimed that the accounts were maintained on the mercantile system. In the absence of any assertion that the mercantile system of accounting was maintained, his case has to be examined on the cash basis system. In such a system the taxable income would be determined by deducting from the gross income all deductible expenditure under sections 10(1) and 10(2)(xv) of the Indian Income-tax Act. Those sections, so far as relevant, run thus : " 10. (1) The tax shall be payab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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