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TMI Blog2001 (7) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... account of the respective years". The assessee had claimed that the Government was not entitled to charge sales tax on "combing waste". Its claim was ultimately accepted. After the receipt of the sales tax assessment order during the period ending September 12, 1969, relevant to the assessment year 1970 71, the assessee "transferred the unpaid amount of sales tax" amounting to Rs.90,279 to its profit and loss account. While deciding the assessee's case for the assessment year 1970-71, the Income-tax Officer included the amount of Rs.90,279 in the total income of the assessee. The assessee objected. It was claimed that the amount was not a trading receipt. The amount "separately realised by the assessee by way of sales tax and credited to the sales tax account was by way of deposit from the customers and the assessee was holding these amounts only as deposit". It was further submitted that the "conduct of the assessee in transferring the unpaid amount of sales tax to its profit and loss account would not change the character of the receipt as a trading receipt, since the initial character of the receipt was in the nature of a trading liability and not a trading receipt". The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 41(1) of the Income-tax Act were not attracted in this case as the assessee had not claimed the amount of sales tax paid as a deduction by way of trading expenditure in the earlier years nor was it allowed as such by the Department. Thus, the ultimate non-payment of sales tax of Rs.90,279 did not amount to the remission of liability or expenditure within the meaning of section 41(1) of the Act. Aggreived by the order of the Tribunal, the Revenue claimed that the case be referred to the High Court for its opinion. This claim having been accepted by the court vide judgment dated May 9, 1985, in Income-tax Case No. 110 of 1977 (CIT v. Balabux Birla and Co., [1986] 157 ITR 759 (P H)), the question as noticed at the outset has been referred to this court for its opinion. Mr. R. P. Sawhney, counsel for the Revenue, contended that the view taken by the Tribunal is contrary to the decision of this court in CIT v. Saraswati Industrial Syndicate Ltd. [19731 91 ITR 501. He further submitted that it was the assessee's own case that it had charged the amount from its customers. The refund was not given to the "mills as these were not claimed by them. The amounts represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the assessee was following the mercantile system of accounting. It was collecting sales tax "at the rate of two per cent. from the customers while making the sales and this amount was shown separately in the bill and credited in the books of account under a separate account styled-'General Sales Tax Account'. The amount of sales tax paid to the Government in different years was debited to this account and was not shown in the profit and loss account of the respective years". Thus, it is clear that the assessee was not showing the amount collected by way of sales tax as a part of the trading receipt or even including it in the profit and loss account. It claimed that the amount was a "deposit" or a "trading liability". In this situation, it is evident that the amount was either a deposit or a liability. If it was a deposit, it could be refunded to the depositor. If a liability, it was to be tendered to the State. It could be exigible to the levy of income-tax only when it was included by the assessee in its income. Till then, the Assessing Officer could not have treated the amount in the "General Sales Tax Account" as a part of the assessee's taxable income. It was only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was to be deemed to be the profit of business. Consequently, it was chargeable to income-tax during the assessment year 1970-71. The above view finds full support from the decision of this court in Saraswati Industrial Syndicate's case [1973] 91 ITR 501. In this case, it was found that the assessee had recovered a sum of Rs.4,155 from its customers as sales tax prior to 1956. In view of the decision of the Supreme Court, the Department did not demand the payment of sales tax. The assessee transferred the amount to its profit and loss account for the year 1963-64. The Tribunal held that the sum could be demanded by the persons who had paid it and thus deleted the amount of Rs. 4,155 from the taxable income. On a reference, the High Court held that there was no evidence to show that the amount in question had been received by the assessee as a deposit. In any case, the assessee could claim deduction in case of refund. The amount having been included in the profit and loss account was an integral component of the sale price. The assessee had treated the amount as a revenue receipt by transferring it to its profit and loss account in a subsequent year. The amount was, therefore, as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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