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TMI Blog1982 (4) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... e two grounds relate to two different orders passed under separate sections and separate appeals are provided against each. We, therefore, proceed to consider the assessee's appeal insofar as it relates to the addition of Rs. 31,845. 2. The ITO found that the assessee-firm had received a refund of Rs. 31,845 from the sales tax authorities, Jammu, which represented 5 per cent of the sales deposited as sales tax in the earlier year. The assessee had collected sales tax at 12 per cent on the total sales of Rs. 6,50,318 and the same had been paid to the sales tax department. The assessee had, however, challenged the rate applicable and ultimately it was decided that sales tax was leviable at 7 per cent and not at 12 per cent. The gross amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Jagat Narain Durga Prasad v. CIT [1970] 76 ITR 214 where it was held that the sales tax refunded to the assessee formed the income of the assessee in the year in question. The ITO, therefore, added Rs. 31,845 to the assessee's income. 3. When the matter came before the AAC, the same arguments were repeated and the AAC upheld the finding of the ITO that the deduction of sales tax would be available to the assessee as and when he paid the amounts, which are stated to be due to the different parties. 4. It has been submitted before us by the learned counsel for the assessee that the lower authorities have erred in holding that the refund of sales tax was in the nature of trading receipt in the year in question. It was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present case it is not the sales tax collected but the refund of sales tax which is involved. It was submitted that the sales tax collected could be trading receipt of the immediately preceding year and not of this year. It was further submitted that even if the refund of sales tax represented trading receipt in the hands of the assessee, the ITO should have considered that this income was fastened with the liability to pay back these amounts to the parties from whom this had been collected. In this connection, it was submitted that the whole of this amount was due to be repaid to three different parties and had, in fact, been paid to one party, namely, S.R. Enterprises, Jammu, to the extent of Rs. 4,172. Regarding the other two, it was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that there was nothing to show that the refunded amount represented liability to the three parties. 7. We have carefully considered the facts of the case as well as the rival arguments. Now it is settled law that sales tax collected by the seller from the purchaser constitutes the trading receipt in his hands. It is also settled law that where books are maintained on mercantile basis, the liability to pay sales tax to the sales tax department accrues at the time of sale and whether the amount has been debited in the books or not, the assessee can claim it as a deduction for the purpose of computation of its income. In the present case, the assessee had collected sales tax in the earlier year but this had not been shown in the trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore, it constituted trading receipt in his hands. It has been held by the Calcutta High Court in Ikrahnandi Coal Co. v. CIT [1968] 69 ITR 488 that a refund of sales tax was a trading receipt in the hands of the assessee and was assessable to income-tax as income of the assessee. While doing so, their lordships of the Calcutta High Court had relied on the decision of the Supreme Court in the case of CIT v. Punjab Distilling Industries Ltd. [1964] 53 ITR 75. The amount of sales tax collected being of trading nature, could not lose that nature if it was received by way of refund of this year. We, therefore, do not agree with the learned counsel for the assessee that the amount in question did not constitute a trading receipt in the ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question whether in a mercantile system of accounting the liability arose in order to make deduction from this income, nor was the Supreme Court concerned with the question whether there was any liability at all for the year for which the appeal went to the Supreme Court. It is true that in the case of Sinclair Murray Co. Ltd., the Supreme Court had observed that the assessee would be entitled to claim deduction of the amount of payment to purchasers if and when the amount of sales tax was refunded to the purchasers. We have to consider whether on the basis of the contract with the three parties the assessee was liable to pay this amount to these parties on the date of receipt of refund. Speedways had referred to such agreement but no ot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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