TMI Blog1995 (2) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the First or Fifth Schedule of this Act." The Board also issued a notification No. 1341/87 which stated that all assessees in whose case the aggregate of the commission earned and expenses charged is less than 1 1/2%, there will not be liability for turnover tax. By notification No. 717/88, the liability to turnover tax was fixed at the penultimate point on the condition that any dealer who claims exemption shall produce a declaration in the prescribed form. This position prevailed from 1-7-1987 to 1-8-1991. It was the case of the assessee before the sales-tax authorities that it was not liable for turnover tax on two grounds, viz. : (a) since the commission earned is less than 1 1/2%, it is eligible for exemption as per notification No. 1341/87 ; and (b) as it is not having any purchase turnover, there is no turnover liable for turnover tax under section 5(2A) in respect of spices like pepper and dry ginger sold by it on behalf of its principals.Initially the Sales-tax Department did not accept any of the contentions. Subsequently, in respect of other assessees and also for the appellant for the assessment years 1989-90,1990-91 and 1991-92 (pages 36, 38 40 of the Pape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad paid to the appellant in each year on this account. Further, the Assessing Officer noticed that the amount was not collected as turnover tax but was collected as commission and incidental charges. These items were claimed as expenditure by the principals in their tax returns. It was also seen that part of the amount has been paid partly to the Sales-tax Department and partly to the principals. Therefore, he held that the provisions of section 43B were applicable and since the amount was not paid within the previous year, the same was to be disallowed. The assessee carried the matter before the CIT (Appeals). The learned CIT (Appeals), after referring to the facts of the case and the enquiries made by the Assessing Officer, sustained the addition for substantially the same reason as adduced by the Assessing Officer. In addition, the learned CIT (Appeals) relied on the decision of the Supreme Court in the case of Jonnalla Narashimharao Co. v. CIT [1993] 200 ITR 588 and thus dismissed the appeal of the assessee. The assessee is in further appeal. 3. We have heard rival submissions and perused the records. The assessee has filed a paper book consisting of the following : Sl. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are equal to the turnover tax payable. By whom payable was in dispute before the Sales-tax Department -- whether it was the assesse who is a commission agent or whether it was by the principal on whose behalf sales were effected by the assessee. In the circumstances, the sum total of interest and incidental charges were credited in the accounts. A matching provision was made in the accounts and shown as a liability. It is also seen that part of this amount has been paid to the Sales-tax Department under protest and part of the amount has been refunded to the principals. The particulars in respect of these amounts for and from the assessment year 1989-90 to 1992-93 have been set out at pages 79 of the paper book. One of the reasons for making the addition was that Sri V.P. Joseph, after referring to his own books of account, could not tell how much was deducted by the assessee towards turnover tax. In our considered view this cannot be a ground for making the addition because the assessee's bill issued to the purchaser with a copy to the seller contains a statement of account for the principal detailing the amount collected and it is from this statement of account, the accounts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Alternatively if circumstances arise when we are required to remit turnover tax, either the amount should be returned to us on furnishing the specified declaration after remitting the tax or they should issue declaration to us after remitting the tax. Sd/- Principals" Therefore, we hold that even though the assessee has described the collections as interest and incidental charges, it cannot constitute its trading receipts in view of the specific understanding, under which the impugned amounts were collected. In effect, it only represents the amount withheld by the assessee from being paid to the principals and such withholding arose out of definite understanding with the principals. In other words, the assessee has retained a part of the sale proceeds for payment to the principals or the Sales Tax Department, as the case may be, depending upon the exigencies of the circumstances of the case and the same carried an obligation with it. Having understood the nature of the collection, the purpose for which it was collected and read with the understanding entered into with the principals, it has to be examined whether these collections in the garb of interest and incidental charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue and against the assessee and the second question was answered in the affirmative, that is, in favour of the assessee and against the Revenue. The facts of the case before us are different from the facts of the case before the Apex Court in very important aspects. Firstly, in the case decided by the Apex Court there was no understanding with the purchasers to refund the "rusum" collected. The assessee in that case had just collected the tax in the guise of "rusum" and did not make it over to the Government. However, in the case before us, the collections are not from the purchasers. The collections represented part of the amount due to the principals on the sales effected by the assessee in its capacity as a commission agent on the distinct understanding that in case the assessee is found not liable to pay tax, the same is to be refunded to the principals. Thus, the collections made by the assessee cannot be described as tax collections ; nor as trading receipts. It is only money retained by the assessee to be refunded to the principals in case the assessee is found not liable to pay turnover tax. In case the principal is found liable to pay tax, the amount collected by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n considered as expenditure in their respective accounts and that one of the principals was unable to quantify the amount of such collections. We have already held in para 3 above that these facts cannot go to disprove the understanding between the principals and the assessee. We have already held in para 3 that merely because the principals have treated the collections retained by the assessee as expenditure in their hands, it cannot be held that the impugned amount should be treated as income in the hands of the assessee. We are of the view that the assessee has established that there was a distinct and specific understanding between the assessee and its principals regarding the nature of the collections and the purpose for which it was to be utilised and the circumstances in which it was to be refunded. Thus, the primary purpose for which the case was restored to the file of the Assessing Officer has been fulfilled and found in favour of the assessee. 5. The learned CIT (Appeals) has also remarked in his order dated 30-12-1992 that the Sales-tax Department had changed its opinion or stand as regards the liability of the commission agents to turnover tax. In other words, initia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undoubtedly stands out as the last but one purchaser of the goods. The assessee raises the contention that M/s. Mehta Spices Co., Cochin is to be assumed as a purchaser of the goods from the assessee. In support of the contention the assessee filed Form 25 declaration from M/s. Mehta Spices Co., Cochin. This is baseless having no relevance. Actually, the issue of Form 25 declaration by M/s. Mehta Spices Co., Cochin and the production of them by the assessee at this stage warrant penal action because the actual dealer who purchased those goods have already issued the Form 25 declaration in order and they have been accepted. In the circumstances, all the objections are overruled. The original assessment for 1989-90 as proposed is revised under section 43 as under." Further, in the case of M/s. Metro Trading Syndicate, Mattancherry, the Sales-tax Appellate Tribunal in its order dated 1-6-1992 for the sales-tax assessment year 1987-88 had dealt with the Notification issued by the Government in SRO No. 1341/87 in the following terms and held in favour of the assessee : "Another contention of the learned representative of the assessee is that as per notification SRO No. 1341/87 turno ..... X X X X Extracts X X X X X X X X Extracts X X X X
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