TMI Blog1986 (9) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... counting year relevant to the assessment year 1979-80 the assessee collected from its customers sales tax totalling to Rs. 3,99,155 and credited the same to sales tax account. Out of the said amount collected, the assessee paid Rs. 1,57,772 to the Government of Andhra Pradesh. After deducting the said amount and after adjusting the opening debit balance of Rs. 2,228, the net credit balance in the sales tax account was Rs. 2,39,116. This along with Rs. 1,33,486 received as refund thus totalling to Rs. 3,72,602 was transferred to the profit and loss account of the accounting year relevant to the assessment year 1981-82 as profit. In the assessment year 1981-82 the excess sales tax collections over the sales tax payment amounted to Rs. 1,49,42 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 1981-82 the ITO treated the sum of Rs. 2,39,156 and Rs. 1,32,486 totalling to Rs. 3,72,602 as the assessee's income. On appeal, the Commissioner (Appeals) upheld the same. The assessee has preferred these appeals. 3. The learned counsel for the assessee strongly urged that the assessee follows the mercantile system of accounting and due to legal controversy the balance of the amount in the sales tax account which was not paid to the Government was transferred to the profit and loss account but it cannot be taxed as the assessee's income as it really represents sales tax liability. The matter was not settled due to legal controversy. The excess sales tax collected is allowable as a deduction being sales tax liability. He strong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained by it. The excess sales tax collections of Rs. 2,39,155 in the assessment year 1979-80 and Rs. 1,49,426 in the assessment year 1981-82 was neither paid to the Sales Tax Department nor refunded to the customers from whom it was collected. In the monthly sales tax return filed by the assessee it claimed exemption from sales tax, in respect of the G.I. Wire Rods. In the assessment made by the Sales Tax Department the assessee's claim for exemption was accepted. Thus, there was no liability on the assessee. It is well settled that the amount collected as sales tax constituted trading receipts and had to be included in the total income. This is clear from the decision of the Supreme Court in Sinclair Murray Co. (P.) Ltd. v. CIT [1974] 97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the amount is income in the hands of the dealer chargeable to tax and as and when the balance amount is paid to the Government, the dealer can claim the same as an allowable deduction. Thus, it was held that the amount collected as sales tax by the dealer from its customers in excess of the actual liability for sales tax is income of the dealer. In CIT v. Sheo Nath Prasad Hari Kishan [1974] 93 ITR 282, the Allahabad High Court held that where a dealer collects sales tax from its customers but pays only a portion of that to the Sales Tax Department and the balance of that amount will be revenue income in his hands chargeable to income-tax and as and when this amount is paid to the Government, it will be allowed to the assessee as a dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive effect from 1-8-1963 and in view of the said amendment there was liability to sales tax. Under those facts it was held that the assessee was entitled to the deduction as the amount was payable to the sales tax authorities. The decision of the Andhra Pradesh High Court in the case of Devatha Chandraiah Sons is a case where the assessee received money towards sales tax from the purchasers on behalf of the agriculturist principals in a fiduciary capacity. It is on those facts it was held that the amount received did not constitute trading receipts in the hands of the assessee. The decision of the Madras High Court in Indian Textile Paper Tube Co. Ltd.'s case is a case where the sales tax liability existed though the payment was not made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, in our view the excess sales tax collected is assessable as the assessee's income. Thus, we uphold the order of the Commissioner under section 263 for the assessment years 1979-80 and 1991-82. 7. In IT Appeal No. 1706 (Hyd.) of 1985 against the assessment made under section 143(3) one of the grounds raised is in respect of Rs. 2,39,116 which we have dealt with in the appeal for the assessment year 1979-80. This amount relating to the excess sales tax collected has been transferred by the assessee to the profit and loss account in the accounting year relevant to the assessment year 1981-82. Since we have hold that the excess sales tax collection amounting to Rs. 2,39,116 is assessable as the assessee's income for the assessment year 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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