TMI Blog1969 (2) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... lls under its management, namely, Chitavalsah and Nellimarla Jute Mills. These jute mills are in Andhra Pradesh. The assessee used to charge sales tax at the rate of one anna per rupee on the value of the goods. Such sales tax was charged under a separate head in the bill in the following manner : ' " Sales tax, buyer's account . . . at the rate of one anna per rupee to be paid to the Orissa Government ". In the balance-sheet of the assessee as on the 30th June, 1952, under the head " Liability for expenses " a sum of Rs. 16,54,455 was shown on account of sales tax. The said sum was not actually paid to the Orissa Government during the year in question. Hence the question arose as to whether the sum of Rs. 16,54,455 should be included in the total income of the assessee. According to the assessee, sales tax realised from the purchaser did not form part of the sale price and therefore the amount received by the assessee as sales tax was not a part of the sale price. Hence the balance-sheet of the company showed the correct state of affairs according to the assessee. The Income-tax Officer found that the said sum was received as part of the price and therefore added the said sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tribunal, therefore, allowed the appeal. Against that decision the Commissioner of Income-tax applied for reference to this High Court the following question : " Whether, on the facts and in the circumstances of the case, the sum of Rs. 7,14,398 was liable to be included in the total income of the assessee under the Income-tax Act, 1922 ? " This application of the Commissioner was opposed by the assessee on the ground that " the identical question under the identical Orissa Sales Tax Act was the subject-matter of a decision of the Supreme Court in the Orient Paper Mills case in 1961 and the Tribunal merely followed the decision. " The Tribunal, however, referred the aforesaid question to this court. Mr. Balai Pal for the department urges that sales tax is always included within the trading receipt of the vendor. The reason is that the total money which a dealer received from his purchaser is employed in his business as if the sum of money received on account of price simpliciter and the sum of money received on account of sales tax were the seller's own money. The trader used that sum in his business and when tax is to be paid, he pays tax not from any earmarked fund. Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in treating the tax as part of the turnover, because ' turnover ' means the amount of money which is turned over in the business. " It is not necessary for us to refer to any further decision on this point. The proposition is that if tax is validly exigible and is realised by a trader from his customer, and is then utilised in his business, the tax so realised cannot but form part of the sale price. It must, therefore, be included in the trading receipt of the dealer, and it would become income for the purpose of the Income-tax Act, for the simple reason that the money realised from the purchaser on account of tax is employed by the trader for the purpose of making profit and tax is not separated from price simpliciter. The question now is :-Did the assessee, a dealer, mix up the money received as sales tax with other amounts and employed it in his business for the purpose of earning profit or did the dealer treat the amount of money received as tax, as deposits for the purpose of paying it to the Government or for refunding it to the purchaser, as the case may be ? It would be seen from pages 22 and 24 of the paper book that the sale price simpliciter have been noted in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules thereof was that of a deposit. The Appellate Assistant Commissioner did not find that the sales tax realised by the dealer was not mixed up with his own fund and not used in his business and that this amount was marked for the purpose of depositing with the Government. When the matter came up before the Tribunal, the assessee strongly relied upon the decision of the Supreme Court in State of Orissa v. Orient Paper Mills. It was contended that the character of the receipt because of the law in Orissa is the character of a deposit and therefore it could not form part of trading receipt. Mr. Sampath Iyengar has strongly relied on the following passage in the order of the Tribunal to show that the character was not that of a trading receipt at the time when the money was received : " As at that time the position regarding the inter-State sale was not clear, the assessee asked the purchaser to pay the sales tax agreeing to refund the sum if ultimately found not payable." This sentence does not mean that the assessee did not mix up the money received as sales tax with sale price simpliciter nor does it mean that it did not turn the amount received as sales tax, over in his trade. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act. The Supreme Court observed as follows : " Where the assessee, a registered dealer, received certain amounts from its constituents merely by way of deposits on the express understanding or undertaking that the moneys would be refunded to the constituents if the assessee was held not liable to include the relevant sales in its taxable turnover the assessee held the moneys as a mere custodian, and on the fulfilment of the condition became a trustee for the depositors. " The observation aforesaid may support the arguments of Mr. Iyengar but the facts of the case now before us have nothing to do with the law laid down in the aforesaid case. Where money on account of tax is received as a deposit and not mixed up with other funds and deposited in the treasury, the money thus realised as sales tax would be considered to have been received by way of deposit. But the facts of this case show that money was not received as deposit. It might have been the duty of the assessee to receive the money as deposit and it might have been his duty to earmark that fund and to deposit it in treasury but he did not do any of these things. Therefore, for the purpose of the Income-tax Act, we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity to refund. But the character of the money at the date of receipt was not of a deposit and has not been found to be that of a deposit by any of the authorities below. The next point urged by Mr. Pal is that the decision in the case of Orient Paper Mills case and tile decision in the case of State of Mysore v. Mysore Spinning Manufacturing Co., if concerned to be based merely on an interpretation of section 9B(3) of the Orissa Act and section 11(2) of the Mysore Act, that basis has now been shaken by the decision of the Supreme Court in the case of Abdul Quadar v. Sales tax Officer, Hyderabad, in which case the said section has been found to be ultra vires. The Supreme Court observed in that case as follows: " If a dealer has collected anything from a purchaser which is not authorised by the taxing law, that is a matter between him and the purchaser, and the purchaser may be entitled to recover the amount from the dealer. But unless the money so collected is due as a tax, the State cannot by law make it recoverable simply because it has been wrongly collected by the dealer. The Supreme Court held that section 11(2) of the Mysore Sales Tax Act, similar to section 9B(3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the questions of law, but there may be other cases where the appreciation of facts involve determination of the legal problem. In this case for determining whether tax was received as a trading receipt, the bills at pages 22 and 24 of the paper book have to be appreciated. It is the result of such appreciation which determines the legal character of the receipt. Hence we are authorised by law to look into the bills for the purpose of determining whether the receipt was a trading receipt or not. We, therefore, do not think that it is either proper or desirable to send the matter back to the Tribunal apart from the question that this assessment is now 15 years old. Mr. Sampath Iyengar's next point is that the tax was received by mistake of law, namely, the sum of money was not receivable under the Constitution as sales tax. Therefore, that money is refundable under section 94 of the Indian Contract Act. That proposition is not disputed. Mr. Balai Pal, for the department, agrees that as and when the assessee would refund the money to the purchaser, the sums refunded would be deducted from the total income. But a right to refund does not mean that money received was not received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and there is a further direction for payment of sales tax by the customer, it could not but be understood that the law itself provided that in such a case the sales tax would not be included in the price. The seller in such circumstances, was not authorised to demand anything higher than the controlled price, he demands the controlled price, and he would ordinarily be entitled to realise sales tax not as a part of the price but in addition to such controlled price. Therefore, a specific notification was made that the buyer would pay sales tax apart from the controlled price. So the considerations which applied of the case of a free buyer and a free seller, do not apply to a case where the transaction is controlled by law. We have therefore to take into account the facts and circumstances and the law relating to each matter; we shall then be able correctly to decide the character of a receipt, whether it is a trading receipt or not ; this is not a pure point of law but a, mixed question of fact and law. We are of opinion, on the facts and circumstances of this case and on the law applicable to the facts and circumstances of this case that the receipt in question is income under th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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