TMI Blog1972 (8) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... rote back this amount in the profit and loss account for the year 963-64. The Income-tax Officer, Patiala, while making the assessment of the firm for the year 1963-64, came to the conclusion that this amount was realised by the assessee-firm in the ordinary course of business and, therefore, the said amount was taxable. The assessee-firm aggrieved against this order dated February 18, 1967, filed an appeal before the Appellate Assistant Commissioner of Income-tax, A-Range, Patiala, who upheld the orders of the Income-tax Officer regarding this amount, vide his order dated May 4, 1968. The contention of the assessee-firm that the amount in question was deposited with the assessee-firm as a trustee and the same could be demanded by the purchasers any time and, therefore, the said amount could not be taxed, was repelled by the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, while discussing the authorities relied upon by the assessee, recorded the findings of fact in the following terms which findings were not upset by the Appellate Tribunal : " This decision is not applicable to the appellant's case as no evidence has been produced to show that the amount w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is found that the sales tax is an integral component of the sale price, it is obvious that the sales tax including the price of the articles sold is a trading receipt and the same is subject to income-tax. In other words, the nature of the transaction at the time of the sale is to be adjudged. Any subsequent event, for instance, as in the present case because of the Supreme Court judgment, that sales tax was not chargeable from the dealer, would not change the nature of the original transaction. " Sale " is defined in clause (h) of section 2 of the Punjab General Sales Tax Act, 1948, which is also applicable to Haryana as amended, and is in the following terms : " 2. (h) 'sale' means any transfer of property in goods other than goods specified in Schedule C for cash or deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge ; Explanation (1).- A transfer of goods on hire purchase or other instalment system of payment shall, notwithstanding that the seller retains a title to any goods as security for payment of the price, be deemed to be a sale." Clause (1) of the same section defines "turnover" in the following ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 5 of the Act, he is liable to pay the sales tax irrespective of the fact whether be chose to charge the sales tax along with the price of the goods as consideration for passing the goods on to the purchaser or not. In the case, Punjab Distilling Indutstries Ltd. v. Commissioner of Income-tax, the assessee carried on business as a distiller of country liquor and sold the produce of its distillery to licenced wholesalers. After the war started, difficulty was felt in finding bottles in which the liquor was to be sold and, to relieve the scarcity, the Government devised a scheme whereby the distiller was entitled to charge the wholesaler a price for the bottles in which the liquor was supplied at rates fixed by the Government, which he was bound to repay when the bottles were returned. In addition to the price fixed under the Government scheme, the assessee took from the wholesalers certain further amounts, described as security deposits, without the Government's sanction and entirely as a condition imposed by the assessee itself for the sale of its liquor. The moneys described as security deposits were also returned as and when the bottles were returned but in this case the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see from the purchaser. The mere fact that the sales tax is shown as sales tax, does not denude the contract of its character of trade contract whereby one party sells and the other party buys merchandise in which the business or trade was carried on. The seller does not levy tax on the purchaser or collect the tax from the purchaser, but what he does is to increase the price of the articles so as to ensure that he as a dealer will not be a loser to pay the sales tax levied upon him in token of the gross turnover. This aspect of the matter was gone into by the Supreme Court in Tata Iron and Steel Co. Ltd. v. State of Bihar, where an argument was raised that the sales tax was a direct tax on the dealer instead of an indirect tax to be passed on to the consumer. It was held by their Lordships of the Supreme Court as follows : " From the point of view of the economist and as an economic theory, sales tax may be an indirect tax on the consumers, but legally it need not be so. Under the 1947 Act the primary liability to pay the sales tax, so far as the State is concerned, is on the seller. Indeed before the amendment of the 1947 Act by the amending Act, the sellers had no authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1961, which are in the following terms : " 28. The following income shall be chargeable to income-tax under the head 'profits and gains of business or profession',- (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year." If and when the assessee pays back the amount in question to the purchasers, on their demand being made, the assessee may be entitled to ask for the relief in the assessment year in which the amount in question is paid back, but as far as the assessment year in which the amount was received is concerned, the total amount received by the assessee including the sales tax is a trading receipt and is liable to income-tax. It was held by the Supreme Court in the case, George Oakes (Private) Ltd. v. State of Madras, that when the seller passes on the tax and the buyer agrees to pay sales tax in addition to the price, the tax is really part of the entire consideration and the distinction between the two amounts--tax and price--loses all significance. In Chhatrasinhji Kesarisinhji Thakore v. Commissioner of Income-tax it was held by the Supreme Court that when an assessee had received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey representing the sales tax was refunded by the sales tax authorities, the identical money became refundable by the assessee to the assessee's buyers, and, therefore, the refunded amount was not assessable as his income. It was held by the Calcutta High Court that the amount of sales tax, even though shown separately in the transaction of sale as sales tax, is a part of the consideration which the seller charges for transfer of the property. The fact that the statute provides that the seller may collect sales tax did not rob the transaction of its trading character, and, consequently, the sum in question was assessable to income-tax as income of the assessee. The facts of that case are similar to the facts of the present case except that in the Ikrahnandi coal's case sales tax was paid and the same was paid back to the, assessee because of the Supreme Court judgment that the same was not due and in the present case the assessee did not deposit the sales tax at all because, before it was to be deposited, the Supreme Court decided that such a tax was not payable on the transaction in hand. A similar question arose before the Andhra Pradesh High Court in the case, Badri Narayan Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the side of the assessee, main reliance is being placed on State of Mysore v. Mysore Spinning Manufacuturing Co. Ltd. In that case the provisions of section 11( 1) and (2) of the Mysore Sales Tax Act were under examination, which are as follows : " 11. (1) No person who is not a registered dealer shall collect any amount by way of tax under this Act ; nor shall a registered dealer make any such collection except in accordance with such conditions and restrictions, if any, as may be prescribed. (2) Every person who collects any amount by way of tax under this Act shall pay over to the Government within such time and in such manner as may be prescribed, such collections as are in excess of the tax paid by him for the period during which the collections were made or, in case he has not paid any amount for the period in question, he shall pay over to Government all the amounts so collected by him ; and in default of such payment, the amounts may be recovered as if they were arrears of land revenue." The sole question in that case was whether reference to amounts collected by way of tax under that Act in section 11(2) of the Act, could mean all the tax collected by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation to sales tax, and that it mattered not that the receipt was merely a deposit by the payer carried to suspense account, the amount being received on the express undertaking and definite condition that the same would be refunded in the event of the dealer being held not liable to sales tax on the transaction in regard to which the 'deposit' was made. We are unable to agree in this construction of the expression 'collection' occurring in section 11(2) of the Act. Where an amount is received merely by way of deposit, on the express understanding or undertaking as in these cases, the company held the money as a mere custodian, and on the fulfilment of the condition became a trustee for the depositor. It is sufficient to state that when once the tax authorities determined that the proceeds of the sales in question were not within the taxable turnover of the company, the beneficial ownership became vested in the depositors and the company ceased to have any right to continue to hold the moneys. The fact that the physical control of the moneys passed from the 'depositor' to the 'dealer' did not render the receipt a 'collection' within section 11(2) of the Act." This authority is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject to income-tax. The question whether the sales tax charged is an integral part of the trading receipt or not, was not considered by the Supreme Court in that case. The contention that the moment a purchaser makes a demand from the assessee for the return of the sales tax paid by him which was not chargeable, the assessee is bound to return the same and, therefore, this amount should not be charged to income-tax, is without any merit. The amount received by the assessee in the relevant assessment year is certainly a trading receipt as is clear from the above discussion and the same shall have to be charged for the said relevant year. If and when a purchaser demands the refund of the amount from the assessee and the assessee actually pays back that amount, it will be open to the assessee to claim relief regarding that amount at the time when it is refunded. Similar view was taken by the Calcutta High Court in Sinclair Murray's case. The amount received by the assessee in the relevant assessment year was his trading receipt and he utilised the said amount for the purposes of his business. In other words, he charged further this amount in the course of his business and, there ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
