TMI Blog1982 (11) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... account or in the profit and loss account. Thus, the net result from the arithmetic of the accounts is precisely the same as in a case where sales tax collections and the sales tax payments do not go to the credit side or the debit side, as the case may be, of the assessee's trading and profit and loss account. In this case, the assessee is a firm dealing in jaggery, having dealings outside the State as well jaggery is exempt from local sales tax under G.O. of the State Government. But, for a long time, it was a moot question whether jaggery is also an exempt item for the purpose of Central sales tax. This was the position until this court gave its decision in batch of writ petitions in M. Ishwarlal Co. v. State of Madras [1973] 32 STC 377 (Mad). The nebulous state of the law till then was a very inconvenient factor for dealers in jaggery, like the assessee herein. The assessee could not very well collect sales tax from the customers if jaggery really was not a taxable item. On the other hand, if the assessee did not collect any amount towards sales tax and if ultimately it turned out that jaggery was not an exempt item, the assessee would have to shell out the tax from its ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been brought into the trading account by the assessee. The assessee appealed against the Commissioner's order. At the final stage, the disposal of the appeal by the Tribunal was in a curious manner. If we can paraphrase their decision, the Tribunal must be regarded as having addressed the Income-tax Department thus: " If you are going to add Rs. 17,015 representing the assessee's sales tax collections as part of the trading receipt of this year, there must be a corresponding deduction of the same amount as trading expenditure or outgoing, because the selfsame amount has been paid over by the assessee to the sales tax department. The allowance of an equivalent amount as outgoing must be granted, for that alone would make the position even and correct ". In this way, while sustaining the addition made by the Commissioner of Rs. 17,015, the Tribunal gave a matching deduction of a like amount towards the remittances made by the assessee of the collections from its customers to the sales tax department, as an item of expenditure. For the next year 1969-70, the ITO adopted the line of thinking of the Commissioner and added Rs. 1,20,364 representing sales tax collections effecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee to the sales tax department as Central sales tax on inter-State sales of jaggery had to be refunded to the assessee and also to the other dealers similarly placed. Since, however, the Central sales tax on its jaggery sales were not paid to the Department by the assessee from out of its own pocket, but only from out of its collections from the customers, the position was that the amount of sales tax liable to be refunded by the sales tax department to the assessee had, in turn, to be passed on by the assessee to its customers. The assessee could not very well call the sum of Rs. 1,37,379 as its own money, for the amount belonged to the customers, who were rightfully entitled to a return of the money the moment it became refundable to the assessee, following the Court's decision that the levy and recovery of the tax was invalid. The judgment of this Court declaring the exemption of jaggery under the Central Sales Tax Act was rendered some time in July, 1972. In connection with the assessee's assessment for 1974-75 for the year ended March 31, 1974, the ITO considered that the refund of Central sales tax of Rs. 1,37,379, which the assessee was entitled to receive under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch assessment year is separate and self-contained and our attention should not stray beyond the assessment year under discussion. This axiom can be easily overstated to mean that income-tax is concerned only with short-term trends and not with long-term trends, ignoring the possibility that a man may be as much ruined by minor deviations in assessments over a period of years, as by a single big and bad assessment in one year. Be that as it may, we are satisfied that the Tribunal was in error in thinking that merely as a pragmatic labour-saving device, the sum of Rs. 1,37,379 should be omitted from consideration this year so as to avoid this matter from having to be raked up again and again in future years of assessment. The Tribunal had pointed out in their order that the refund of Rs. 1,37,379 during this year did not make any difference to the trading position of the assessee during this year. The Tribunal pointed out that in the two preceding years, the amount of Rs. 1,37,379, in the aggregate, was collected by the assessee from its customers and the same amount was paid over by the assessee to the Sales Tax Department. And although the assessee itself did not account for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h arose to the assessee during the relevant account year, can be regarded as part of the assessee's trading receipts of the year. As we indicated at the beginning of this judgment, there is something to be said for the view that collections of sales tax made by dealer must be regarded in the accounting sense, as part of his trading receipts whether or not they could be technically regarded as part of the taxable turnover for the special purposes of sales tax under the relevant sales tax enactments. But, the particular reason why, on principles of commercial accounting, sales tax collections from customers are to be dealt with as trading receipts of the dealer is not because of their fiscal character, but because they are intimately connected with the dealer's trading transactions. If the price received from the customers is a trading receipt, sales tax paid by the customers would also qualify as a trading receipt. Sales tax is paid by the customers at the time of the sale transaction and as part of the bargain. Hence it is also intimately connected with the trading transaction. In this sense, sales tax, like sales price, forms a proper credit item in the dealer's trading account. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. For instance, where an assessee incurs a debt and the creditor remits the liability either in whole or in part, the assessee might get a benefit, but the remission does not involve anything coming in to him as income. Section 41(1) and its predecessor, s. 10(2A) of the Indian I.T. 1922, changed this fundamental principle, by the introduction of the statutory fiction under which what was not income was deemed to be income. It is unnecessary to go into an elaborate analysis of the language of s. 41(1). It is sufficient for our present purpose to observe that there are two important requisites for invoking this provision. One is that the assessee must have incurred a trading liability in some year with respect to which he should have obtained a deduction or allowance in an assessment of his income in a former year. The second requirement is that subsequently in the assessment year under consideration, diminution, remission or cessation of that liability occurs, resulting in some benefit to the assessee. If both these requirements are fulfilled, then the value of the benefit will be deemed to be the taxable income of the year of remission or cessation of the liability. The Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther permits or winks at the shifting of the tax burden or tax incidence by the assessee to the customer; in the true sense of the term, there is no " incurring " of the liability, whenever the assessee pays over the collections to the Sales Tax Department. Either the trader does not incur a liability because what he does is merely to pass on to the Sales Tax Department what he has collected from the customers ; or even in a case where he pays the sales tax in advance, if he gets a reimbursement from the customers there is no trading liability which can be said to have been incurred by him in the final analysis. In either case, there is no detriment to the assessee and he does not become any the poorer by the payment of the sales tax. There is yet another consideration in this case. The payment of sales tax in the account years relevant to 1968-69 and 1969-70 was not (sic) allowed as a deduction by the Appellate Tribunal and the AAC, only because under the order passed by the Commissioner for the earlier assessment year 1968-69 and the order of assessment passed by the ITO for the assessment year 1969-70, an equivalent sum had been added on the receipts side so as to swell the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment was set aside by the AAC and his order was confirmed by the Tribunal. The Madhya Pradesh High Court upheld the orders of the appellate authorities relying on the finding of the AAC that in the earlier assessments no deduction was ever claimed by the assessee or allowed by the Income-tax Department as and towards payment of sales tax liability which later on resulted in a refund. There is not much of a discussion in this judgment about legal aspects. On the finding of the AAC in that case, which the Court accepted and acted upon, it would seem that there was not much scope for a full discussion by the Court of the implications of s. 41(1). A judgment of the Allahabad High Court in CIT v. Taj Gas Service [1980] 122 ITR 1034, was also referred to in argument. The judgment of the Court does no more than reproduce the text of s. 41(1), without any attempt at elucidating even the minimal requirements of that deeming provision. In a brief judgment, the Court held that s. 41(1) was rightly applied to the case, because the assessee had claimed payments of sales tax in former years as deductions and had obtained allowances in respect thereof, but subsequently obtained a refund of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , however, feel, with respect, that the importance of the judgment is so much less because the court had not to consider or examine a vital argument for the assessee which was as much available in that case as it was availed of by the assessee in the present case. We further find from an editorial note in the report of this case that the Supreme Court had granted special leave to appeal against this judgment. For the reasons which we have earlier rendered, we hold that the sum of Rs. 1,37,379 cannot be brought to tax in the hands of the assessee as its trading receipt or income under s. 41(1) of the I.T. Act. Nor can it be brought to assessment de hors this section, under any other valid principle of taxation of income. Our answer to the question as reframed by us is in favour of the assessee and against the Department. The assessee is entitled to its costs. Counsel fee Rs. 500. Learned Standing Counsel for Income-tax made an oral application for leave to appeal to the Supreme Court against the judgment which we have just now delivered. We consider that this is a fit case for appeal to the Supreme Court having regard to the importance of the principles of taxation involved in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
