TMI Blog1979 (11) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently it cannot be assessed to tax in the year of assessment for 1971-72 ? " The assessee, a private limited company, is carrying on business in sale of tea. When orders for supply of tea were received from buyers, invoices were prepared for the sale price mentioned in the orders, and sales tax was separately charged and added in the invoices. The value of tea sold was separately credited to the " tea sales account " and the sales tax collected was credited to the " sales tax reserve account " in the general ledger. The collection of sales tax for the years 1955 to 1959 was credited to this account and the payments throughout were debited. The excess in the said account came to Rs. 33,097.13 which was kept on between June 30, 1960, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvoking s. 41(1) was absent. The result was that the sum of Rs. 33,097.13 was excluded from the assessment. The Commissioner has challenged the correctness of the Tribunal's conclusion on this aspect. It is clear from the statement of the case drawn up by the Tribunal that the sum of Rs. 33,097.13 was the collection between the years 1955 and 1959 and that it had not been allowed as deduction as and by way of sales tax paid or payable in any year so far. The question that now arises for consideration is whether the said sum could be brought to tax in the year 1971-72 merely by reason of the transfer entry made by the assessee. Income is liable to be taxed on the basis of its accruing or arising to the assessee or its receipt by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The amount was not paid to the sales tax authorities or to the actual owner of the goods which were auctioned. The assessee took up the position that the statutory provisions creating a liability to tax in respect of such receipts as and by way of tax was not valid. The result was that the assessee did not pay the amount to the State Government as and by way of sales tax. The assessability of the collection of Rs. 32,986 came up for consideration of the Supreme Court and it was held that the amount realised as sales tax by the assessee in its character as an auctioneer formed part of its trading or business receipts and that the fact that the assessee credited the amount received under the head " Sales tax collection account " did not mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch it was collected, still, by reason of the amount having been appropriated and transferred by the assessee to the profit and loss account, the character of the receipt is changed in any manner. On this aspect, there is an instructive decision of the Court of Appeal in Morley (Inspector of Taxes) v. Tattersall [1939] 7 ITR 316. In that case, the assessee was a firm of auctioneers who did business in the sale of horses. During a long period, owing to the fact that several sellers of horses failed to claim the balances of purchase monies due to them, large unpaid balances had been accumulated by the firm. By a clause in the articles of the existing partnership deed, it was provided that all unclaimed balances existing on December 31 in the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity ; but that does not mean that at that moment they received something, nor does it mean that at that moment they imprinted upon some existing asset a quality different from what it had possessed before. There was no existing asset at all at that time. All that they did, as I have already pointed out, was to write down a liability item in their balance-sheet, and how in the world by effecting that operation you can be said to have converted a sum received years and years ago into something which it never was, is a thing which, with all respect, passes my comprehension. " These words are apt to cover the point raised in the present case with particular reference to the transfer entry. In other words, these amounts were received during 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or incurring expenses for and on behalf of the constituents. The total sum received was Rs. 29,643 and it was lying in the books of the company to the credit of the constituents up to 1960-61, from some earlier years. Those amounts were not claimed by the respective constituents and during the relevant accounting year, the assessee transferred the amount to the credit of the profit and loss account. The ITO assessed this amount as income and this was the subject-matter of the reference to the High Court in the said decision. The Allahabad High Court pointed out at page 412, as under : " So long as those sums represented deposits in favour of the constituents, the sums could not be treated as income of the assessee. It was only during the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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