TMI Blog1991 (2) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... rroneous assessments which were also prejudicial to the interests of the revenue. The CIT issued show-cause notice, heard the assessee's representative and directed that addition at (i) above be made with the following observations : " The explanation given before me was not available to the assessing officer at the time of completion of assessment. The only information available on the record to the assessing officer was that the amount represented sales tax suspense account. The amount was obviously collected from parties on account of sales tax. The moment sales was effected to the parties a liability of payment of the sales tax was created. This liability could be extinguished on production of declaration forms. Admittedly, declaration forms were collected much later. Hence the amount collected on account of sales tax was to be treated as sales tax collection. Thus, when collected it was collected on account of sales tax and therefore in the fitness of this it should have been included in the trading account so as to swell the gross turnover (including sales collected). The assessee collected the sales tax amounts from the parties but held on to the same to be paid only if d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 43B if not paid till the end of the year. The assessing officer was clearly in error in not taking this into account." 3. He has challenged the above order of the CIT in appeal before the Tribunal. Shri S.K. Tulsiyan, the learned counsel for the assessee contended that the amounts in dispute were taken by the assessee under valid contracts and were refundable to purchasers and therefore could not constitute trading receipts. With reference to deposit under the head " Sales Tax Suspense Account ", Shri Tulsiyan explained that the assessee, as a dealer, sold industrial gases to its customers who were registered dealers under the West Bengal Sales Tax Act. The dealers gave requisite declaration form in majority of cases and were charged with sales tax accordingly. However some petty customers who were registered dealers were not able to furnish the declaration under the Sales Tax Act due to non-availability of declaration at the time of sale. As per arrangement between the assessee and the customers those persons made deposit which was refundable on furnishing of the declaration. Thus, deposit is taken under special circumstances. Shri Tulsiyan referred to relevant provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mported as its own which all along remained the property of the principal. The deposits were taken by the assessee to safeguard its interest and to secure performance of contract from the customers. The learned counsel for the assessee also emphasised that only real income can be assessed to tax. He further stated that it would be inequitious under the law to ask the assessee to pay tax on deposits which were of refundable character. The High Court may ultimately uphold the levy of custom duty. Wherefrom the assessee would pay the huge amount now secured through bank guarantee if large portion of the same is to be paid as tax ? It would, therefore, be unjust both under law and on facts to treat the deposits as income of the assessee. 5. Shri S.C. Sen, the learned departmental representative supported the impugned order of the CIT. He argued that sales tax was collected by the assessee in the course of its business and was part of trading receipts. In this connection, Shri Sen referred to section 4 of the Sales-tax Act which, according to him, is a charging section. He also referred to section 2(1) of the Sales-tax Act defining a ' dealer '. According to Shri Sen the liability to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs for discharging a statutory liability was not very significant in a case where mercantile system of accounting was being followed. Even if the amount collected was trading receipt there was a corresponding accrued statutory liability and thus no assessable income resulted from receipt. But under section 43B deduction for certain statutory liability is to be allowed only on actual payment basis. Here, in the present case, the assessee can also claim deduction in the year in which sales tax or custom duty is actually paid. Shri Sen also referred to section 41(1) of the Act and submitted that remission or cessation of liability was relevant only under the above provision and not otherwise. A receipt which is a trading receipt at its inception cannot change its character subsequently. Shri Sen concluded his argument by saying that the Assessing Officer failed to consider the relevant entries or legal nature of the deposit in both the accounts and thus made assessments erroneous and prejudicial to the interests of the revenue under section 263 of the Act. He accordingly supported the impugned order of the CIT. Shri Tulsiyan in rebuttal, once again, reiterated his submissions already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount collected from purchasing dealers was not refunded. The CIT does not factually dispute the arrangement claimed to be made by the assessee with its customers. It is also not in dispute that deposits are being collected by the assessee from its customers as per the practice followed for the past several years. It is not the case of the revenue that the assessee had no intention to refund the deposits even on furnishing of declaration forms. In respect of " Collector of Customs (Party) Account ", there is no dispute that the assessee acted as forwarding and handling agent and the goods imported always remained the property of the assessee's customers (principal). There is no challenge to the correctness of the assessee's account where sale and purchase of imported goods is not reflected. Thus, existence, legality and validity of arrangements under which deposits in both the accounts were collected has not been challenged. As per the revenue, the deposits are or would deem to be sales tax and customs duty recovered in the course of business carried on by the assessee and, therefore, assessable income. The assessee disputes the above legal inference. So, the question to be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lord Macnaghten in London County Council v. Attorney-General [1901] AC 25 (HL) : " It is familiar learning and yet Lord Macnaghten had to draw our attention to it in London County Council v. Attorney-General [1901] AC 25 (HL) that income-tax is a tax on income. It is what reaches the assessee as income that is intended to be charged to tax under the Act. Every receipt by the assessee is not necessarily income in his hands. It is only when it bears the character of income at the time when it reaches the hands of the assessee that it becomes exigible to tax." Their Lordships then quoted as follows : " The question then arises whether this obligation to utilise the surcharge for local charities was an obligation to apply the surcharge to local charities after it reached the assessee as its income or it was diverted for being applied to local charities before it was received by the assessee. Did it involve an application by the assessee of a part of its income to local charities, or was it rather an allocation of a receipt for local charities before it became income in the hands of the assessee ? The true test for determining this question is, to use the words of Hidayatullah, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the surcharge received by the assessee could not be regarded as income assessable to tax." In Smt. Lilavati F. Shah's case, the assessee an Octroi Agent entitled to commission collected Octroi duty for payment to Poona Corporation 90% of duty which was refundable was paid by the assessee and 10% was contributed by the importer. The said 10% was retained even after goods were imported out of Corporation. The retention of even 10% was held to be illegal and in a civil suit a sum of Rs. 8,49,730 was decided in favour of the assessee. On a question whether the above amount was taxable the Bombay High Court held as follows : " 14. Upon the evidence that is available in the statement of the case, the assessee was an octroi agent whose only remuneration for the agency was commission at the rate of 2.5% of the octroi duty. There is nothing to indicate that he became entitled to the rebate in octroi duty on his own account or that the importer did not have any right thereto. It must, accordingly, be held that the rebate was received by the assessee as an agent for the importer to whom he was liable by reason of a fiduciary relationship. Consequently, it cannot be held that the amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods purchased against such declaration, and used by him directly in the manufacture in West Bengal, of goods or in the packing of such goods, when such manufactured goods are transferred by him to a place outside West Bengal or disposed of by him, otherwise than by way of sales in West Bengal ; (iii) any person, whether a dealer or not, who is not registered under this Act, of goods other than gold, rice and wheat intended for a purpose, other than those specified in clause (i). (7) If any question arises whether,---- (i) (a) a purchase has been made from a registered dealer, or (b) a purchase has been made from a dealer who is not registered for a purpose other than those specified in clause (i) of preceding sub-section, and hence is not liable to be taxed under the said clause, or (ii) a purchase made against a declaration referred to in the proviso to clause (bb) of sub-section (1) of section 5 is not liable to be taxed under clause (ii) of sub-section (6), the burden of proof shall be upon the dealer who claims to be not liable to be taxed." " 5. Rate of tax -- (1) The tax payable by a dealer under this Act shall be levied on his taxable turnover at the rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration of provisions quoted above, we are unable to accept this view. As per section 5(aa) of the Sales-tax Act, sales tax is to be collected from a registered dealer at the rate prescribed. The proviso to sub-section would not come into play " unless the dealer selling the goods furnishes in the prescribed manner a declaration containing prescribed particulars ". It is not provided " unless the purchaser of goods furnished the declaration ". If it was so provided the seller was bound to charge sales tax at the rate applicable to an unregistered dealer without the declaration. In such a situation, the total amount collected was sales tax and the revenue had a point. But here the statutory provision is quite the opposite ; instead of purchaser, the seller is to furnish the declaration. The time of furnishing the declaration under rule 27A(9) is also relevant. Unless the time provided is over and assessment is made taking sale as sale to unregistered dealer the amount (of deposit) representing the difference could not be treated as sales tax. Further, the scheme of the Act clearly envisages that declaration forms may not be available at the time of sale. Those forms are not freely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d it was insignificant. The assessee was not running its business on sales tax collection as were the case in the cases of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC) Sinclair Murray Co. (P.) Ltd. Therefore, for all the above reasons, we are unable to hold that the deposits in sales tax account were part of trading receipts and thus taxable in the assessee's hands for the assessment years 1984-85 and 1985-86. 14. The addition in respect of deposit under the head " Collector of Customs (Party) Account " is totally untenable. The assessee admittedly never traded in the goods imported and therefore it is difficult to understand how customs duty became the assessee's trading receipt. The reason given by the CIT in his impugned order which is sought to be defended before us is that the assessee imported the goods and became liable to pay custom duty which was " any sum payable by the assessee by way of tax or duty under any law for the time being in force " under section 43B of the Income-tax Act, 1961. As " money was collected on account of custom duty and payable by the assessee on behalf of the party " and not paid to the Government it attracted provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Makum Road, Tinsukia, Assam, a sum of Rs. 1,89,400 (Rupees One lac eighty nine thousand four hundred only) by cheque only, towards deposit on account of extension by Bank Guarantee in favour of Collector of Customs. The said amount will be refunded/adjusted only after the final settlement of the case in the court." Thus, the deposit was collected as an agent under a legal enforceable obligation. It was specifically earmarked as agreed between the parties. It was held in a fiduciary capacity and can under no circumstances be treated as trading receipts. 16. It is settled law that revenue cannot re-write agreement reached between the parties. It is not permissible to ignore implications of admitted legal relationship. The assessee, in both the cases, instead of cash could have taken security in kind (for example, immovable property) to cover its risk and due performance of contracts. The legal implications and character of transaction would have remained the same. Of course, deposit in cash was more advantageous to the assessee but merely on account of above advantage the deposit will not become trading receipt or taxable income. For all the above reasons, we hold that the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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