Case Note & Summary
The appeal before the Supreme Court arose from a reference under Section 66(1) of the Indian Income-tax Act, 1922 by the Calcutta High Court. The assessee, a limited company with head office in Calcutta, was a registered dealer under the Orissa Sales Tax Act, 1947, and its activities included purchase and sale of jute in Orissa. During the accounting year ended June 30, 1952 relevant to assessment year 1953-54, the assessee sold jute to a purchaser company and charged sales tax at one anna per rupee of the value of goods, separately shown in bills as 'Sales tax buyers' account'. The total sales tax collected was Rs. 16,54,455, but the assessee did not pay it to the State Government, claiming the sales were inter-State sales. The Income Tax Officer added the entire sum to total income as trading receipt. On appeal, the Appellate Assistant Commissioner found actual collection was Rs. 7,41,962, out of which Rs. 27,564 had been paid to the Orissa Government, and confirmed addition of Rs. 7,14,398. The Appellate Tribunal allowed the assessee's appeal, holding that the amount collected as sales tax did not form part of sale price and the dealer acquired no beneficial interest; failure to deposit could not transform its character. The High Court reversed the Tribunal, holding that the tax realised from customers and utilised in business formed part of trading receipt; the fact that the assessee did not earmark or deposit the amount with the Government indicated it treated the amount as its own money. The High Court also referred to Section 9B(3) of the Orissa Sales Tax Act, which required deposit of excess tax realised. On appeal to the Supreme Court, the assessee contended that the amount retained its character as sales tax and could not be treated as trading receipt. The revenue relied on Chowringhee Sales Bureau P. Ltd. v. Commissioner of Income-tax West Bengal, where this Court held that sales tax realised by an auctioneer formed part of trading receipts despite separate accounting head. The Supreme Court found the dictum in Chowringhee Sales Bureau fully applicable; it reiterated that the true nature and quality of the receipt determines its character, not the head under which it is entered in books. The Court rejected the assessee's attempt to distinguish on the ground that the Bengal Finance (Sales Tax) Act, 1941 did not have a provision corresponding to Section 9B(3) of the Orissa Act, stating that the existence of a statutory duty to deposit or refund did not prevent the amount from being a trading receipt; the assessee would be entitled to claim deduction as and when it paid the amount to the State Government or refunded it to the purchaser. The Court also noted that it was not necessary to decide the constitutional validity of Section 9B(3). Accordingly, the appeal was dismissed and the question was answered in the affirmative, i.e., the sum of Rs. 7,14,398 was liable to be included in the total income of the assessee.
Headnote
A) Income Tax - Trading Receipt - True Character of Receipt - Indian Income-tax Act, 1922 - The assessee collected sales tax from purchaser as part of sale consideration and did not pay it to the Government; the Income Tax Officer included it in total income. Supreme Court held that the true nature and quality of the receipt, not the accounting head, is decisive; since the amount was not separated from sale price and was used as own money, it constituted trading receipt. Assessee could claim deduction when the amount is paid to the Government or refunded to purchaser. (Paras unnumbered) B) Sales Tax - Statutory Obligation - Section 9B(3) of Orissa Sales Tax Act, 1947 - The provision requiring deposit of excess tax realised did not prevent the amount from being treated as trading receipt; the Court did not decide constitutional validity of the provision. Duty to refund or deposit does not alter trading receipt character until actually paid. (Paras unnumbered) C) Precedent - Applicability of Chowringhee Sales Bureau P. Ltd. v. Commissioner of Income-tax West Bengal - Distinguishing on ground that Bengal Finance (Sales Tax) Act lacked provision corresponding to Section 9B(3) was held not sufficient; dictum applies to present facts. (Paras unnumbered)
Issue of Consideration
Whether the sum of Rs. 7,14,398 collected as sales tax by the assessee but not deposited with the Orissa Government was liable to be included in the total income of the assessee under the Indian Income-tax Act, 1922.
Final Decision
Appeal dismissed; the sum of Rs. 7,14,398 was liable to be included in the total income of the assessee as trading receipt. The assessee would be entitled to claim deduction if and when the amount is paid to the State Government or refunded to the purchaser.
Law Points
- It is the true nature and quality of the receipt and not the head under which it is entered in the account books that proves decisive
- a trading receipt is includible in total income even if not shown as such in account books
- sales tax collected by a dealer as part of sale consideration is trading receipt
- deduction is allowed when the amount is paid to the State Government or refunded to the purchaser
- the dictum in Chowringhee Sales Bureau applies even where statute requires deposit of excess tax
