Sales tax mixed with business funds was treated as trading receipt and included in total income.

Sales tax collected from purchasers was held to be a trading receipt where it was not kept as a separate deposit, was mixed with the assessee's business funds, and was treated in the books as part of business liabilities rather than as money held outside the business. The decisive factor was the manner of receipt and treatment at collection, not merely a possible contingent obligation to refund or deposit the amount. The court distinguished cases where tax is separately received and retained for the Government or for refund, in which no beneficial interest accrues to the dealer. On these facts, the amount was includible in total income.

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Issues: Whether sales tax collected by the assessee from purchasers, but not separately kept or deposited and instead mixed with its business funds, formed part of its trading receipt and was includible in its total income under the Indian Income-tax Act, 1922.

Analysis: The decisive enquiry was not merely whether the assessee had a contingent obligation to refund or deposit the amount, but how the amount was in fact dealt with when received. The receipts were shown in the bills along with the sale price, were not earmarked as a separate deposit, and were treated in the books as a liability for expenses rather than as money held outside the business. On the facts found, the amount was mixed with the assessee's own funds and used in the course of business. The existence of a possible duty to refund did not alter the character of the receipt at the time of collection. The court distinguished situations where tax is actually received and retained as a separate deposit for the Government or for refund, in which case no beneficial interest accrues to the dealer.

Conclusion: The amount realised as sales tax was a trading receipt and was rightly includible in the assessee's total income. The question was answered in favour of the Revenue.

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