Sales tax collections retained as surplus are taxable trading receipts where the dealer uses the cash system of accounting.

Sales tax recovered by a dealer from customers formed part of the sale consideration and was a trading receipt, not a trust amount held for the State. Under the U.P. Sales Tax Act, the dealer remained liable for the tax, and in a cash system of accounting only the tax actually paid to the Government was deductible. Any surplus left in the sales tax account after payment of the tax constituted taxable income of the assessee, so the collection retained was brought to tax in favour of the Revenue.

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Issues: Whether the surplus arising from sales tax collected by a registered dealer, but not paid over to the State, constituted income of the assessee for the assessment year, particularly where the assessee followed the cash system of accounting.

Analysis: Under the U.P. Sales Tax Act, the liability to pay sales tax rested on the dealer and not on the purchaser. The dealer was permitted to recover an amount equivalent to the tax from customers, but such collection did not make him an agent of the Government or a trustee of the collected amount. The sum recovered from customers at the time of sale formed part of the consideration for the goods and was therefore a trading receipt. In the cash system, only the tax actually paid to the Government would be allowable as a deduction, while any surplus remaining in the sales tax account would represent income.

Conclusion: The surplus of sales tax collected and retained by the assessee was income and answer was returned in favour of the Revenue.

Ratio Decidendi: Where sales tax collected by a dealer forms part of the sale price and the dealer follows the cash system of accounting, any excess of collections over the tax actually paid is a taxable trading receipt.

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