Trading receipts and genuine share sale loss: sales tax collections were taxable, but the capital loss was allowed.

Amounts collected from customers towards sales tax, where the statutory liability continued and no court order stayed payment, were treated as trading receipts and included in income because tax character depends on the true nature of the receipt, not accounting presentation. A genuine share sale transaction was respected and the resulting capital loss was allowed because there was no material to show receipt of more than the agreed consideration, and the mere fact that the shares may have had a higher intrinsic value did not justify disregarding the transaction. The tax appeal therefore succeeded only on the sales tax deposit issue.

---

---

Issues: (i) whether deposits collected towards sales tax, when liability to pay the tax subsisted and no court order permitted non-payment, formed part of trading receipts and were includible in income; (ii) whether the loss arising from sale of shares in a company connected with the assessee's family interest was deductible where the transaction was found genuine and only the intrinsic value of the shares was said to be higher than the sale price.

Issue (i): whether deposits collected towards sales tax, when liability to pay the tax subsisted and no court order permitted non-payment, formed part of trading receipts and were includible in income.

Analysis: The amount was collected from customers during the relevant assessment year towards a statutory liability that had not been stayed or suspended by any judicial order. The character of the receipt was determined by its true nature, not by the manner in which it was shown in the accounts. Amounts collected towards sales tax in these circumstances were trading receipts and could not be excluded from computation of income.

Conclusion: The issue was answered against the assessee and in favour of the revenue.

Issue (ii): whether the loss arising from sale of shares in a company connected with the assessee's family interest was deductible where the transaction was found genuine and only the intrinsic value of the shares was said to be higher than the sale price.

Analysis: The transaction was found to be genuine, and there was no material to show that the assessee received anything more than the agreed consideration. A mere comparison between the sale price and the intrinsic value of the shares did not permit the tax authority to disregard the transaction or deny the consequence flowing from it. The appellate authority's allowance of the capital loss was therefore justified.

Conclusion: The issue was answered in favour of the assessee and against the revenue.

Final Conclusion: The tax appeal succeeded only on the treatment of sales tax deposits as trading receipts, while the allowance of capital loss on the share transaction was upheld; overall, the questions were answered in favour of the assessee and against the revenue.

Ratio Decidendi: The true character of a receipt governs its tax treatment, and a genuine transaction cannot be disregarded merely because the asset may have had a higher intrinsic value than the agreed sale price.

---