Mercantile accounting and statutory levy collections: retained mandi shulk was not treated as taxable trading receipt.

Amounts collected from customers toward mandi shulk were not treated as trading receipts merely because they were not remitted during the accounting year. Under the relevant market fee rules, the statutory liability arose when the commodity entered the market area, and the assessee, following the mercantile system, recognised that liability on accrual. Money collected to meet an accrued statutory obligation retained during the year did not convert into taxable income. The amount collected toward mandi shulk was therefore not includible in the assessee's income, and the issue was decided against the Revenue.

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Issues: Whether the amount realised from customers towards mandi shulk, though not actually paid over during the accounting year, formed part of the assessee's trading receipts and assessable income.

Analysis: Under rule 68 and sub-rule 2(i) of the relevant market fee rules, the market fee becomes payable when the commodity is brought within the market area and the commission agent or trader is required to collect it from the seller and deposit it with the Market Committee. The assessee maintained accounts on the mercantile system, under which liability is recognised on accrual and not only on actual payment. The amount collected towards mandi shulk represented money received for meeting a statutory liability, and the non-remittance of that amount in the relevant year did not convert it into trading income.

Conclusion: The amount of Rs. 24,887 collected towards mandi shulk was not includible in the assessee's income; the question was answered in the affirmative and against the Revenue.

Ratio Decidendi: Amounts collected by an assessee to discharge an accrued statutory liability are not trading receipts merely because they are retained during the accounting year, where the assessee follows the mercantile system of accounting.

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