Sales tax collected but unpaid is not taxable income under the mercantile system where it remains an admitted liability.

Sales tax collected by an assessee following the mercantile system, but not remitted to the State in the relevant year, was treated as an admitted liability and not as income. The Court applied its earlier view that such collected tax does not become taxable income merely because it has been retained unpaid during the assessment year. Accordingly, the sales tax amount was not includible in the assessee's total income for the year in question, and the issue was answered in favour of the assessee and against the Revenue.

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Issues: Whether sales tax collected by the assessee but not remitted during the previous year relevant to assessment year 1976-77 was includible in its total income.

Analysis: The assessee followed the mercantile system of accounting and treated the amount as an admitted liability payable to the State Government. In similar circumstances, the Court had already held that such an amount was allowable as a deduction and could not be treated as income merely because it had been collected but not yet paid over.

Conclusion: The sales tax amount collected but not paid was not includible in the assessee's total income for the relevant assessment year, and the answer was in favour of the assessee and against the Revenue.

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