Representative collections on consignment sales are not trading receipts, while crystallised land revenue remains deductible.

Sales tax collected by a distributor or commission agent on consignment sales was held not to be the assessee's trading receipt, because the collections were made in a representative capacity for the principal and section 43B could not be applied to add them back. Land revenue paid after receipt of demand during the year was deductible under the mercantile system, since the liability had crystallised in that year. By contrast, an amount admittedly relating to earlier years could not be claimed in the year under appeal merely because it appeared as a difference between expenditure and income, so the prior-years disallowance was upheld.

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Issues: (i) Whether sales tax collected by a distributor or commission agent on sales made on behalf of the principal could be treated as the assessee's trading receipt and disallowed under section 43B of the Income-tax Act, 1961. (ii) Whether land revenue paid on receipt of demand during the relevant previous year was allowable as a deduction. (iii) Whether the difference between earlier year expenditure and income could be disallowed as relating to prior years.

Issue (i): Whether sales tax collected by a distributor or commission agent on sales made on behalf of the principal could be treated as the assessee's trading receipt and disallowed under section 43B of the Income-tax Act, 1961.

Analysis: The agreement showed that the goods were supplied on consignment, the property remained with the principal until sale, and the assessee was remunerated by commission. The sales tax collection was shown separately in the accounts and was not claimed as business expenditure. The liability under the sales tax law did not alter the character of the receipt, because the collections were made in a representative capacity on behalf of the principal. On that footing, section 43B could not be invoked to add back the sales tax collection in the assessee's hands.

Conclusion: The issue was decided in favour of the assessee and no disallowance under section 43B was permissible.

Issue (ii): Whether land revenue paid on receipt of demand during the relevant previous year was allowable as a deduction.

Analysis: The demand notice was received within the year under consideration, so the liability had arisen in that year. Under the mercantile system, the liability was deductible in the year in which it accrued, and the fact that it related to land revenue did not justify disallowance once the demand had crystallised during the relevant year.

Conclusion: The issue was decided in favour of the assessee and the amount was allowable as a deduction.

Issue (iii): Whether the difference between earlier year expenditure and income could be disallowed as relating to prior years.

Analysis: The amount admittedly pertained to earlier years. Since the assessee followed the mercantile system, a claim relating to prior years could not be allowed in the year under appeal merely because the computation showed a difference between expenditure and income.

Conclusion: The issue was decided against the assessee and the disallowance was upheld.

Final Conclusion: The appeals succeeded only in part, with relief granted on the sales tax and land revenue issues, while the prior-years difference remained disallowed.

Ratio Decidendi: Amounts collected by a commission agent in a representative or fiduciary capacity on behalf of the principal do not become the agent's trading receipts merely because the agent may be jointly liable under sales tax law.

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