Trading receipts and mercantile deduction principles: rusum collections were taxable, while accrued sales tax was deductible on accrual.

Amounts collected by a commission agent in the course of jaggery sales remained business receipts despite being described as "rusum", and the retrospective sales tax amendment confirmed the trading character of the collections, so the amount was taxable as business income. Under the mercantile system, a statutory sales tax liability that had accrued was deductible in the relevant assessment year even though it was paid later, because section 43B of the Income-tax Act, 1961 was not then in force. The receipt-characterisation issue was decided against the assessee, while the deduction for sales tax liability was allowed for the year of accrual.

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Issues: (i) Whether amounts collected by a commission agent under the description of "rusum" on jaggery sales constituted taxable business receipts; (ii) Whether sales tax liability, though not actually remitted during the relevant assessment year, was deductible in that year under the mercantile system of accounting.

Issue (i): Whether amounts collected by a commission agent under the description of "rusum" on jaggery sales constituted taxable business receipts.

Analysis: Amounts collected in the course of business retain their character as trading receipts even if they are described differently. The later retrospective amendment to the State sales tax law confirmed the liability and showed that the collections were made in connection with the assessee's business operations.

Conclusion: The amount collected as "rusum" was a business receipt and the issue was decided against the assessee.

Issue (ii): Whether sales tax liability, though not actually remitted during the relevant assessment year, was deductible in that year under the mercantile system of accounting.

Analysis: The assessee maintained mercantile accounts. For the relevant assessment year, section 43B of the Income-tax Act, 1961 was not in force. Under the mercantile method, a statutory liability that had accrued was allowable as a deduction even if payment was made later, and the retrospective sales tax amendment fixed the liability for the year in question.

Conclusion: The sales tax amount was deductible in the relevant assessment year and the issue was decided in favour of the assessee.

Final Conclusion: The appeals succeeded only to the extent that the deduction for sales tax liability was allowed for the relevant year, while the receipt characterization issue was answered against the assessee.

Ratio Decidendi: Under the mercantile system, an accrued statutory liability is deductible in the year of accrual notwithstanding later payment, and collections made in the course of business remain business receipts even if separately described.

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