1997 (8) TMI 7 - SC - Income Tax

Sales tax refund kept by business: is it taxable as trading income under s. 41(1), unless repaid to customers

Whether a sales tax refund received by the assessee constituted a taxable trading receipt was determined by applying s. 41(1) of the Income-tax Act. The ... Claim for deduction of refund of sales tax - sale of its products, collected sales tax from the purchasers - Whether, the Tribunal was justified in deleting the sum from the taxable trading receipt of the assessee for 1974-75 - HELD THAT:- The assessee got back an amount as refund. The entire amount of sales turnover of the assessee inclusive of the amount of tax collected was clearly includible in the assessee's taxable income. If any deduction was given from that income and later the same was refunded back to the assessee, the refund will have the character of revenue receipt. It has to be treated as a receipt on the revenue account and has to be assessed as such. The position has been placed beyond doubt by the express provisions of section 41(1) of the Income-tax Act. Admittedly, the assessee had not refunded any part of this amount to any one of its customers in the year of account. As and when such refund is made, the assessee will be entitled to claim deduction. We are of the view that the Tribunal was in error in deleting the amount from the trading receipt of the assessee from the assessment year 1974-75. The question is, therefore, answered in the negative and in favour of the Revenue. The appeal is allowed. There will be no order as to costs. The Supreme Court held that the Tribunal was wrong in deleting a sum of Rs. 1,37,379 from the taxable trading receipt of the assessee for the assessment year 1974-75. The sales tax collected by the assessee must be treated as income, and any refund received has to be assessed as a revenue receipt. If the assessee refunds any portion to customers, a deduction can be claimed. The appeal was allowed in favor of the Revenue, with no order as to costs.