Sales tax refund treated as taxable trading receipt where earlier deduction had been allowed and no customer repayment was made.

Sales tax refund received by the assessee was treated as a revenue receipt because the corresponding tax had earlier been allowed as a deduction and the refund retained its trading character. As no part of the amount had been returned to customers in the relevant year, it could not be excluded from assessment, and section 41(1) of the Income-tax Act, 1961 reinforced taxability. The deletion of the amount from the assessment was therefore unsustainable, in favour of the Revenue.

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Issues: Whether the sales tax refund received by the assessee was taxable as a trading receipt for the relevant assessment year.

Analysis: The amount collected as sales tax formed part of the assessee's taxable trading receipt. The earlier payment of sales tax had been allowed as a deduction, and when that amount was later refunded to the assessee, the refund retained the character of a revenue receipt. Since no part of the amount had been returned to customers in the relevant year, the assessee was not entitled to exclude it from assessment. The position was reinforced by section 41(1) of the Income-tax Act, 1961.

Conclusion: The refund was taxable and the deletion of the amount from the assessment was unsustainable, in favour of the Revenue.

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