Trading receipts and turnover tax liability: retained sums held under refund obligation were not taxable receipts, and section 43B did not apply.

Amounts retained by a commission agent from sums payable to principals, under an arrangement that they would be refunded if turnover tax was not found payable, did not constitute the agent's trading receipts. Because the collections were not received from purchasers as tax, were recorded in the principals' accounts, and remained subject to a refund obligation, they did not assume the character of income or tax collections in the agent's hands. On that basis, section 43B was not attracted and the addition was deleted. The Tribunal also noted that the reassessment order exceeded the limited remand directions, which were confined to verifying the arrangement with the principals and the assessee's turnover tax liability.

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Issues: Whether amounts retained by the assessee from principals towards alleged turnover tax liability constituted its trading receipts and were liable to disallowance under section 43B of the Income-tax Act, 1961.

Analysis: The assessee, a commission agent, retained sums from amounts due to its principals on a specific understanding that the sums would be refunded if the assessee was ultimately held not liable for turnover tax, or applied towards tax liability if so held liable. The collections were not made from purchasers as tax but were reflected in the account statements of the principals and carried an obligation to refund. In these circumstances, the sums retained did not assume the character of income or tax collections of the assessee. The Tribunal also held that the reassessment order travelled beyond the limited remand directions, which required only verification of the understanding with the principals and the assessee's liability to turnover tax.

Conclusion: The amounts were not trading receipts of the assessee and section 43B was not attracted. The addition was deleted in favour of the assessee.

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