Trading receipt treatment for royalty collections: amount formed part of sale price and was taxable in the year of collection.

Royalty collected from customers in the course of brick sales was treated as part of the sale price and therefore as a trading receipt forming revenue income. Separate disclosure on invoices did not change its character, and the plea that the amount was merely held in trust for customers was unsupported. On timing, the collections had been made in earlier years and no prior deduction had been allowed, so section 41(1) could not be used to tax the amount in the later assessment year. The addition was deleted for the year under appeal, with taxability, if any, confined to the years of collection.

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Issues: (i) Whether royalty collected from customers formed part of the assessee's trading receipts and revenue income; (ii) Whether the amount was taxable in the assessment year under appeal or in the years in which it was collected.

Issue (i): Whether royalty collected from customers formed part of the assessee's trading receipts and revenue income.

Analysis: The royalty was levied on the brick manufacturer under the relevant mineral concession rules, though the assessee chose to calculate it with reference to bricks sold and to show it separately in the sale bills. The separate disclosure in the bills did not alter the character of the collection, and the amount represented part of the sale price realised for the bricks. The assessee's plea that it merely held the amount in trust for customers, or that the customers were primarily liable, was not supported by material.

Conclusion: The royalty collections were trading receipts and were assessable as income.

Issue (ii): Whether the amount was taxable in the assessment year under appeal or in the years in which it was collected.

Analysis: The amounts had been collected in earlier years and were never claimed or allowed as an expenditure or loss in those years. Section 41(1) had no application because there was no prior allowance of deduction. The proper year of taxability was the respective year of collection, not the later year in which the accumulated balance was brought to account.

Conclusion: The addition was deleted from the assessment year under appeal and the amount was directed to be taxed, if at all, in the years of collection.

Final Conclusion: The assessee succeeded on the alternative plea, resulting in deletion of the impugned addition for the year under appeal while the receipts remained taxable in the earlier years of collection.

Ratio Decidendi: A levy collected by a seller as part of the sale price retains the character of a trading receipt, and if such receipt was not earlier allowed as an expenditure, section 41(1) cannot be invoked to tax it in a later year; it is taxable in the year of receipt.

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