1972 (10) TMI 4 - SC - Income Tax

Sales tax collected by auctioneer treated as auctioneer's business receipts, includible in income; deduction only when paid to State

Dominant issue: whether sales tax sums collected by an auctioneer from purchasers but neither paid to the owners nor deposited with the State constitute ... Auction sales - Business income - nature of receipts - definition of 'dealer' - Sales tax collected by an auctioneer from buyers and not paid to the buyers or Govt. nor refunded to the owners of goods - Whether, the sum had been validly excluded from the assessee's business income for the relevant assessment year - HELD THAT:- An auction sale in view of the provisions of section 4 read with section 64 of the Sale of Goods Act would have to be considered to be a sale for the purpose of the Sale of Goods Act. There is nothing in entry 48 which restricts the power of the legislature in the matter of the imposition of the sales tax to the levy of such tax on the owner of the goods on whose behalf they are sold or the purchaser only. The definition of the word ' dealer ' in Explanation 2 of section 2(c) of the Bengal Act cannot be deemed to be ultra vires the power of the Provincial or State Legislature on the ground that the legislature purports to levy tax on a person who is neither a seller nor a purchaser. it was, in our opinion, within the competence of the Provincial Legislature to include within the definition of the word ' dealer ' an auctioneer who carries on the business of selling goods and who has in the customary course of business authority to sell goods belonging to the principal. It is apparent from the order of the Appellate Assistant Commissioner and has not been disputed before us in the present case that in the cash memos issued by the appellant to the purchasers in the auction sale it was the appellant who was shown as the seller. The amount realised by the appellant from the purchasers included sales tax. The appellant, however, did not pay the amount of sales tax to the actual owner of the goods auctioned because the statutory liability for the payment of that sales tax was that of the appellant. The appellant company did not also deposit the amount realised by it as sales tax in the State exchequer because it took the position that the statutory provision creating that liability upon it was not valid. As the amount of sales tax was received by the appellant in its character as an auctioneer, the amount, in our view, should be held to form part of its trading or business receipt. The appellant would, of course, be entitled to claim deduction of the amount as and when it pays it to the State Government. The fact that the appellant credited the amount received as sales tax under the head ' sales tax collection account ' would not, in our opinion, make any material difference. It is the true nature and the quality of the receipt and not the head under which it is entered in the account books as would prove decisive. If a receipt is a trading receipt, the fact that it is not so shown in the. account books of the assessee would not prevent the assessing authority from treating it as trading receipt. We may in this context refer to the case of Punjab Distilling Industries Ltd. v. Commissioner of Income-tax [1958 (11) TMI 4 - SUPREME COURT]. In that case certain amounts received by the assessee were described as security deposits. This court found that those amounts were an integral part of the commercial transaction of the sale of liquor and were the assessee's trading receipt. We, therefore, agree with the High Court in so far as it has answered the question referred to it in the negative and against the appellant. The appeal consequently fails and is dismissed with costs. Issues:1. Valid exclusion of a sum from the assessee's business income for a specific assessment year.2. Interpretation of the definition of 'dealer' in the Bengal Finance (Sales Tax) Act, 1941.3. Determination of whether the sum realized as sales tax should be considered part of the appellant's trading or business receipt.4. Consideration of the nature of receipts in the context of accounting entries and their treatment for tax purposes.Analysis:1. The judgment pertains to an appeal against the Calcutta High Court's decision regarding the exclusion of a sum from the appellant's business income for a particular assessment year. The appellant, a private limited company acting as an auctioneer, realized a sum as sales tax in addition to commissions. The Income-tax Officer contended that this sum was part of the appellant's income and should be included. However, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal excluded the amount based on the appellant's treatment and pending legal matters. The High Court disagreed, leading to the appeal before the Supreme Court.2. The judgment delves into the interpretation of the term 'dealer' in the Bengal Finance (Sales Tax) Act, 1941. The Calcutta High Court had held the definition ultra vires concerning auctioneers. However, the Supreme Court disagreed, emphasizing that auction sales constitute sales under the Sale of Goods Act, and the legislature's power to tax such transactions is not restricted to owners or purchasers only. The Court highlighted the direct connection between auctioneers and sales transactions, asserting the validity of including auctioneers in the definition of 'dealer.'3. The Court addressed whether the sum received as sales tax should be considered part of the appellant's trading or business receipt. Despite the appellant not paying the sales tax to the actual owner of the goods auctioned, the statutory liability rested with the appellant. The Court concluded that the amount should be deemed part of the appellant's trading receipt, allowing for deduction upon payment to the State Government.4. The judgment discussed the nature of receipts in accounting entries and their treatment for tax purposes. It emphasized that the true nature of a receipt determines its classification, irrespective of the accounting entry. Referring to precedents, the Court highlighted that if a receipt is a trading receipt, its classification in accounting books does not alter its essence. The Court upheld the High Court's decision to include the sales tax amount in the appellant's income, dismissing the appeal and affirming the costs.In conclusion, the Supreme Court upheld the High Court's decision, emphasizing the inclusion of the sales tax amount in the appellant's income and the validity of the legislative definition of 'dealer' to encompass auctioneers.