Sales tax collected and retained by assessee constitutes taxable trading receipts; later refund deductible, appeal dismissed

Whether Rs. 7,14,398 collected as sales tax constituted taxable trading receipts. The SC held that the true nature of the receipt governs its character: sales tax collected and retained by the assessee, not earmarked or deposited with the State, forms part of trading receipts and hence taxable under the Indian Income-tax Act, 1922; reliance placed on Chowringhee Sales Bureau precedent and noting s.9B(3) Orissa Sales Tax Act does not alter the receipt's character. If subsequently refunded or paid to the Government, a corresponding deduction would be allowable. The appeal was dismissed.

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Issues: Whether the sum of Rs. 7,14,398 realised by the assessee as sales tax was liable to be included in the total income of the assessee for the assessment year 1953-54.

Analysis: The Court examined whether an amount collected and retained by a dealer as "sales tax" can retain a character distinct from trading receipts where the dealer did not deposit the amount with the Government, did not earmark it separately, mixed it with business funds and employed it in the business. The Court applied prior authorities holding that the true nature of a receipt governs its tax character and that tax collected and passed on to a buyer as an addition to price may constitute part of the consideration for the sale. The Court considered subsection (3) of section 9B of the Orissa Sales Tax Act and relevant precedents, notably Chowringhee Sales Bureau P. Ltd., concluding that where tax realised is utilised in the business and not segregated or deposited, it becomes part of trading receipt, with a right to deduction only upon actual payment/refund to the Government or purchaser.

Conclusion: The sum of Rs. 7,14,398 realised as sales tax is to be treated as trading receipt and is includible in the assessee's total income; the appeal is dismissed (decision in favour of the revenue).

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