Trading receipt principle applies to sales tax refund collected as part of sale consideration and taxed as business income.

An amount collected from customers as part of sale consideration, described as Bombay sales tax, was treated as a trading receipt because the collection arose in the course of the assessee's coal and coke and was not money held for purchasers in a statutory sense. The Bombay Sales Tax Act fastened liability on the dealer, and section 21 did not create an enforceable right in the purchasers or convert the collection into a mere deposit. A later refund by the taxing authority did not change the commercial character of the original receipt, so the refunded amount remained assessable as business income.

---

---

Issues: Whether the amount refunded by the Bombay sales tax authorities to the assessee was assessable as income and, in particular, whether it constituted a trading receipt forming part of the assessee's business income.

Analysis: The assessee purchased coal and coke and sold them to customers in the course of trade, charging an amount described as Bombay sales tax along with commission. The Court treated the amount collected from customers as part of the sale consideration and not as money belonging to the purchasers in the statutory sense. The charging provision under the Bombay Sales Tax Act fastened liability on the dealer, and section 21 did not create any statutory liability in the purchasers or convert the collections into a mere deposit held for them. The refund received from the Bombay authorities arose after the sales tax burden had been borne in the course of the assessee's business operations, and the character of the receipt was judged by the nature of the trading transaction in which it arose. The authorities on diversion of income and on receipts which are not income at inception were distinguished, and the Court held that the refund did not alter the commercial character of the original receipt.

Conclusion: The refunded amount was a trading receipt and was assessable as the assessee's income; the answer to the reference was in favour of the Revenue.

Ratio Decidendi: Where an amount charged and received in the course of a sale forms part of the sale consideration in a trading transaction, a later refund of that amount by the taxing authority remains a business receipt assessable as income, unless the statute creates an enforceable right in another person to the money at inception.

---