Taxability of sales tax collections depends on character at receipt, not later retention or non-remittance.

Sales tax collections are not taxable income if they do not have the character of trading receipts at the time of receipt. The governing principle applied is that taxability depends on the nature of the amount when initially received, and later retention, appropriation, or failure to remit it to the Government does not change that character for income-tax purposes. On the admitted facts, the excess of sales tax collections over payments made to the Government was therefore held not to be taxable income of the assessee, and the reference was answered in favour of the assessee.

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Issues: Whether the sum of Rs. 1,17,571, being the excess of sales tax collections over payments made to the Government, represented taxable income of the assessee.

Analysis: The reference was confined to the effect of the admitted position before the Tribunal that sales tax received by the assessee did not constitute income at the time of collection. The governing principle applied was that the taxability of a receipt depends on its character at the point of initial receipt. If the amount is not a trading receipt when received, its later retention, appropriation, or failure to remit it does not alter its original character for income-tax purposes.

Conclusion: The sum of Rs. 1,17,571 was not taxable income of the assessee and the question was answered in the negative, in favour of the assessee.

Ratio Decidendi: The taxability of a receipt is determined by its character at the time of receipt, and a later appropriation or non-payment to the Government does not convert a non-taxable receipt into taxable income.

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