Sales tax collection as trading receipt and cash-basis deduction depend on receipt character and actual payment.

Sales tax realised from purchasers was treated as part of the sale price and therefore as a trading receipt includible in total income, because its character was determined at the point of receipt in the course of trading and was not altered by any later liability to pay or refund it. Under the cash basis of accounting, deduction was available only on actual payment, so the collected sales tax was not deductible in the relevant accounting year where no payment to the State had been made. The stated legal position thus favoured taxation of the receipt and denied deduction until payment occurred.

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Issues: (i) Whether sales tax collected by the assessee formed part of the sale price and was a trading receipt includible in the total income. (ii) Whether, under the cash basis system of accounting, the amount collected as sales tax was deductible in the accounting year notwithstanding non-payment to the State.

Issue (i): Whether sales tax collected by the assessee formed part of the sale price and was a trading receipt includible in the total income.

Analysis: The statutory definition of sale price, turnover, and taxable turnover showed that sales tax was not excluded from the consideration received on sale, and the amount collected in the course of trading was treated as part of the circulating trading capital. The legal character of the receipt depended on its nature at the point of receipt, and the fact that the amount might later be payable to the State or refundable to purchasers did not alter its character when received as part of the transaction of sale.

Conclusion: Sales tax collected by the assessee was part of the sale price and constituted a trading receipt includible in the total income.

Issue (ii): Whether, under the cash basis system of accounting, the amount collected as sales tax was deductible in the accounting year notwithstanding non-payment to the State.

Analysis: Under the cash basis system, only amounts actually paid out as business expenditure are deductible in computing taxable income. Although sales tax paid in the accounting year would have been allowable as expenditure laid out wholly and exclusively for the business, no payment of sales tax had in fact been made during the relevant year. Accordingly, the amount could not be treated as deductible expenditure for that year.

Conclusion: The amount collected as sales tax was not deductible in the accounting year because it had not been paid during that year.

Final Conclusion: The legal position was settled against the assessee: the amount collected as sales tax was taxable as a trading receipt, and no deduction was allowable in the relevant accounting year in the absence of actual payment under the cash method of accounting.

Ratio Decidendi: Sales tax realised in the course of sale forms part of the sale price and is a trading receipt when received, while deduction on the cash basis is available only upon actual payment as business expenditure.

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