Sales tax collections as trading receipt: surplus retained over tax payable was treated as taxable income.

Surplus sales tax collected by a registered dealer over the amount actually payable to the Government was held to be taxable income. Under the U.P. Sales Tax Act, the dealer remained primarily liable for the tax, and the ability to recover an equivalent amount from customers did not create a governmental agency or trust over the collections. The tax amounts formed part of the sale price and were trading receipts. For an assessee using the cash system, only the amount actually paid to the Government was deductible, and any retained surplus constituted income in the relevant assessment year.

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Issues: Whether the surplus of sales tax collected by a registered dealer, over and above the amount actually payable to the Government, constituted income of the assessee for the relevant assessment year.

Analysis: Under the U.P. Sales Tax Act, the liability to pay sales tax was that of the dealer and not the purchaser. The dealer was permitted to recover an amount equivalent to the tax from customers, but that facility did not make the dealer an agent of the Government or create a trust in favour of the Government over the collections. Amounts charged from customers as sales tax were part of the sale price and therefore formed a trading receipt. For an assessee following the cash system of accounting, the amount actually paid to the Government was deductible, and any surplus retained after meeting the liability represented income.

Conclusion: The surplus of sales tax collections was income of the assessee and the question was answered in the affirmative, against the assessee and in favour of the Revenue.

Ratio Decidendi: Sales tax collected by a dealer from customers, where the dealer remains primarily liable for the tax and accounts on the cash system, is a trading receipt and any excess over the tax actually payable is taxable income.

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