TaxTMI 
TaxTMI 
1985 (10) TMI 129
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....of the year, there was a surplus of Rs. 74,180 in the purchase tax account. According to the ITO, this surplus was to be included as the assessee's income. 3. The assessee explained that the firm was following mercantile system of accounting and it was debiting the party's account and crediting the purchase tax account for each transaction. According to the assessee, it had no interest in this amount of purchase tax as it was to be paid to the Sales Tax Department under the provisions of law. It was also submitted that in certain cases the amount was not payable to the Sales Tax Department but was to be paid back to the parties concerned. This was so when the parties concerned produced certificates from the Sales Tax Department that they have paid tax directly on the relevant transaction. The assessee had relied on certain case laws for the proposition that the balance in the account represented the assessee's liability to the Sales Tax Department under the sales tax law. 4. The ITO was of the view that the assessee could not be treated as discharging the liability of somebody else and the collections of purchase tax was as law requires the assessee to collect it and the responsi....
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....rchase tax accrued and arose at the time of purchase either made on the assessee's own account or on account of other parties. It was, therefore, contended that even if there was a surplus in the purchase tax account the assessee was treating it as its liability to be paid to the Sales Tax Department in view of the decision of the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. Reliance was also placed on the decision of the Allahabad High Court in CIT v. Poonam Chand Trilok Chand. 6. The Commissioner (Appeals) was of the view that the surplus in the account represented liability which had arisen and as the assessee was maintaining accounts on mercantile basis, the assessee could claim it as a deduction. The Commissioner (Appeals) also found support from the decision of the Allahabad High Court in the case of CIT v. Poonam Chand Trilok Chand. The Commissioner (Appeals) held that the payment by the assessee in different years after the close of the accounting year was not important and as the assessee was following mercantile basis, the purchase tax was a liability which arose at the time of purchase itself and this had to be considered against the surplus in the purchase....
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.... comes later on but the charge is created by the section itself. Our attention was also drawn to the provisions of section 29A of that Act under which any amount realised by a dealer as realisation of tax the dealer had to deposit the entire amount into the Government treasury within the prescribed period notwithstanding that the dealer may not be liable to pay such amount as tax or that only a part of it was due from him as tax under this Act. Any amount deposited by any dealer shall to the extent to which it is not due as tax can be held by the dealer in trust for the person from whom it was realised by the dealer. There are provisions for the refund of such amount to those persons from whom it is originally realised. Thus, the law contemplates a charge on the purchases and also provides for the deposit of tax collection with the Government in all cases. 10. We are dealing with a case of Uttar Pradesh and we have got the decisions of the Allahabad High Court in similar cases which have been relied upon by the assessee as well as by the Commissioner (Appeals). In the case of CIT v. Poonam Chand Trilok Chand, the High Court was dealing with a case of an assessee who was a commissi....
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.... the purchase tax account. In fact, the total receipt amounted to Rs. 1,88,912. Before arriving at the surplus, all the purchase tax liabilities had been satisfied. No liability in respect of year under consideration was outstanding. There was no demand pending. The, surplus of Rs. 74,180 was clear of all clogs. May be the assessee collected more money by way of purchase tax then was required to deposit in the State Treasury. Such surplus had got no outstanding and conceivable liability. It was, therefore, a clear receipt includible in the income. The learned Commissioner (Appeals) was, therefore, not justified to delete the inclusion of Rs. 74,180. The factual position is absolutely against the assessee. The deletion was, therefore, not justified on facts, the ruling to the contrary not withstanding. In my considered view, the addition made by the learned ITO should have not been deleted by the learned Commissioner (Appeals). It is, therefore, difficult to support such a finding, and I quash the same. 3. In the result, the revenue's appeal succeeds. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 We have difference of opinion in the above case and, therefore, proceed to ....
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....ity to pay the amount to the Government simultaneously arose along with the collection of money and whether payment was made or not, that accrued liability should be allowed as a deduction and if it has allowed as a deduction, there would be nothing left by way of surplus. In other words, the contention was that a corresponding liability equal to the amount of Rs. 74,180 simultaneously sprung up. In this connection strong reliance was placed on the decisions of the Andhra Pradesh High Court in Addl. CIT v. T. Nagireddi & Co. [1976] 105 ITR 669 as well as on the decision of the Allahabad High Court in CIT v. Poonam Chand Trilok Chand. Substantiate a view that as soon as a dealer enters into a transaction the liability to pay sales tax arises although that liability could not be enforced till quantification was effected by assessment proceedings but the liability for payment of tax was independent of assessment. The ITO rejected these contentions and brought the sum of Rs. 74,180 to tax as income of the assessee. Then the matter went before the Commissioner (Appeals),Agra. He somehow could not agree with the conclusions reached by the ITO. He held that the decision of the Supreme Cou....
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.... the existence or absence of entry in its books of account be decisive or conclusive of the matter. During the assessment years 1968-69, 1969-70 and 1971-72 the assessee, which follow the mercantile system of accounting, realised purchase tax from its customers for payment to the State Government. The assessee did not include these amounts in its profit and loss account for any of these years. At the time of assessments, the ITO included these amounts as trading receipts of the assessee. When the matter reached the High Court by way of reference, the High Court held that though during the relevant assessment years the assessee disputed the liability to pay the purchase tax to the State Government and had not made any debit entry in its books of account and lost the case finally and that though the payments were made in subsequent years, that fact would not make any difference because it was the accrual of the liability under the mercantile system of accounting which would decide the question of the deduction. The assessee, the High Court held, was entitled during the relevant assessment years to a deduction from the profits and gains of its business of the liability to pay purchase....
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....nd (d) may be the assessee collected more money by way of purchase tax than was required to deposit in the State treasury and, therefore, a clear receipt includible in the income arose. It is pointed out in the course of the hearing that the learned Judicial Member had not correctly appreciated the facts. It is not a case where the assessee collected more money by way of purchase tax than was required to deposit because there was a clear finding recorded by the Commissioner (Appeals) that from a subsequent order issued by the STO, the entire liability was cleared. This could not, therefore, be that more money was collected without there being any liability to pay to the Government and secondly the provisions of section 29D of the UP Sales Tax Act are not noticed by him because that section provided that any amount collected by a dealer purporting to be tax is to be deposited with the Government and the Government will hold it as entrust on behalf of the person from whom the money was collected. The liability to deposit the money with the Government made this collection a liability in the hands of the assessee and not as income. In any case the amount was paid by the assessee. I fin....