TaxTMI 
TaxTMI 
TaxTMI 
1963 (12) TMI 29
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....rading from July 1, 1957. These collections so made from the customers were credited to a separate account called the "deposit account" and were not treated as part of the sale proceeds. The invoices for sales also showed that the amounts were collected separately as deposit. It was the assessee's case that the understanding between it and the customers was that if sales tax was ultimately demanded of the assessee, payment would be made to the Government accordingly, but if it was not so demanded, the amount would be refunded to the customers. It was, therefore, contended on behalf of the assessee that the amount collected as and by way of sales tax did not belong to it, but the assessee was holding that amount as a cestui que trust, as stated in the statement of the case, for its customers. In support of this, the assessee relied upon the invoices, which, as we have already stated, show that the amount was already collected as deposit. This contention was negatived by the Income-tax Officer, who took the view that these collections were trading receipts to be treated as part of the sale proceeds and taxed as income over and above the commission earned on sales. The I....
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.... accumulated by the firm, were not treated as trading receipts or income. The assessee in that case was a firm of auctioneers, the profits of which mainly consisted of commissions on the sales of horses. One of the conditions of sale was, "No money paid, or remittance sent by post, without a written order." During a long period, owing to the fact that several sellers of horses failed to claim the balances of purchase moneys due to them, large unpaid balances had been accumulated by the firm. By a clause in the articles of the existing partnership deed it was provided that all unclaimed balances existing on December 31 in the year of account as first arose six years previously should be transferred to the credit of the partners in the proportions to which in December in the year of account they were entitled. By another clause it was provided that, notwithstanding any transfer of such unclaimed balances, all liability subsisting in reference to the balances should continue to be borne by the partnership. By an additional assessment, the firm was assessed to income-tax in respect of the unclaimed balances transferred to the current account of the partnership in a particular....
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....ith two different sets of situations, one in which their Lordships held that it was a trading receipt and the other that it was not. The distinction thus made would indicate the basis upon which the decision has been arrived at. The assessees were the sole selling agents for yarn manufactured by a textile mill and they distributed yarn to customers under forward contracts in respect of which they obtained from their customers advances of moneys which were adjusted towards the final payment of purchase price at the time of delivery of goods. From 5th May, 1944, the assessees changed this arrangement. They treated the amounts as advance payments in relation to each "contract number" and kept them under the heading "contracts advance fixed deposit account." Under this arrangement a customer had to pay the price of the bales in full and the deposit would be returned to him on the completion of the delivery under the contract. In December, 1944, the assessees changed the heading of the account into "security deposit" account. From 14th February, 1945, the assessees again modified the arrangement. They demanded from a customer as security deposit a certain ....
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....e treated as advance payments in relation to each 'contract number' and though the agreement provided for the payment of the price in full by the customer and for the deposit being returned to him on the completion of delivery under the contract, the transaction is one providing in substance and effect for the adjustment of the mutual obligations on the completion of the contract. We hold accordingly that the sums received during this period cannot be regarded as borrowed money for the purposes of rule 2A." It will thus be observed that the liability to return the money is not the criterion for determining the question whether the amount received is a trading receipt or not. What is important is whether these amounts are relatable to the trading activities, that is, whether they are part of the price or relatable to the contract. If the amount received has no relation to this, then it cannot be treated as a trading receipt. Even in the earlier English case to which we have made reference, the amounts at the time of receipt did not partake the character of trading receipt and any subsequent dealing with it would not give it that character. Similarly, in Punjab Distilli....
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....o security given for the return of the bottles unless there was a right to their return; (iii) that as the additional amounts taken were an integral part of the commercial transaction of the sale of liquor in bottles and when they were paid were the moneys of the assessee and remained thereafter the moneys of the assessee, they were the assessee's trading receipts; and, therefore, the balance of these additional sums left after the refunds made thereout were assessable to tax." In this case also, their Lordships referred to the judgment of Patanjali Sastri C.J. in K.M.S. Lakshmanier & Sons v. Commissioner of Incometax [1953] 23 I.T.R. 202 (S.C.), Davies v. Shell Co. of China Ltd. [1952] 22 I.T.R. (Suppl.) 1 (C.A.) and Imperial Tobacco Co. v. Kelly [1943] 25 Tax Cas. 292 and at page 529, Sarkar J. observed thus: "In the present case, unlike in Lakshmanier and Sons' case [1953] 23 I.T.R. 202 (S.C.), the amount paid has a relation to the price of the goods sold; it is part of that price as we have earlier said. It was a condition of each transaction of sale by the appellant. It was refundable to the wholesaler as soon as he returned the bottles in which the liqu....