TaxTMI 
TaxTMI 
1969 (2) TMI 46
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....Sales tax, buyer's account . . . at the rate of one anna per rupee to be paid to the Orissa Government ". In the balance-sheet of the assessee as on the 30th June, 1952, under the head " Liability for expenses " a sum of Rs. 16,54,455 was shown on account of sales tax. The said sum was not actually paid to the Orissa Government during the year in question. Hence the question arose as to whether the sum of Rs. 16,54,455 should be included in the total income of the assessee. According to the assessee, sales tax realised from the purchaser did not form part of the sale price and therefore the amount received by the assessee as sales tax was not a part of the sale price. Hence the balance-sheet of the company showed the correct state of affairs according to the assessee. The Income-tax Officer found that the said sum was received as part of the price and therefore added the said sum to the total income of the assessee. The assessee filed an appeal before the Appellate Assistant Commissioner. He found that the actual amount received as sales tax during the relevant period Rs. 7,41,962. The assessee during the relevant year paid a sum of Rs. 27,564 to the Orissa Government. Hence the....
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....ssee under the Income-tax Act, 1922 ? " This application of the Commissioner was opposed by the assessee on the ground that " the identical question under the identical Orissa Sales Tax Act was the subject-matter of a decision of the Supreme Court in the Orient Paper Mills case in 1961 and the Tribunal merely followed the decision. " The Tribunal, however, referred the aforesaid question to this court. Mr. Balai Pal for the department urges that sales tax is always included within the trading receipt of the vendor. The reason is that the total money which a dealer received from his purchaser is employed in his business as if the sum of money received on account of price simpliciter and the sum of money received on account of sales tax were the seller's own money. The trader used that sum in his business and when tax is to be paid, he pays tax not from any earmarked fund. Mr. Pal refers to Jay's the Jewellers v. Inland Revenue Commissioners. That decision itself relies on another decision in Morley v. Tattersall. In the latter case it was held that unclaimed balances received by the auctioneer could not, by the terms of partnership deed or by the method of preparation of account, ....
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....s then utilised in his business, the tax so realised cannot but form part of the sale price. It must, therefore, be included in the trading receipt of the dealer, and it would become income for the purpose of the Income-tax Act, for the simple reason that the money realised from the purchaser on account of tax is employed by the trader for the purpose of making profit and tax is not separated from price simpliciter. The question now is :-Did the assessee, a dealer, mix up the money received as sales tax with other amounts and employed it in his business for the purpose of earning profit or did the dealer treat the amount of money received as tax, as deposits for the purpose of paying it to the Government or for refunding it to the purchaser, as the case may be ? It would be seen from pages 22 and 24 of the paper book that the sale price simpliciter have been noted in the bills. Thereafter sales tax has been noted. The two have been summed up ; this indicates the two receipts were not treated as of different character ; a deposit and a trading receipt could not be summed up without the risk of mixing them. Out of that total amount, an amount which was already received was deducted....
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....l, the assessee strongly relied upon the decision of the Supreme Court in State of Orissa v. Orient Paper Mills. It was contended that the character of the receipt because of the law in Orissa is the character of a deposit and therefore it could not form part of trading receipt. Mr. Sampath Iyengar has strongly relied on the following passage in the order of the Tribunal to show that the character was not that of a trading receipt at the time when the money was received : " As at that time the position regarding the inter-State sale was not clear, the assessee asked the purchaser to pay the sales tax agreeing to refund the sum if ultimately found not payable." This sentence does not mean that the assessee did not mix up the money received as sales tax with sale price simpliciter nor does it mean that it did not turn the amount received as sales tax, over in his trade. A person who realises money as trading receipt may be compelled to refund the sum and if he does so, at the time when he makes the refund, the amount refunded would be deducted from his income. Mr. Sampath Iyengar has also referred to the following passage in the judgment of the Tribunal: " The Supreme Court decision....
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....t sales in its taxable turnover the assessee held the moneys as a mere custodian, and on the fulfilment of the condition became a trustee for the depositors. " The observation aforesaid may support the arguments of Mr. Iyengar but the facts of the case now before us have nothing to do with the law laid down in the aforesaid case. Where money on account of tax is received as a deposit and not mixed up with other funds and deposited in the treasury, the money thus realised as sales tax would be considered to have been received by way of deposit. But the facts of this case show that money was not received as deposit. It might have been the duty of the assessee to receive the money as deposit and it might have been his duty to earmark that fund and to deposit it in treasury but he did not do any of these things. Therefore, for the purpose of the Income-tax Act, we have to decide whether money that the assessee received was used in his business for the purpose of profit and, in the circumstances of this case, there is unmistakable evidence as considered aforesaid that the money was so used. We may again refer to the case of State of Orissa v. Orient Paper Mills. The Supreme Court, in t....
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....inning & Manufacturing Co., if concerned to be based merely on an interpretation of section 9B(3) of the Orissa Act and section 11(2) of the Mysore Act, that basis has now been shaken by the decision of the Supreme Court in the case of Abdul Quadar v. Sales tax Officer, Hyderabad, in which case the said section has been found to be ultra vires. The Supreme Court observed in that case as follows: " If a dealer has collected anything from a purchaser which is not authorised by the taxing law, that is a matter between him and the purchaser, and the purchaser may be entitled to recover the amount from the dealer. But unless the money so collected is due as a tax, the State cannot by law make it recoverable simply because it has been wrongly collected by the dealer. The Supreme Court held that section 11(2) of the Mysore Sales Tax Act, similar to section 9B(3) of the Orissa Sales Tax Act, was not a valid legislation. Orient Paper Mills v. State of Orissa was considered by the Supreme Court and it was found that that case had no application. Their Lordships clarify the distinction by observing as follows: "The situation in our opinion is entirely different from the situation in the Or....
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....es the legal character of the receipt. Hence we are authorised by law to look into the bills for the purpose of determining whether the receipt was a trading receipt or not. We, therefore, do not think that it is either proper or desirable to send the matter back to the Tribunal apart from the question that this assessment is now 15 years old. Mr. Sampath Iyengar's next point is that the tax was received by mistake of law, namely, the sum of money was not receivable under the Constitution as sales tax. Therefore, that money is refundable under section 94 of the Indian Contract Act. That proposition is not disputed. Mr. Balai Pal, for the department, agrees that as and when the assessee would refund the money to the purchaser, the sums refunded would be deducted from the total income. But a right to refund does not mean that money received was not received as a trading receipt. Money may be received as trading receipt and yet it may ultimately be found that it should not have been received and should be refunded. The question is : Whether tax was received as trading receipt or not. We have to see how the trader treated the money, when he received it and if he treated the money as h....