Full Judgment Text
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PETITIONER:
SINCLAIRE MURRAY & CO. (P) LTD.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX, CALCUTTA
DATE OF JUDGMENT06/11/1974
BENCH:
KHANNA, HANS RAJ
BENCH:
KHANNA, HANS RAJ
GUPTA, A.C.
CITATION:
1975 AIR 198 1975 SCR (2) 929
1975 SCC (3) 521
ACT:
Indian Income Tax Act, 1922-Sales tax collected but not
deposited with the Government-Whether could be included in
the income of the assessee.
HEADNOTE:
The assessee collected sales tax from the purchaser but did
not pay the collections to the State Government alleging
that the sale was interstate sale. The Income Tax Officer
treated the sales tax as income of the assessee. The
assessee claimed that the sales-tax realised from the
purchaser did not form part of the sale price of the goods
and as such did not constitute taxable receipt. The
Income-tax Officer held that the sales-tax formed part of
the consideration for the sales and, therefore, the
accumulation on that account represented the assessee’s
income. The Appellate Assistant Commissioner also rejected
the contention of the assessee that the sales-tax realised
was not part of the taxable receipt of the assessee. The
Appellate Tribunal held that where a dealer collected sales-
tax under the provisions of the Orissa Sales-tax Act the
amount of tax did not form part of the sale price and the
dealer did not acquire any beneficial interest in that
amount and that the failure of the assessee to deposit the
amount with the Government could not transform the character
of that amount. The High Court held that if a validly
eligible tax was realised by a trader which had been
utilised in his business the tax so realised could not form
part of the sale price and that the tax would be included in
the trading receipt of the dealer and would become part of
his income as the money realised from the purchaser on
account of tax was employed by the dealer’ for the purpose
of making profit and was not separated from price
simpliciter.
On appeal to this Court it was contended that the amount
received as sales-tax retained its character as such and
could not be considered to be a part of trading receipt.
Dismissing the appeal,,
HELD : It is ’the true nature and quality of the receipt and
not the head under which it is entered in the account books
as would prove decisive. If a receipt is a trading receipt
the fact that it is not so shown in the account books of the
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assessee would not prevent the assessing authority from
treating it as trading receipt. If and when the appellant
paid the sum or any part thereof either to the State
Government or to the purchaser it would be entitled to claim
deduction of the sum so paid. In the instant case there is
no escape from the conclusion that the amount should be
treated as a trade receipt. [632B-F; 633C]
Chowringhee Sales Bureau P. Ltd. v. Commissioner of Income-
tax West Bengal (1973) 87 I.T.R. 542 followed.
The purchaser pays what the seller demands, that is, the
price, even though it may include tax. That is the whole
consideration for the sale and there is no reason why the
whole amount paid to the seller by the purchaser should not
be treated as the consideration for the sale and included
in the turn over.
[634F]
Messrs George Oakes (Private) Ltd. v. The State of Madras &
Ors. (1961) 12 S.T.C. 476 followed, Morley (H. M. Inspector
of Taxes) v. Messrs. Tattersall 22 T.C. 51 REFERRED TO,
Paprika Ltd. & Anr. v. Board of Trade [1944] 1 All E.R. 372
and Love v. Narman Wright (Builders) Ltd. [1944] 1 All E.R.
618, held inapplicable.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1357 of 1970.
From, the Judgment & Order dated the 10th February, 1969 of
the Calcutta High Court in l. T.Ref. No. 164 of 1963.
630
D. Pal, T. A. Ramanchandran and D. N. Gupta, for the
appellant
B. Sen and S. P. Nayar, for the respondent.
The Judgment of the Court was delivered by
KHANNA, J. This appeal on certificate is directed against
the Judgment of the Calcutta High Court whereby that court
answered the following question referred to it under section
66(1) of the Indian Income-tax Act, 1922 against the
assessee-appellant and in favour of the revenue
"Whether, on the facts and in the
circumstances ’of the case, the sum of Rs.
7,14,398/- was liable to be included in the
total income of the assessee under the Indian
Income-tax Act, 1922 ?"
The matter relates to the assessment year 1953-54, the
corresponding accounting period for which ended on June 30,
1952. The assessee is. a limited company with its head
office at Calcutta. One ,of its activities was the purchase
and sale of jute in the State of Orissa and for this purpose
the assessee was a registered dealer under the Orissa Sales
Tax Act, 1947. During. the accounting year the assessee
sold jute to M/s. McLeed & Co. Ltd. for being used in two
jute miffs situated in Andhra Pradesh under the management
of the purchaser company. The assessee used to charge from
the purchaser sales tax on the purchase of goods at the rate
of one anna per rupee of the value of the goods. The sales
tax was charged under a separate head in the bill. The
words used in the bill in this respect were "Sales tax
buyers’ account......... at the rate of /1/- per rupee to be
paid to Orissa Government". The total amount shown as
"Liabilities for expenses" in the balance sheet as on June
30, 1952 included a sum of Rs 16,54 455 on account of
sales tax. The said sum was, however, not paid to the State
Government as the sale by the assessee to the purchaser
company were stated to be inter-State sale. The assessee
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contended before the income-tax officer that the sales tax
realised from the purchaser did not form part of the sale
price of the jute and as such did not constitute receipt in
jute business. The contention was rejected by the income-tax
officer who held that the sales tax formed a part of, the
consideration for the sales and, therefore, the accumulation
on that account represented the assessee’s income. The
income-tax officer accordingly added the aforesaid sum of
Rs. 16,54,455 to the assessee’s total income.
On appeal by the assessee the Appellate Assistant
Commissioner found that the actual amount received as sales
tax during the relevant period amounted to only Rs.
7,41,962, out of which Rs. 27,564 had been paid to the
Orissa Government. He, therefore, held that the amount which
was to be added to the assessee’s total income was Rs.
7,14,398. The contention of the assessee that the sales tax
realised was not part of the taxable receipt of the assessee
was rejected.
The assessee preferred second appeal before the
Tribunal and submitted that the purchaser paid the sales tax
and the price of goods to the assessee on the understanding
that if ultimately no sales tax
631
was exigible on those sales, the amount collected as sales
tax would be refunded to the purchaser. The amount
collected as sales tax, according to the assessee-company,
could not belong to it but belonged to the purchaser and as
such could not be treated as income of the assessee. The
Tribunal held that where a dealer collects sales tax under
the provisions of section 9B of the Orissa Sales Tax Act,
the amount of the tax does not form part of the sale price
and the dealer doe:; not acquire any beneficial interest in
that amount. According to the Tribunal, if at the time of
the collection the amount was collected as sales tax the
subsequent failure of the assessee to deposit the amount in
the Orissa Treasury could not transform the character of
that amount. The Tribunal consequently came to the
conclusion that the Appellate Assistant Commissioner had
erred. in treating Rs. 7,14,398 as part of the total income
of the assessee.
On the application of the Commissioner of Income-tax the
Tribunal referred the question reproduced above to the High
Court.
The High Court held that if tax, which is validly exigible,
is realised by a trader from his customer, and, is then
utilised in his business, the tax so realised. cannot but
form part of the sales price. According to the High Court,
the tax would be included in the trading receipt of the
dealer and would become part of his income as the money
realised from the purchaser on account of tax was employed
by the dealer for the purpose of making profit and was not
separated from price simpliciter. The High Court in this
context referred to the fact that the assessee did not
earmark the amount realised as sales tax and did not put it
in a different account or deposit it with the Government.
It was further found that the assessee had treated the
amount of sales tax as his own money. Reference was made in
the High Court to subsection (3) of section 9B of the Orissa
Sales Tax Act which reads as under :
"(3) The amount realised by any person as tax,
on sale of any goods, shall, notwithstanding
anything contained in any other provision of
this Act, be deposited by him in a Government
treasury within such period as may be pres-
cribed, if the amount so realised exceeds the
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amount payable as tax in respect of that sale
or if no tax is payable in respect thereof."
The High Court in the above context observed ;
"There is no finding that the trader did not
use that money for his trading purpose, and
because of the fact that money was not
deposited in terms of section 9B(3). In such
circumstances simply because the trader had a
duty to refund, we cannot say it would not
constitute trading receipt. If a trader
received money as trading receipt and employs
that money as his own fund and is then called
upon to refund the money even then it is
trading receipt of the trader but when he pays
back that money the amount refunded may be
considered for deduction at the time when it
is refunded."
632
In appeal before us, Dr. Pal on behalf of the assessee-
appellant has contended that the amount received as sales
tax retained its character ,as such and could not be
considered to be a part of trading receipt. As against the
above, Mr. Sen on behalf of the revenue submits that the
amount in question constituted trading receipt. According
to Mr. Sen, the matter is concluded by a decision of this
Court in the case of Chowringhee Sales Bureau P. Ltd. v.
Commissioner of Income-tax West Bengal.(1) The submission of
Mr. Sen, in our opinion is well founded.
In the case of Chowringhee Sales Bureau P. Ltd. the
appellant company was a dealer in furniture and also acted
as an auctioneer. In respect of sales effected by the
appellant as auctioneer, it realised during the year in
question in addition to the commission, Rs. 32,986 as sales
tax. This amount was credited separately in its account
books under the head "sales tax collection account". The
appellant did not pay the amount of sales tax to the actual
owner of the goods nor did it deposit the amount realised by
it as sales tax in the State exchequer because it took the
position that statutory provision creating that liability
upon it was not valid. The appellant also did not refund
the amount to persons from whom it had been collected. In
the cash memos issued by the appellant to the purchasers in
the auction sales the appellant was shown as the seller.
This Court held that the sum of Rs. 32,986 realised as sales
tax by the appellant company in its character as an
auctioneer formed part of the trading or business receipts.
The fact that the appellant credited the amount received as
sales tax under the head "sales tax collection account" did
not make any material difference. According to this Court,
it is the true nature and quality of the receipt and not the
head under which it is entered in the account books as would
prove decisive. If a receipt is a trading receipt the fact
that it is not so shown in the account books of the assessee
would not prevent the assessing authority from treating it
as trading receipt. The Court further observed that the
appellant company would be entitled to claim deduction of
the amount as and when it paid it to the State Government.
The above decision, in our opinion, fully applies to this
case and in view of it, there is no escape from the
conclusion that the amount of Rs. 7,14,398 should be treated
as trading receipt.
Dr. Pal has tried to distinguish the decision of this Court
in the case of Chowringhee Sales Bureau P. Ltd. on the
ground that there was no provision in the Bengal Finance
(Sales Tax) Act, 1941 under which the sales tax was realised
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by the appellant in that case corresponding to sub-section
(3) of section 9B of the Orissa Sales Tax Act, 1947. This
circumstance, in our opinion, hardly constitutes a suffi-
cient ground for not applying the dictum laid down in the
case of Chowringhee Sales Bureau P. Ltd. to the present
case. The provisions of sub-section (3) of section 9B of
the Orissa Sales Tax Act have already been reproduced above.
It is not necessary for the purpose of the present case to
express an opinion on the point as to whether in view of the
decisions of this Court in the cases of R. Abdul Qyader &
Co. v. Sales Tax Officer, Second Circle, Hyderabad, (2)
(1) [1973] 87 I.T.R. 542.
(2) [1964] 15 S.T.C. 403.
633
Ashoka Marketing Ltd. v. State of Bihar Anr.(1) and State of
U.P. & Anr. v. Annapurna Biscuit Manufacturing Co. (2) the
State legislature was competent to enact that provision and
whether the same was constitutionally valid. Assuming that
the said provision is valid, that fact would not prevent the
applicability of the dictum laid down in Chowringhee Sales
Bureau P. Ltd. The aforesaid decision did take into account
the possibility of the appellant in that case being com-
pelled to deposit the amount of sales tax in the State
exchequer. It was accordingly observed that the appellant
company would be entitled to claim deduction of the amount
as and when it paid the amount to the State Government.
Likewise, we would like to make it clear in the present case
that if any when the appellant pays the sum of Rs. 7,14,398
or any part. thereof either to the State Government or to
the purchaser, the appellant would be entitled to claim
deduction of the sum so paid.
Dr. Pal points out that the appellant may have to refund
the amount realised by it as sales tax to the purchaser. So
far as this aspect is concerned, we have already mentioned
above that if and when the appellant refunds any part of the
amount of sales tax to the, purchaser, the appellant would
be entitled to claim deduction on that account.
Lastly, reference has been made by Dr. Pal to the case of
Morley (H. M. Inspector of Taxes) v. Messrs.
Tattersall,(3) and it is submitted that once an amount was
received as sales tax by the appellant it could never be
treated as trading receipt. We find it difficult to, accede
to the above submission because the case of Chowringhee
Sales Bureau P. Ltd. is a direct authority, for; the
proposition that an amount even though realised as sales tax
can in a case-like the present be, treated as trading
receipt. It would be pertinent in this context to refer to
the finding’ of the High Court that the assessee-appellant
in the present case did not separately earmark the amount
realised as sales tax, or put it in a different account.
The assessee also did not deposit the amount with the
Government as and when realised nor did’ the assessee refund
it to the purchaser from whom the amount had been realised.
The High Court has further found that the assessee company
mixed up the amount of sales tax with its own funds and
treated the same as its own money. Nothing cogent has been
brought to our notice to justify interference with the above
findings.
In. the case of Messrs George Oakes (Private) Ltd. v. The
State of Madras & Ors. (4) the Constitution Bench of this
Court held that the Madras General Sales Tax (Definition of
Turnover and Validation of Assessments) Act, 1954 was not
bad on the ground of legislative incompetence. In that
context this Court observed that when the seller passes on
the tax and the buyer agrees to pay sales tax in addition to
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the price, the tax is really part of the entire
consideration and the distinction between the two amounts-
tax and price-loses all significance. This Court in that
case relied upon the following observation of Lawrence J. in
Paprika Ltd. & Anr. v. Board of Trade.(5)
(1) [1970] 26 S.T.C. 254. (2) [1973] 32 S.T.C. 1.
(3) 22 T.C. 51. (4) [1961] 12 STC 476
(5) [1944] 1 All. E.R. 372.
634
"Whenever a sale attracts purchase tax, that
tax presumably affects the price which the
seller who is liable to pay the tax demands
but it does not cease to be the price which
the buyer has to pay even if the price is
expressed as X plus purchase tax."
Reliance was also placed upon the following observation of
Goddard, L. J. in Love v. Norman Wright (Builders)
Ltd.(1)
"Where an article is taxed, whether by
purchase tax, customs duty, or excise duty,
the tax becomes part of the price which
ordinarily the buyer will have to pay. The
price of an ounce of tobacco is what it is
because of the rate of tax, but on a sale
there is only one consideration though made up
of cost plus profit plus tax. So, if a seller
offers goods for sale, it is for him to quote
a price which includes the tax if be desires
to pass it on to the buyer. If the buyer
agrees to the price, it is not for him to
consider ’how it is made up or whether the
seller has included tax or not."
After referring to these observations S. K. Das J. speaking
for the Constitution Bench of this Court observed
"We think that these observations are apposite
even in the context of the provisions of the
Acts we are considering now, and there is
nothing in those provisions which would
indicate that when the dealer collects any
amount by way of tax, that cannot be part of
the sale price. So far as the purchaser is
concerned, he pays for the goods what the
seller demands viz., X price even though it
may includes tax. That is the whole
consideration for the sale and there is no
reason why the whole amount paid to the seller
by the purchaser should not be treated as the
consideration for the sale and included in the
turnover."
We are, therefore, of the view that the submission which has
been made by Dr. Pal that the sales tax should not be
treated to be a part of the price realised by the assessee
from the purchaser is not well-founded. The case of
Tattersall can be of no help to the appellant because the
amount with which the court was concerned in that case was
,never received by the assessee as income or trading
receipt. In any case, as already observed, the question
with which we are concerned’ stands concluded by the case of
Chowringhee Sales Bureau P. Ltd.
As a result of the above, we dismiss the appeal with cost.
P.B.R. Appeal dismissed.
(1) [1944] 1 All. E.R. 618.
635
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