Madras High Court
Commissioner Of Income-Tax vs Swamiji Mills Ltd. on 21 December, 1994
Equivalent citations: [1995]215ITR728(MAD)
JUDGMENT Thanikkachalam, J.
1. At the instance of the Department, the Tribunal referred the following question for our opinion :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in deciding that there was no justification for retaining the addition of Rs. 1,07,118 and directing the deletion of the same ?"
2. The assessee is a manufacturer of cotton yarn. In the books of account relevant for the assessment year 1975-76, it had credited the sales tax account with a sum of Rs. 2,25,416 and debited the same with an amount of Rs. 1,18,298 being the amount remitted to the Sales Tax Department during the year. The Income-tax Officer added the difference of Rs. 1, 07,118 on the finding that the assessee had maintained its accounts on cash basis of accounting in respect of sales tax matters. On appeal, the Appellate Assistant Commissioner confirmed the order passed by the Income-tax Officer. Aggrieved with that order, the assessee filed a second appeal before the Tribunal. The Tribunal deleted the addition made by the Income-tax Officer.
3. Learned standing counsel for the Department submitted that the sales tax collected by the assessee would be deemed to be a trading receipt liable to be taxed under the income-tax law. Even though the assessee is maintaining cash system, since a portion of the sales tax is collected by the Assessing Officers of the Sales Tax Department, that portion of the sales tax collection would be deemed to be the trading receipts and as such liable to be taxed. In support of his contention, learned standing counsel for the Department relied on a decision in Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542, wherein the Supreme Court held that : "the amount realised as sales tax by the appellant in his character as an auctioneer formed part of his trading or business receipt. 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. It is the true nature and quality of the receipt and not the head under which it is entered in the account books 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 a trading receipt". Yet another decision relied on by learned standing counsel was that reported in CIT v. E. A. E. T. Sundararaj [1975] 99 ITR 226 (Mad). According to the facts arising in that case, in respect of sales tax collections the assessee maintained a separate account and these were not brought into his trading account. The Income-tax Officer treated the excess collections as the assessee's income. The Appellate Assistant Commissioner and the Tribunal held that the assessee's actual liability to sales tax has to be deducted therefrom. On these facts, this court held that the collections of sales tax constituted trading receipts of the assessee and that, as the assessee had been maintaining the cash system of accounting in respect of his sales tax account, the liability to sales tax can be deducted only when the same is paid out to the Government. In this decision, this court followed the judgment of the Supreme Court in Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542.
4. If the facts arising in the present case are similar to the facts arising in the abovesaid decisions, then, learned standing counsel for the Department would be correct in stating that the excess sales tax collected by the assessee would amount to a trading receipt liable to be taxed in the hands of the assessee. On the other hand, the facts arising in the present case are entirely different from the facts arising in the abovesaid two decisions. According to the facts arising in this case, in view of the State Government's order in G.O. Ms. No. 2771 dated September 30, 1969, as a matter of relief to the textile industry the Government had authorised retention of 50 per cent. of the sales tax due from the mills as an interest-free loan for a period of five years. According to the abovesaid G.O., the Government directed the mills to retain 50 per cent. of the sales tax on sale of yarn by them as interest-free loan for a period of five years and to pay these arrears in ten half-yearly instalments from the sixth year. Therefore, according to the assessee, the balance of amount credited in the books of account, being the sales tax collection would be the loan advanced by the Government payable in ten half-yearly instalments from the sixth year. The loan obtained by the assessee from the Government would be borrowed capital and hence the same cannot be taxed in the hands of the assessee. Thus, considering the facts arising in this case which are entirely different from the facts arising in the abovesaid two judgments cited by learned standing counsel for the Department, we are of the opinion that the Tribunal was correct in deleting the addition made by the Income-tax Officer. In that view, we answer the question in the affirmative and against the Department. No costs.