Kerala High Court
Commissioner Of Income Tax vs United Cardamom Auctioners on 7 July, 2006
Equivalent citations: (2006)206CTR(KER)548
Author: V. Ramkumar
Bench: V. Ramkumar
JUDGMENT K.S. Radhakrishanan, J.
1. GIT has come up with this appeal under Section 260A of the IT Act. Following are the questions of law raised for consideration:
1. Whether, on the facts and in the circumstances of the case, cannot the amount of Rs. 4,23,681 collected by the assessee and remaining unpaid towards sales-tax be disallowed under Section 43B of the IT Act ?
2. Whether, on the facts and in the circumstances of the case, is not the order of the Tribunal for the asst. yr. 1987-88, one supporting the case of the Revenue for the asst. yr. 1986-87 ?
3. Whether, on the facts and in the circumstances of the case and in the light of the finding of the Tribunal in the order relating to the asst. yr. 1987-88 that the amount deposited in the treasury cannot form part of trading receipts and the balance remaining unpaid has to be treated as trading receipts should not the Tribunal have upheld the order of the assessing authority of the asst. yr. 1986-87 ?
2. Assessee is a firm of auctioneers in cardamom having its principal place of business at Santhanpara. Assessment year relates to 1986-87. Original assessment was completed on 29th Oct., 1987 accepting the return of income of Rs. 78,027. Subsequently, a notice under Section 148 of the Act was issued on 22nd March, 1990 and the assessee filed a return on 17th Nov., 1992 declaring the income originally assessed. However, the ITO added an amount of Rs. 4,23,180.83 towards sales-tax, Rs. 65,354 towards additional sales-tax, Rs. 33,167 towards handling charges and Rs. 1,688 towards surcharge. During the asst. yr. 1986-87 assessee collected a sum of Rs. 7,46,319.20 as sales-tax and Rs. 1,11,947.89 as additional sales-tax. Assessee filed objections to the additions made. So far as this case is concerned, we are mainly concerned with the collection of sales-tax and additional sales-tax. It was noticed that during the year assessee had collected a sum of Rs. 7,46,319.20 as sales-tax and Rs. 1,11,947.89 as additional sales-tax, out of which an amount of Rs. 3,23,138.37 was paid over to Sales-tax Department. Similarly, out of the additional sales-tax collected only an amount of Rs. 46,593.73 was paid to the Sales-tax Department. Thus there is a credit balance of Rs. 4,23,180.83 outstanding under sales-tax account and Rs. 65,354.16 under additional sales-tax account as at the close of the accounting year.
3. Assessing authority therefore issued Annex. A3 order holding that those amounts which were not paid to the Sales-tax Department are includible in the assessee's total income for the asst. yr. 1986-87. Reliance was placed on the decisions of the apex Court in Chownnghee Sales Bureau (P) Ltd. v. CIT and Sinclair Murray and Co. (P) Ltd. v. CIT .
4. Assessee, aggrieved by the order of assessment, took up the matter in appeal before the CIT(A). Before the CIT(A) on behalf of the assessee reference was made to the order of the Tribunal, Cochin Bench in ITA No. 765/Coch/1991, dt. 28th April, 1994 in respect of the asst. yr. 1987-88. The CIT(A) partly allowed the appeal holding that the amount deposited by the assessee out of the sales-tax collection in the cardamom auction is an allowable deduction. It was also noticed that the assessee had collected sales-tax and deposited an amount of Rs. 4,23,681 which was excluded from the computation of income. Further, additional sales-tax of Rs. 65,354 collected, it was held that is includible in the computation of income. Same is the position with regard to the surcharge of Rs. 1,688. Aggrieved by the said order, Revenue took up the matter in appeal before the Tribunal which was numbered as ITA No. 738 of 1995. Assessee also filed appeal before the Tribunal. Tribunal followed the judgment in the earlier case, ITA No. 765 of 1991, and dismissed the appeal filed by the Revenue. Aggrieved by the same this appeal has been preferred by the Revenue.
5. Sri P.K. Ravindranatha Menon, counsel appearing for the Revenue submitted that the CIT(A) has committed an error in applying the decision of the Tribunal in ITA No. 765/Coch/1991. Counsel referred to the following part of the order of the Tribunal:
...We hold that since the assessee has deposited the amount collected as per the direction of the Government as contained in its letter dt. 12th Oct., 1983 in the Government treasury, the assessee has not derived any benefit therefrom. Hence, the amount of Rs. 3,88,791 deposited in the Government treasury out of the total collection of Rs. 4,03,045 cannot be treated as part of the trading receipt and income of the assessee for this year. The balance of Rs. 14,254 has to be treated as trading receipt and hence income of the assessee for this year as the assessee has not deposited the same till date.
As far as the present case is concerned, the assessee had not deposited the entire amount collected. Counsel referred to the assessment order and submitted that out of the sales-tax collected only an amount of Rs. 3,23,138.37 was paid over to the Sales-tax Department. Similarly out of the additional sales-tax amount collected only an amount of Rs. 46,593.73 was paid over to the Sales-tax Department and thus there is a credit balance of Rs. 4,23,180.83. Assessee had collected a sum of Rs. 59,705.54 towards handling charges and the actual amount of handling charges paid during the year would come to Rs. 26,538.39. According to the counsel, the same would amount to part of the trading receipt. We find force in the contention of the counsel for the Revenue.
6. Apex Court in Chowringhee Sales Bureau (supra) was dealing with the consequence of not depositing the sales-tax collected from the customers. In that case the assessee had accounted the same under the head "Sales-tax collection account". The Court held that the fact that the assessee credited the amount received as sales-tax under the head "Sales-tax collection account" would not make any material difference. Court held, the true nature and quality of the receipt and not the head under which it is entered in the account books is decisive. The apex Court held:
...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....
7. In Sinclair Murray & Co. (P) Ltd. (supra) the assessee had not paid the sales-tax collected to the Government nor was it refunded to the customers and no separate account had been maintained for the same. In such a case, the Court held that the amount collected by the assessee as sales-tax constituted its trading receipt and had to be included in its total income. The Court held that the amount realized towards sales-tax by the assessee formed part to the trading or business receipt since the true nature and quality of the receipt and not the head under which it is entered in the account books would prove decisive.
8. The collection of sales-tax, additional sales-tax and handling charges are taxable as trading receipts. The deduction of sales-tax is governed by Section 43B of the IT Act. As per Section 43B deduction is permissible only in the year in which such sums are actually paid over to the Government account. Sales-tax realized by an assessee along with the sale price would be part of the trading receipts. The amount of sales-tax, additional sales-tax, handling charges and surcharge on sales-tax collected by the assessee should have been credited in the accounts as income and deduction should have been claimed for the amount actually paid over to the Sales-tax Department. The amounts collected as sales-tax, additional sales-tax and handling charges, but not paid over to the Sales-tax Department and outstanding under the respective heads at the close of the accounting year are includible in the assessee's total income. We therefore fully endorse the view that the amounts collected as sales-tax, additional sales-tax and handling charges are includible in the assessee's total income for the asst. yr. 1986-87. We are informed that the assessing authority has subsequently received the entire amount from the assessee. Appeal preferred by the Revenue is allowed and the questions raised are answered in favour of the Revenue.