Patna High Court
Commissioner Of Income-Tax vs Motipur Sugar Factory P. Ltd. on 12 March, 1985
Equivalent citations: [1985]154ITR259(PATNA)
JUDGMENT Uday Sinha, J.
1. The core question falling for consideration in this reference is whether sales tax refunded to the assessee by the State Government for being refunded to dealers from whom they had been realised and whether sums realised from dealers for payment to the Indian Sugar Syndicate Ltd. were trading receipts of the assessee. In this context, the following questions have been referred to this court for our opinion :
"(1) Whether, on the facts and in the circumstances of the case, the sum of Rs. 66,109 as sales tax refund lying undisbursed with the assessee did partake of the nature of a trading receipt and was, therefore, income chargeable to tax ?
(2) Whether, on the facts and in the circumstances of the case, the amount of Rs. 1,49,945 under the head 'Indian Sugar Syndicate Ltd. account' did partake of the nature of a trading receipt and hence assessable to tax as income ?"
2. The assessee is a sugar factory. It had collected Rs. 1,75,548 from dealers as Central Sales Tax and deposited them in the Government treasury. These collections had been made in accordance with Sections14A and 20A of the Bihar Sales Tax Act. Subsequently, the two Sections were declared ultra vires by the Supreme Court. The tax realised on that score was ordered to be refunded. The assessee got a refund of the aforesaid amount in the assessment year 1957-58. This sum was credited to liability account by the assessee, as it had to be refunded to dealers from whom it had been collected. Up to the assessment year 1961-62, the assessee refunded Rs. 61,439 to dealers. A sum of Rs. 66,109 remained outstanding with the assessee. This was carried forward under the head "Liability for other finance". In the assessment year 1964-65, the ITO treated this amount as income of the assessee.
3. The facts relating to the second question are that the assessee being a member of the Indian Sugar Syndicate, it had to sell sugar to dealers. The assessee used to charge certain amount payable to the Indian Sugar Syndicate during 1950-51. These collections amounted to Rs. 1,49,954. The Syndicate claimed this sum from the assessee, but the assessee also claimed certain amounts as due from the syndicate. The sum thus collected by the assessee remained under dispute and the assessee credited a liability of Rs. 1,49,954 payable to the Indian Sugar Syndicate. These sums were carried forward from year to year as liability of the company. During the assessment year 1964-65, this sum was also treated as trading receipt of the company and added as income for the year.
4. The assessment was confirmed by the AAC.
5. On further appeal, the Tribunal decided in favour of the assessee holding that the refunds to the assessee and the collections on behalf of the Indian Sugar Syndicate were not trading receipts, but were liabilities and did not partake the nature of income. The Department being aggrieved by the order of the Tribunal prayed for making a reference to this court which the Tribunal did. Hence, the present reference.
6. The question referred to us must be held to be finally settled by the decision of the Supreme Court in Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542. That was a case where the assessee was an auctioned and in that capacity, it had realised certain sums as sales tax. This amount had been credited separately in its books under the head "sales tax collection account". This sum was neither paid over to the State Exchequer nor was refunded to the persons from whom it had been collected. For the year in question, the ITO held that the sums collected by the the assessee as sales tax were in reality a portion of the sale price itself, as sales tax was not the liability of the purchasers of the goods, but was the liability of the sellers. The assessee challenged the view of the ITO successfully up to the stage of the Appellate Tribunal. The High Court, however, on a reference took a different view of the matter and answered the question against the assessee. The assessee appealed to the Supreme Court and the Supreme Court affirmed the decision of the High Court. The Supreme Court held that in selling goods by auction, the assessee, an auctioneer, was a dealer and, therefore, liable to pay sales tax. The receipts of Rs. 2,71,698 were, therefore, upheld as trading receipts of the assessee. It was contended before the Supreme Cout that since the assessee had credited the amounts received as sales tax under the head "Sales tax collection account", it would not be a trading receipt. The submission did not find favour with the Supreme Court and was rejected in the following terms (p. 548):
"The fact that the appellant credited the amount received as sales tax under the head 'sales tax collection account' would not, in our opinion, make any material difference. It is the true nature and the 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 a trading receipt. We may in this context refer to the case of Punjab Distilling Industries Ltd. v. Commissioner of Income-tax [1959] 35 ITR 519. In that case, certain amounts received by the assessee were described as security deposits. This court found that those amounts were an integral part of the commercial transaction of the sale of liquor and were the assessee's trading receipt. In dealing with the contention that those amounts were entered in a separate ledger termed 'empty bottles return security deposit account', this court observed:
'So the amount which was called security deposit was actually a part of the consideration for the sale and, therefore, part of the price of what was sold. Nor does it make any difference that the price of the bottles was entered in the general trading account while the so-called deposit was entered in a separate ledger termed 'empty bottles return security deposit account' for, what was a consideration for the sale cannot cease to be so by being written up in the books in a particular manner."
7. The Supreme Court decision clearly laid down that the amounts realised as sales tax and lying in the hands of the assessee must be treated as trading receipts. The same view was taken again by the Supreme Court in the case of Sinclair Murray and Co. P. Ltd. v. CIT [1974] 97 ITR 615.
8. Following the decisions of the Supreme Court, the Calcutta High Court in CIT v. Bird & Co. (P.) Ltd. [1981] 128 ITR 600, held that when a dealer collects sales tax from his customers, but only pays a portion of it to the Sales Tax Department, the balance of the amount is income in the hands of the dealer chargeable to tax and as and when the balance amount is paid to the Government, the dealer can claim the same as an allowable deduction. The amounts collected as sales tax by the dealer in his custody in excess of the actual liability for sales tax was held to be the income of the dealer.
9. Again in Pioneer Consolidated Company oj India Ltd. v. CIT [1976] 104 ITR 686, a Bench of the Allahabad High Court held that sums collected for payment of customs and other duty and which had not been refunded to customers were assessable as income of the assessee.
10. The above should have set matters at rest, but learned counsel for the assessee placed reliance upon Addl. CIT v. Nagireddy & Co. [1976] 105 ITR 669 (AP). The reliance is entirely misplaced. That was a case where the assessee maintaining account books on mercantile system had collected sales tax of Rs. 17,000 odd and got a refund of Rs. 8,000 odd from the Sales Tax Department. That was accounted as a trading receipt. In the course of assessment for the assessment year 1968-69, the assessee contended that the entire sales tax amount is shown as liability in the account books as it was a statutory liability and the dispute pertaining to it was pending adjudication in the Supreme Court and stay of payment had been granted by it. In those circumstances, it was held that the Tribunal was justified in deducting the amount of sales tax included in the income of the assessee. This is an entirely different situation from the one with which we are confronted. In the case before us, the controversy before the Supreme Court had been decided in favour of the assessee and taxes paid to the treasury had been refunded to it. The fact that the entire taxes realised had been refunded to the assessee and the assessee had not refunded part of that sum made all the difference from the case of Addl. CIT v. Nagireddy & Co. [1976] 105 ITR 669 (AP).
11. The decision of the Madras High Court in CIT v. Thirumalaiswamy Naidu and Sons [1984] 147 ITR 657, does seem to support the assessee. The Madras High Court in facts similar to ours held that there was no business relationship of any kind between the assessee and the Sales Tax Department in the refund granted to the assessee. The sums refunded to the assessee could not, therefore, be treated as its income. This decision of the Madras High Court appears to be in the teeth of the two Supreme Court decisions, referred to above, none of which were adverted to by the learned judge of the Madras High Court. I am, therefore, unable to hold that the Madras decision was correctly decided.
12. The reliance placed by learned counsel for the assessee on CIT v. Nathuabhai Desabhai [1981] 130 ITR 238 (MP), is equally misplaced. The core question before the Bench of the Madhya Pradesh High Court was whether the sales tax refund was taxable in the assessment year 1970-71. The emphasis was on the year in which the sums received by the assessee could be assessed. That is an entirely different matter which need not bother us.
13. Learned counsel for the assessee contended that the assessee having credited the sums in its hands in liability account, it could not be treated as its trading receipts. The submission has only got to be stated to be rejected. The dictum of the Supreme Court in Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542, at paragraph 13, is a complete answer to this submission.
14. For all the reasons stated above, I am definitely of the view that sales tax refunded to the assesee and not returned to the dealers must be held to be a trading receipt of the assessee. The same must be the position in regard to the sum of Rs. 1,49,954 realised by the assessee for payment to the Indian Sugar Syndicate, but not paid till the assessment year in question. Both items must, therefore, be held to be trading receipts of the assessee. Both the questions referred to this court must, therefore, be answered in the affirmative, against the assessee and in favour of the Department. The reference is thus disposed of with costs. Hearing fee Rs. 250 payable by the assessee to the Department.
Nazir Ahmad, J.
15. I agree.