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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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