Sinclaire Murray & Co. (P) Ltd. Vs.
Commissioner of Income Tax, Calcutta  INSC 230 (6 November 1974)
KHANNA, HANS RAJ KHANNA, HANS RAJ GUPTA, A.C.
CITATION: 1975 AIR 198 1975 SCR (2) 929 1975
SCC (3) 521
Indian Income Tax Act, 1922-Sales tax collected
but not deposited with the Government-Whether could be included in the income
of the assessee.
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 salestax 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 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 Incometax 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  1 All E.R. 372 and Love v. Narman Wright
(Builders) Ltd.  1 All E.R.
618, held inapplicable.
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
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
On the application of the Commissioner of
Income-tax the Tribunal referred the question reproduced above to the High
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 prescribed, if the amount so realised exceeds the
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 assesseeappellant 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 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 sufficient 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)  87 I.T.R. 542.
(2)  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 compelled 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 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)  26 S.T.C. 254. (2)  32 S.T.C. 1.
(3) 22 T.C. 51. (4)  12 STC 476 (5)
 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)  1 All. E.R. 618.