Sinclaire Murray & Co. (P) Ltd. v. Commissioner of Income Tax, Calcutta

Judgment

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 fa 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, 194 7. During the accounting year the assessee sold jute to M/s. McLeed & Co. Ltd. for being used in two jute mills situated in Andhra Pradesh under the management of the purchaser company.

The assessee used to charge from the purchaser s.ales 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, included a sum of Rs. 16,54,455 on account or 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 incometax officer accordingly added the aforesaid surri of Rs. 16,54,455 to the assessee's total income. On appeal by the assess1~e the Appellate Assistant Commissioner . G 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, thi:refore, 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 s. Mual!.AY 4: CO. v. c:LT. (Kiia:uut, /). was exigible ·on those sales, thi: ainotlnt colleeted as sales tax would be refunded t9 the purchaser; The amount collected. as sales tax, according to the assessee~ompany, 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 ~mount of the tax does not form part of the sale price and the dealer · doeJ not acq\lite any-beneficial interest in that amount.

According· to the Tribunal, if at the time of the collection the amount was coll~ted as sales tax ~ sublequent failure of. the. assessee, to deposit ·the amount in the OtisSa Treasury. ~ollld not transform the character of that. amount. ~ 'f.ribunal consequ~ntly came to' the con.clusion ~at the . Appellate ' Asststant Conilmsstoner had · err.eel treating Rs. 7,14,398 as part of the total income of the ·115sessee. On the application. of the COmmissioner of.Income-tax the Tribu- ~al referred the question reproouced above to the.High Court. The. High Court held that if ta:X, which is validly exigible, is realised by a· trader from his customer, and is then utilised in his . 0... . busine~, the tax s0 realised cannot but form ~art. of fu.e. sales pr.i.ce, · .

Ac<:ordmg to the ijighCourt,. the µx y;rquld 1:>c J11.C'fu4ed m the trading· . · re'ceipt of . the dealer and would ·. become .plj.rt oJ bis income as the money re!!liscd .from the purchaser on. ac~t Of ~x was employed· by the dealct for the purpose'of making profirand was not separated fr9ttt price simpticiter. The. High Court in this -context referred to the fact that the . ~ did not earmark the amount realised as sales . tax and did not, P,l!t it in :a ~ifferei:tt ~unt or deposit it with the Government. It wils further found that the. assessee had treated . the . ,ainount of sales iaX as his· own money. Reference was made in the High Court to sub-section (3) of section 9B of the Oiissa Sales Tax · Act which reads as. under : •. "(l) l'he mnount realised by any 'Person as-tax; on sale of ati,y ~. ;sbilll, 'notwithstanding 8nytDinit:~(ll)D~ed in: · ~,anyt5ther ..

J>n:M$ion Of this Act, be deposited by 1tlm in a .:P?~~- tre~uf.v ·within; such period. as may be pres- •. if:tbe pmount so rcabsed exceeds the amount payable as !S:it iii res~, o.f: ~ sale or if no tax is payable in respect thereof.' The High Court in ~ above context observed : "There iS n'.o 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 circum~tances simply . because the trader had a duty to refund, we cannot . say it would not constitute trading ieceipt. If a. trader .received mmey as ·trading receipt and employs tl)at money as his own ftm.cl&nd is then c~ upon to refund .the. money, even thetdf is ftildirig;reeeiphit tjie. trader but when he pays back th3t money the iunOlint· refunded may · b?. corn:i<lered forc_deduCl:io:i it t'ffe time.·~ !id~ ~efundect'-~ 6G2 SUPIU!M8 COVllT ~S· (1975] 2 S.C.R. In appeal before us Dr ..

Pal on bellalf of the assessee-appellant has contended· that the amount received a8 sales tax retained its character as suci~ and could not .be considered to 1:>e a part of trading receipt. As agamst 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 wellfoundecl. In the case of Chowringhee Sales Bµreau P. Ltd. the aptJellant 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 1t 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 R..~. 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 <;redlted the amount. received as sales tax under the head ":;ales tax collection account" did not make any material difference. According to this C.ourt, 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 as~essee would not prevent the assessing authority from treating it as trading receipt. The Court further observed that the appellant company <.youlcl be entitled. to claim deduction of the amount as and when it paid it to the State Government. The above dec\sion, in our opinion, fully applies to this case and in view of it, theri< 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 const,itutes 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 cin the point as to whether in view of the decisions of this C.ourt in the cases of R. Abdul Q.uader & Co. v. Sales Tax, Officer, Second Circle, Hyderabad;(2 ) (I) [1973) 87 I.T.R. 542. (2) [1964] 15 S.T.C. 403. 8 Si: ldURllAY If co, v. C,[,T, (Khanna, 1.) Ashoka Marketing~ Ltd. v. State of Bihar & Anr.(1) and.State of U.P. & Anr. ~ Annapurna Biscuit Manufacturing Co. (2) the State legislature was competent· to· enact that provision and whether the same was constiti1tion1.tlly valid.

Assuming that the said provision is valid, that fact would not prevent the applicability of the dictum laid down in Chowrlngllee 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 en~ titled 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 ease that if any when the appellant pays the sum of R~. 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 s.um so paid. Dr. Pal points out that the appellant may have to refund· the amount reahsed by it as sales tax to the purchaser.

So far as this. aspect is concerned, we have alreaely mentioned above that if ancf. when the appellant refunds any part of the amount of sales tax to the purcha~er, the appellant would be entitled to claim deduction on that account. Lastly, reference has been made by Dr. ~al to the case of Morley (H. M. Inspector of Taxes) v. Messrs. Tattersall,( 8 ) and it is sub· mitted 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 -0f 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 th~ amount with the Government as and when realised nor did. the assessee refund it to the purchaser from whom the amount ha<f been realised. The High Court .has further found that the asses see company mixed up the amount of sales ta)\: with its own funds and· treated the same as .its own money. Nothing cogent bas been brought to our notice to justify interference with the above findings. In the case 9f Messrs George Oakes (Private) Ltd. v. The Sttlte 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 pru:t of the entire consideration and the distinction between the two amounts-tax and price-loses alf significance.

This Court in that case relied upon the following obser· vation of Lawrence J. in Paprika Ltd. & Anr. v. Board of Trade.(&)> (I) [1970) 26 S.T.C. 254. (2) [1973) 32 S.T.C. 1. (3) 22 T.C. SI. (4} [1961] 12 STC 476. (S) [1944) 1 All. E.R. 372. . (1975] 2 S.C.R. "Whenever a sale attracts purchase tax, that tax pre· sumab1y 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 plu:; purchase tax." Reliance was also placed upon the following observation of Goddard, L. J. in Love v. Norman Wright (Builders) Ltd.(I) "Where an article is taxed, whether· by purchase tlll!'., 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 seiler offers goods for sale, it is for him to quote a price which includes the tax if he desires to pass it on to the buyer. If the buyer agrees to the price, it js 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. l(. 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 inrlicate 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 ~ur 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 tr1~ated as the consideration for the sale and included in the tu mover." 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. Appeal dismissed. 'P.B.R. (I) [1944] l All. E.R. 618.