JUDGMENT
1. The Revenue has raised the following two questions of law arising out of the order of the Income-tax Appellate Tribunal dated February 29, 1980, in respect of the assessment year 1975-76 :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 1,95,877 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 5,000 odd arrived at after deducting the amount of Rs. 1,95,877 referred to in question No. (1) above from the disputed liability of Rs. 2,09,044 represented statutory liability and as such it should be allowed ?”
2. The assessee has collected a sum of Rs. 1,95,877 on account of sales tax which was credited to the account styled as “Deposits against Rajasthan Sales Tax Account”. The Income-tax Officer came to the conclusion that the amount was collected against the sales tax liability and as such it is a part of the trading receipt and since the same has not been paid to the Government or refunded to the customers from whom it was collected, the amount could be included in the income and deduction could be claimed in the year in which the sales tax is actually paid to the Government or refunded to the customers. It was also found that in the return submitted by the assessee before the Commercial Tax Officer no liability was admitted and there was a decision of the Board of Revenue in favour of the assessee holding that there was no such liability to tax.
3. In appeal, before the Commissioner of Income-tax (Appeals), it was found that the amount is a part of the trading receipt and simply because of crediting the amount to a separate account in the books of account it cannot be assumed that it is not a business receipt. The amount could be deductible as a business expenditure in the year in which the liability arises or is discharged. The appellate authority held that unless the amount is returned, these would remain a collection on account of sales tax and simply crediting these amounts to a Deposits against Rajasthan Sales Tax Account, the taxability of these amounts would not disappear. The assessee had not admitted his liability in the sales tax return submitted. The liability could not be said to have arisen and been quantified and, therefore, the trading receipt is taxable.
4. In the second appeal before the Tribunal following the earlier decision, the Tribunal allowed the claim of the assessee and it was further observed that the total liability would be of Rs. 2,00,944 and the amount of collection is only Rs. 1,95,877 and, therefore, a further sum of Rs. 5,000 would also be allowed.
5. It is an established principle of law that a collection by way of sales tax is a trading receipt in the hands of a trader and hence is to be included in the total income of the assessee.
6. In Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542 (SC), it was held by the apex court that the amount of Rs. 32,986 was collected as sales tax and it was credited in the books of account under the head “Sales tax collection account”. The assessee had not paid the amount to the Sales Tax Department nor had refunded the said sales tax amount to the person from whom it was collected and a stand was taken that it is a statutory provision creating the liability. It was observed by the apex court that the head of account under which it is credited did not make any material difference. It is the true nature and quality of the receipt and not the head under which it is entered in the account books which 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. In that circumstance, it was held that the assessee-company would be entitled to claim the deduction of the amount as and when it is paid to the State Government.
7. In the case of Sinclair Murray and Co. P. Ltd. v. CIT [1974] 97 ITR 615 (SC), the sales tax collected was shown in the bill as “sales tax buyers
account” at the rate of one anna per rupee to be paid to the Orissa Government. It was held that the amount collected by the assessee as sales tax constituted its trading receipt and it had to be included in its total income and if and when the appellant paid the tax or refunded the part thereof the appellant would be entitled to claim the deduction of the sum so paid or refunded.
8. Reliance has also been placed on the decision given by this court in the case of CIT v. Assam Roller Flour Mills [1987] 163 ITR 186, wherein it was held that the dispute related to the order passed on the rectification application on the ground that the amount collected was not trading receipts and were security deposits. It was further held as under (at page 189) :
“In our view, the applications for rectification were merely filed under a misconception. There was no question of granting any double relief to the assessee by the Tribunal. The Income-tax Officer had directed the addition of the amounts of Rs. 82,610 and Rs. 56,283 in the total income of the assessee, in respect of the assessment years 1973-74 and 1974-75, holding that the aforesaid amounts represented trading receipts, but the Income-tax Appellate Tribunal came to the conclusion that the said amounts represented collections made by the assessee from its customers by way of security deposits in respect of eventual sales tax liability and that in case the amounts were not to be paid by way of sales tax, then the same were refundable to the customers. Thus, the Tribunal having held that the said amounts did not represent the revenue receipts of the assessee during the two assessment years referred to above, directed the deduction of the said amounts from the total income of the assessee, which have the effect of nullifying the additions which had been made by the Income-tax Officer. The Appellate Tribunal appears to be justified in holding that there was no question of granting any double relief. Moreover, in case the Income-tax Officer subsequently finds that the sales tax has not been paid and was not payable and the amount has not been refunded by the assessee to the customers, then under Section 41 of the Income-tax Act, it would be open to him to make the addition of the said amounts in the receipts from business in the very assessment year.”
9. From the above observations, it would be evident that the dispute in the said case related to double adjustment and that was found to be a question of fact by the Sales Tax Appellate Tribunal. The application under Section 256(2) of the Income-tax Act moved before this court was rejected on the ground that no question of law arises therefrom. In accordance with the provisions of Section 37, it is only the expenditure which is laid out or expended wholly or exclusively for the purpose of business which can be allowed. The present controversy is a different one and in view of the judgments in Chowrinahee Sales Bureau P. Ltd.’s case [1973] 87 ITR 542 (SC) and Sinclair Murray and Co.’s case [1974] 97 ITR 615 (SC), we are of the view that the Income-tax Appellate Tribunal was not justified in coming to the conclusion that the assessee is entitled to the deduction claimed. The amount which has been collected by the assessee was on account of the business which was carried on and is a trading/business receipt and, therefore, is the income of the assessee. Simply because the amount has been credited in a separate account, it would not change the character of the initial collection. The amount after collection has neither been refunded to the customers nor had been paid to the Government and it could not be considered that there was any crystallized liability or ascertained liability which could even be allowed on the ground of maintenance of books of account on the mercantile system. We may also observe that the claim of Rs. 5,000 was never put up before the authorities below and when no liability has accrued in the year in question, the question of allowing the said amount also does not arise. It is only the accrued liability which could be deducted. There may be a different situation where the accrued liability is disputed and is not paid and challenged in appeal but that is not the position here and, therefore, unless there is a statutory liability or an accrued liability, it cannot be allowed as a deduction.
10. Accordingly, it is held that the Income-tax Appellate Tribunal was not justified in deleting the addition of Rs. 1,95,877 and was further not justified in holding that a sum of Rs. 5,000 odd is liable to be allowed.
11. The reference is accordingly answered in favour of the Revenue and against the assessee.