COMMISSIONER OF INCOME TAX Vs. SOUTHERN EXPLOSIVES CO

JUDGEMENT

(1.) THE question referred to us at the instance of the Revenue is as under :

(2.) THE assessee is a dealer in explosive detonators and safety fuses. It had collected four per cent. on the price of the goods as sales tax and paid the same to the Government. It collected a further four per cent. on the price of the goods as deposit against the sales tax and surcharge for the assessment years 1979-80 and 1980-81. THE assessee contended before the sales tax authority that the explosive detonators, and safety fuses sold by it were not chemicals and they were therefore to be subjected to lower rate of sales tax. Nevertheless, it proceeded to collect from the customers the entire amount which would have been payable by the assessee to the Government as sales tax if those explosive detonators and safety fuses were to be treated as chemicals. THE amounts so collected were in part paid over to the Government and the part not paid over to the Government remained with the assessee and presumably used by it in its business, as there is nothing to show that the monies were kept in any separate fixed deposit and had not been in any way used by the assessee for its business purposes. THE assessee did not for the assessment years 1979-80 and 1980 81 include in its return of income, the amounts which it had chosen to describe as deposit against sales tax and surcharge. THE return so filed was accepted by the Income-tax Officer but the Commissioner of Income-tax by exercising his power under Section 263 directed the Income-tax Officer to re-do the assessment and include the additional amount collected and retained by the assessee.

(3.) COUNSEL for the Revenue submitted that the sales tax being a statutory levy and the assessee having collected the amounts from its customers for the purpose of meeting its liability towards sales tax, the amounts so collected partake of the character of trading receipts and so long as the amount collected remains with the assessee, that amount could not be claimed by the assessee as a deduction. However, to the extent of the payment made to the State Government, it was open to the assessee to claim deduction.