COMMISSIONER OF INCOME TAX Vs. SHIV NATH PRASAD

JUDGEMENT

(1.) THE statement of the case submitted by the Appellate Tribunal raises the following question of law:

(2.) THE statement of the case relates to the assessment year 1959-60. THE assessee is a firm which was accorded registration under the Income-tax Act, 1922, hereinafter referred to as the Act, and it carries on wholesale business in cloth. THE aasessee was also a registered dealer under the U.P. Sales Tax Act and as such it collected sales tax from its customers and also paid out its liability on account of sales tax to the Government. THE assessee used to maintain a separate account denominated as the "sales tax account" in which all receipts paid by the assessee's customers on account of sales tax were credited and all payments made by it to the Government debited. Up to the end of the assessment year 1957-58 there was a debit balance in the sales tax account maintained by the assessee and this debit balance was transferred by the assessee to its profit and loss account and allowed as a deduction in the income-tax assessment. In the accounting year relevant to the assessment year 1958-59, collections made by the assessee from its customers on account of sales tax were in excess of the payments made to the Government with the result that there was a closing credit balance of Rs. 1,30,044 in the sales tax account. THE assessee, however, instead of crediting such excess to the profit and loss account, showed it as a liability in the balance-sheet. It appears, however, that the Income-tax Officer overlooked the manipulations in the accounts and failed to tax the excess of the sales tax collected as the income of the assessee. Coming to the relevant accounting year, the sales tax account maintained by the assessef showed a credit balance of Rs. 2,47,615 at the end of the year. THEre was an opening balance of Rs. 1,30,044 which meant that the collections on account of sales tax made by the assessee during the relevant period exceeded the payments made to the Government by the sura of Rs. 1,17,571. THE Income-tax Officer included this amount in the assessment of the assessee for the assessment year 1959-60.

(3.) THE departmental representative originally contended that the amount of sales tax received by the assessee was really in the nature of a revenue receipt and when the assessee did not pay such amount to the Government it became his income. It appears, however, from the agreed statement of the case submitted by the Tribunal that ultimately, the departmental representative conceded that the sales tax charged for and received by the assessee did not become its income as and when the sale was made but, later on, when the assessee did not make payment thereof to the Government and retained the amount, such amount represented the income of the assessee. In the agreed statement of the case the Tribunal has set out the contention of the department, as stated in paragraph 9 of its appellate order, in the following words: