SINCLAIRE MURRAY & CO. (P) LTD. vs. COMMISSIONER OF INCOME TAX, CALCUTTA

CIVIL APPEAL No. 1357/1970Supreme Court[1975] 2 S.C.R. 62906 November 1974Bench: 2 JudgesAuthor: HANS RAJ KHANNA, A.C. GUPTA B6 pages
AI SummaryDismissed

What were the facts?

The assessee, Sinclair Murray & Co. (P) Ltd., is a limited company engaged in the purchase and sale of jute, registered under the Orissa Sales Tax Act, 1947. For the assessment year 1953-54, the assessee sold jute to M/s. McLeed & Co. Ltd. and charged sales tax at one anna per rupee, shown separately in the bills. The total sales tax collected was Rs. 16,54,455, but it was not deposited with the Orissa Government as the sales were claimed to be inter-State sales. The Income Tax Officer treated the entire sales tax collection as the assessee's income. The Appellate Assistant Commissioner found that Rs. 7,41,962 was collected as sales tax, of which Rs. 27,564 was paid to the government, and thus added Rs. 7,14,398 to the assessee's income. The Tribunal, however, held that the sales tax collected did not form part of the sale price and the assessee did not acquire any beneficial interest in it, thus excluding it from income. The High Court disagreed, holding that if validly exigible tax is realized and utilized in business, it forms part of the trading receipt.

What did the Supreme Court hold?

The Supreme Court held that the true nature and quality of the receipt, not the head under which it is entered in the account books, is decisive. If a receipt is a trading receipt, its classification in accounts does not prevent its treatment as such by the assessing authority. The Court affirmed the High Court's view that if a validly exigible tax is realized by a trader and utilized in his business, it forms part of the sale price and becomes part of his income. The money realized from the purchaser on account of tax was employed by the dealer for profit-making and was not separated from the price. The Court noted that the assessee did not earmark the sales tax amount, did not deposit it, and treated it as its own money. The Court clarified that if the appellant pays the sum or any part thereof to the State Government or to the purchaser, it would be entitled to claim a deduction for the amount so paid. The appeal was dismissed. The issue of whether the Orissa Sales Tax Act, 1947, was constitutionally valid was not decided as the Court found the principle in Chowringhee Sales Bureau P. Ltd. applicable regardless.

What were the issues?

1. 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? Assessee's Contention: The sales tax realized from the purchaser did not form part of the sale price of the goods and therefore did not constitute a taxable receipt. The amount collected as sales tax belonged to the purchaser and could not be treated as the assessee's income, especially if it was to be refunded or if no sales tax was ultimately exigible. The assessee relied on the Tribunal's finding that the dealer does not acquire any beneficial interest in the collected sales tax. Revenue's Contention: The sales tax collected formed part of the consideration for the sales, and its accumulation represented the assessee's income. The High Court argued that if the tax is validly exigible and utilized in business, it forms part of the sale price and trading receipt, as the money realized was employed for making profit and not separated from the price. The revenue relied on the High Court's findings that the assessee did not earmark the amount, did not deposit it, and treated it as its own money.

Which sections of the Income-tax Act were involved?

Section 66(1)

AI-generated summary — verify with the full judgment below

A B c D E F G H 62& SINCLAIRE MURRAY & CO. (P) LTD. v. COMMISSIONER OF INCOME TAX, CALCUTTA , November 6, 1974 [H, R. KHANNA AND A. C., GUPTA, JJ.] Indian Income Tax Act, 1922-Sales tax collected but rwt deposited with the Government-Wheth.er could be included in the income of the assessee, 'J!le assessee t'OI!ected sales tax fro~ the purchaser but did not pay the col~ lectlons to the State Government allegmg that the sale was interstate sale The Income Tax Officer treated the sales tax as income of the assessee. The a&essee claimed that the sales-tax realised from the purchaser did net 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 collSideration for the sales and, therefore, the accumulation on - that account represented th~ assessee's income. The Appellate Assistant Commissioner also rejecied the con- tention of the assessee that the sales•tax realised was not plll'I of the taxable re- ceipt of the assessee. The Appellate Tribunal held that where a dealer 90I!ectcd· sales-tax under the provisions of the Orissa Sales-tax Act !lie: amount of tax di

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