Law: Income Tax Act, 1922

Section: 66(1)

Income-tax - Income and capital-Sales tax received by auctioneer from purchasers - Whether assessable as "income" of auctioneer-Liability to return to State or purchasers, effect of. The assessees, who carried on the business of auctioneers, collected from the purchasers in auction, in addition to the price of the goods, the sales tax payable to the State under the Bengal Sales Tax Act. The amount collected as sales tax was shown separately in the memo granted to the purchasers and was also credited to a separate account in the books, pending a decision of the Supreme Court as to whether an auctioneer was a dealer and was liable to collect and pay sales tax over to the State. The Department contended that the receipts by way of sales tax were receipts bearing the same character as receipts from the assessee's trade itself and that such receipts did not change their character by being credited to a separate account other than the trading account. The Tribunal, on the contrary, held that as the amount of sales tax was collected by the assessee, not as its profit or gain, but merely for the purpose of making it over to the State in due time, it was a liability. It did not belong to the assesses either in the shape of a trading receipt or in the shape of gain. The character of the receipt being that of a tax, it would not change such character merely because it had remained with the assessee. The Tribunal further observed that if the High Court finally decided that the assessee was liable to pay the amount collected as sales tax to the State, the amount would have to be made over to the Government. If, on the other hand, the High Court held that the assesses was not liable for any sales tax, the amount would have to be refunded to the purchasers. On a reference: Held, the amounts collected as sales tax were an integral part of the commercial transaction of sales by auction carried on by the assessee and when they were received, they were the moneys of the assessee and remained thereafter the moneys of the assessee as its trading receipts and the Income-tax Officer was justified in bringing the amounts to tax. The liability to return the money was not…