Law:

Section:

Section 28(i), read with section 145, of the Income-tax Act, 1961 - Business income -Chargeable as - Assessee-firm acted as commission agent between agriculturists and purchasers, in regard to sale of their produce - Initially assessee used to collect sales tax from agriculturist principals and deposit same with Government periodically - On assessment being completed by year end, in case turnover of each agriculturist was found to be less than Rs. 10,000, sales tax amount already paid during course of year, was refunded to assessee - Assessee maintained mercantile system of accounting, according to which such refunded amount was debited to sales tax account and credited to a separate sales tax refund account - Whether such sales tax collections constituted trading receipts in assessee's hands - Held, no - Whether fact that assessee maintained mercantile system created liability to repay sales tax as and when it was refunded, and consequently, could not be included in assessee's income -Held, yes Facts The assessee-firm acted as a commission agent on behalf of agriculturists. Under the Andhra Pradesh General Sales Tax Act, if the assessee proved that it was acting on behalf of the agriculturist principals, such goods were exempted from sales tax. The assessee maintained mercantile system of accounting and its books of account indicated all details of agriculturist principals, purchasers, the quantity of goods sold, the sale proceeds and also sales tax collected from the purchasers. The sales tax collected was credited to the sales tax account and the sales tax account was debited with the payments made to Government as and when assessments were completed. At the end of the year, when the assessment was completed, if it was established that the assessee was only acting for the agriculturist principals, and if each of the agriculturist principal's turnover was less than Rs. 10,000, the amounts paid during the course of the year were refunded. The assessee, while debiting the sales tax account with the said amount of refund, credited the same to separate sales tax refund account. The assessee also maintained debtors ledger wherein each agriculturist principal's…

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