Law: Income Tax Act, 1961

Section: 263

Income-tax----Income---Sales Tax collected from customers---Liability regarding part of amount disputed before sales tax authorities and assessee treating that part as a deposit---Amount treated as deposit was part of statutory liability and was a trading receipt. The true character of a receipt must be judged with reference to the reasons for the collection, and the liability for meeting which the collection was made. When the liability is a statutory liability, which the assessee was required to meet and for meeting which it was by the statute or authorities permitted to collect the amount required from its customers, the true character of the collection is a trading receipt. By calling a portion of the amount deposit, it cannot be said that the assessee had constituted itself as a trustee, and, therefore, the amounts received were not required to be regarded as part of its trading receipt. The assessee was a dealer in explosive detonators and safety fuses. It had collected four per cent. of 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 a 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 retained with the assessee. 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 Income­tax Officer but the Commissioner of Income-tax, exercising his power under section 263, directed the Income-tax Officer to re-do the assessment and…

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