Judgment

KHANNA, J. :- This appeal by special leave is directed against the judgment of Calcutta High Court whereby that court answered the following question referred to it under Section 66 (1) of the Indian Income Tax Act, 1922 in the negative and against the assessee appellant:

"Whether on the facts and in the circumstances of the case the sum of Rs. 32,986 had been validly excluded from the assessee s business income for the relevant assessment year?".

2. The matter relates to the assessment year 1960-61 for which the relevant previous year ended on March 31, 1960. The appellant assessee is a private limited company dealing in furniture. It also acts as an auctioneer. In respect of the sales effected by the appellant as auctioneer, it realised during the year in question, in addition to the commission, Rs. 32,986 as sales tax. This amount was credited separately in the books under the sales tax collection account. The total balance standing to the credit of this account since 1946 up to the end of the relevant previous year stood at Rs. 2,71,698. This sum was neither paid over to the exchequer nor was it refunded to the persons from whom it had been collected. In the earlier years these collections were not added to the appellant s income. For the year in question, however, the Income Tax Officer held that the said sum was in reality a portion of the sale price itself because the sales tax was not the liability of the purchasers of the goods but was the liability of the sellers of the goods only. The owners of the goods who sent them to the appellant for being auctioned had received only their sale price less the amount charged by the appellant as sales tax from the purchasers. The Income Tax Officer held that the sum of Rs. 32,986 was a part of the appellant s income of the same nature as was the commission received by it on the auction sales. The said sum was accordingly added to the appellant s income.

3. The appellant preferred appeal to the appellate Assistant Commissioner who took note of the fact that the appellant had not treated the amount as part of its income. The appellate Assistant Commissioner referred to a decision of a single Judge of the Calcutta High Court in a Writ petition filed by the appellant against the State of West Bengal. The decision in that case is reported in (1961) 12 S.T.C. 535 = (AIR 1961Cal 328). It was held by the High Court that where an auctioneer is selling specific chattel or goods for an unknown or a disclosed principal and where the buyer knows that the auctioneer is not the owner, the auctioneer cannot be considered as the seller and there is no contract of sale between him and the buyer. In such a case the auctioneer according to the High Court, is not even a party to the sale and cannot be made liable for payment of sales tax. The definition of the word "dealer" in Explanation 2 of S. 2 (c) of the Bengal Finance (Sales Tax) Act 1941 (hereinafter referred to as the Bengal Act) was held to be ultra vires in so far as it included an auctioneer.

4. As an appeal was pending against the above decision of the learned single judge in the Calcutta High Court, the Appellate Assistant Commissioner observed that it was only when the matter was finally decided by the High Court or when the assessee itself treated the said sales tax receipt as income that the said sum could be included in the assessee s total income and only in the year in which that event came to pass. The amount of Rs. 32,986 was accordingly excluded from the assessee s income.

5. On further appeal the decision of the Appellate Assistant Commissioner was affirmed by the Income Tax Appellate Tribunal. The question reproduced above was thereafter referred to the High Court. The High Court, as already stated, answered the question against the assessee appellant.

6. When the appeal came up for hearing before us on September 21, 1972 Dr. Pal on behalf of the appellant assailed the correctness of the answer given by the High Court and in