Judgment

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

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?"

2. The matter relates to the assessment year 19.53-54, the corresponding accounting period for which ended on June 30, 1952. The assessee is a limited company with its head office at Calcutta. One of its activities was the purchase and stale of jute in the State of Orissa and for this purpose the assessee was a registered dealer- under the Orissa Sales Tax Act, 1947. During the accounting year the assessee sold jute to M/s. Mcleod and Co. Ltd. for being used in two jute mills situated in Andhra Pradesh under the management of the purchaser company. The assessee used to charge from the purchaser sales tax on the purchase of goods at the rate of one anna per rupee of the value of the goods. The sales tax was charged under a separate head in the bill. The words used in the bill in this respect were "Sales tax buyers account ....... at the rate of -/1/- per rupee to be paid to Orissa Government". The total amount shown as "Liabilities for expenses" in the balance sheet as on June 30, 1952 included a sum of Rs. 16,54,455 on account of sales tax. The said sum was, however, not paid to the State Government as the sales by the assessee to the purchaser company were stated to be inter-State sale. The assessee contended before the income-tax officer that the sales tax realized from the purchaser did not form part of the sale price of the jute and as such did not constitute receipt in jute business. This contention was rejected by the income-tax officer who held that the sales tax formed a part of the consideration for the sales and, therefore, the accumulation on that account represented the assessee s income. The income-tax officer accordingly added the aforesaid sum of Rs. 16,54,455 to the assessee s total income.

3. On appeal by the assessee the Appellate Assistant Commissioner found that the actual amount received as sales tax during the relevant period amounted to only Rs. 7,41,962. out of which Rupees 27,564 had been paid to the Orissa Government. He, therefore held that the amount which was to be added to the assessee s total income was Rs.7,14,398. The contention of the assessee that the sales tax realised was not part of the taxable receipt of the assessee was rejected.

4. The assessee preferred second appeal before the Tribunal and submitted that the purchaser paid the sales tax and the price of goods to the assessee on the understanding that if ultimately no sales tax was exigible on those sales, the amount collected as sales tax would be refunded to the purchaser. The amount collected as sales tax, according to the assessee company, could not belong to it but belonged to the purchaser and as such could not be treated as income of the assessee. The Tribunal held that where a dealer collects sales tax under the provisions of Section 9-B of the Orissa Sales Tax Act, the amount of the tax does not form part of the sale price and the dealer doss not acquire any beneficial interest in that amount. According to the Tribunal, if at the time of the collection the amount was collected as sales tax the subsequent failure of the assessee to deposit the amount in the Orissa Treasury could not transform the character of that amount. The Tribunal consequently came to the conclusion that the Appellate Assistant Commissioner had erred in treating Rs. 7,14,398 as part of the total income of the assessee.

5. On the application of the Commissioner of Income-tax the Tribunal referred the question reproduced above to the High Court.

6. The High Court held that if tax, which is vali