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1987 Supreme(AP) 669
Andhra Pradesh High Court
Judges : B.P.JEEVAN REDDY, UPENDRA LAL WAGHRAY
Commissioner of Income Tax - Appellant
Versus
Central Wines - Respondent
Decided On : 11-19-87
Under the mercantile system of accounting, the amount collected as sales tax but not remitted to the State Government is not to be included in the total income for the relevant assessment year.
Headnote:
Sales Tax - Inclusion in Total Income - The court held that the amount collected by the assessee as sales tax is not to be included in its total income for the relevant assessment year.
Fact of the Case:
The assessee claimed deduction for a sum of Rs. 2,16,343 collected as sales tax but not remitted to the State Government during the relevant assessment year. The Income-tax Officer disallowed the claim and included the sum as part of the assessee's income.
Finding of the Court:
The first appellate authority accepted the assessee's contention and granted relief, which was confirmed by the Tribunal. The court held that the amount collected as sales tax is not to be included in the total income for the relevant assessment year.
Issues: The main issue was whether the sales tax amount collected but not paid by the assessee should be included in the total income for the relevant assessment year.
Ratio Decidendi: The court relied on the fact that the assessee follows the mercantile system of accounting and the amount was shown as an admitted liability. It also cited a similar decision where such an amount was allowed as a deduction.
Final Decision: The court answered the question in favor of the assessee, stating that the amount collected as sales tax is not to be included in its total income for the relevant assessment year.
( 1 ) AT the instance of the Revenue, the following question has been referred for the opinion of this court under section 256 (1) of the Income-tax Act, 1961 :"whether, on the facts and in the circumstances of the case, the sales tax of Rs. 2,16,343 collected but not paid by the assessee during the previous year relevant to the assessment year 1976-77 is includible or not in the total income of the assessee ?"
( 2 ) THE relevant assessment year is 1976-77. The assessee claimed deduction in its return of a sum of Rs. 2,16, 343 collected by it towards sales tax, but which was not remitted to the State Government during the previous year relating to the assessment year. According to the assessee, there is no dispute about the liability to pay this amount to the State Government which, as a matter of fact, was collected as sales tax. It is not in dispute that the assessee follows the mercantile system of accounting. The Income-tax Officer has disallowed the aforesaid claim of the assessee and included the said sum as part of its income. On appeal, the first appellate authority accepted the contention of the appellant and granted relief. This also has been confirmed by the Tribunal. In this reference, it is contended by learned counsel for the Revenue that as the aforesaid amount represents a revenue receipt and has admittedly not been paid over to the State Government, it should not be allowed as deduction. We are not able to accept this contention because the assessee follows the mercantile system of accounting and this amount is shown as an admitted liability. In similar circumstances, this court in CIT v. Devatha Chandraiah and Sons [1985] 154 ITR 893, held that such an amount has to be allowed as a deduction. Following the aforesaid decision our answer to the question referred is that the amount collected by the assessee as sales tax is not to be included in its total income for the relevant assessment year. The reference is accordingly answered in favour of the assessee and against the Revenue. We make no order as to costs.
