The Commissioner of Income Tax vs Nazir Basheer and Co.

P.D. Dinakaran, J.—The above tax case appeal is directed against the order of the Income Tax Appellate Tribunal dated 29.4.1999 made

in ITA No. 1 2971/Mds/1992, raising the following substantial question of law.

(a) Whether in the facts and circumstances of the case, the Appellate Tribunal was right in law in deleting the addition of Rs. 1,57,133/- being the

amounts collected towards sales tax liability and described as ''contingency deposit'' from the business income of the assessee?

2.1. The brief facts leading to the filing of the above appeal are as under.

The assessee is running a tannery and is mainly doing job work, like getting raw skins from its customers and processing them in its tannery on

behalf of the customers. During the assessment year, the assessee had collected a sum of Rs. 1,57,133/- as contingency deposits from parties

towards possible sales tax liability. The assessing officer added the contingency deposit collected by treating the same as income and not allowing

as expenses u/s 43B.

2.2. The appellate Commissioner of Income Tax- on appeal by the assessee, upheld the order of the assessing officer following the Supreme Court

decision in the case of Chowringhee Sales Bureau (P) Ltd. Vs. Commissioner of Income Tax , West Bengal, on the ground that the assessee

collected sales tax on job work, that it did not keep the money as a separate deposit but used it as its own assets for the purposes of its own

business. The crediting of sales tax collected under a separate head called ''contingency deposit'' will not alter the character or nature of collection.

2.3. On further appeal by the assessee, the Appellate Tribunal, deleted the additions made in respect of collections of contingency deposits and

allowed the appeal. Hence, the Revenue preferred the above appeal.

Heard the learned Senior Standing counsel appearing for the appellant, who states that the issue involved in this appeal is answered in favour of

the Revenue by this Court in Commissioner of Income Tax Vs. Southern Explosives Co., .

It is settled law that if a receipt is a trading receipt the fact that it is not so shown in the account books of the assessee would not prevent the

assessing authority from treating it as a trading receipt. It is the true nature and quality of the receipt and not the head under which it is entered in

the account books which is decisive. Eventually if the amount so collected is passed on to the State Government or refunded to the purchasers, the

assessee would be entitled to claim deduction of the sum when so paid or refunded-vide The K.C.P. Limited Vs. Commissioner of Income Tax,

Bangalore, .

In the decision relied on by the learned Senior counsel, viz., Commissioner of Income Tax Vs. Southern Explosives Co., , the true character of a

receipt was vividly discussed, as to when it would amount to trading receipt or otherwise. It was held therein that 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 one, the true character of the collection was 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 it''s trading receipt.

In the instant case, the amounts collected by the assessee were amounts which were meant to be utilised by the assessee for meeting its tax

liability. Even if the assessee paid over the entire amount received by it as deposit towards sales tax to the State Government, it would still have

been open to the assessee to seek refund if the assessee wished to claim such refund on the ground that the tax had been levied at a higher rate

than the rate permissible. The fact that the assessee had chosen to adopt the device of labelling a part of the amounts collected towards its sales tax

liability as ''contingency deposit'', could not make a difference. The amount formed part of the assessee''s income.

In view of the forgoing conclusion, we hold that the Tribunal was not justified in deleting the addition made in respect of collections of

contingency deposit. Therefore, the order of the Tribunal is set aside and the question of law is answered in favour of the Revenue and the appeal

is allowed.