Commissioner of Income Tax vs Central Wines

Upendralal Waghray, J.—At the instance of the Revenue, the following question has been referred for the opinion of this court u/s 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 ?"

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 Commissioner of Income Tax, Andhra Pradesh Vs. Devatha Chandraiah and Sons, , 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.