Andhra Pradesh H.C : Whether, on the facts and in the circunstances 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 asst. yr. 1976- 77 is includible or not in the total income of the assessee ?

Counsel Appeared

M.S.N. Murthy & A.V. Krishna Koundinya, for the Revenue : Y. Ratnakar, for the Assessee

UPENDRALAL WAGHRAY, J.:

At the instance of the Revenue, the following question has been referred for the opinion of this Court, under s. 256(1) of the IT Act, 1961 :

“Whether, on the facts and in the circunstances 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 asst. yr. 1976- 77 is includible or not in the total income of the assessee ? “

2. The relevant asst. yr. is 1876-77. 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 Sate 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 face, was collected as sales tax. It is not in dispute that the assessee follows the mercantile system of accounting. The ITO 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 aforsaid 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 accepted 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 vs. Devatha Chandraiah & Sons (1987) 61 CTR (AP) 187:(1985) 154 ITR 893 (AP), held that such an amount has to be allowed as deduction. Following the aforsaid 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.

[Citation : 174 ITR 316]