Gulati, J. - (1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961.
(2.) THE assessee is a partnership firm which carried on wholesale business in cloth. During the previous year relevant to the assessment year 1958-59, it collected from its customers sales tax amounting to Rs. 4,46,944 and paid a sum of Rs. 3,16,899 to the sales tax department leaving a balance of Rs. 1,30,045. THE Income-tax Officer treated the sum of Rs. 1,30,045 as the assessee's income for the assessment year in question and levied tax thereon. On appeal the Appellate Assistant Commissioner of Income-tax, relying upon a decision of the Income-tax Appellate Tribunal in the case of the assessee for the assessment year 1959-60, held that the surplus of Rs. 1,30,045 in the sales tax account did not constitute revenue receipt and remitted the tax levied thereon. THE income-tax department went up in appeal before the Income-tax Appellate Tribunal, THE Tribunal has dismissed the appeal, but at the instance of the Commissioner of Income-tax has submitted the following question for our opinion : " Whether, on the facts and in the circumstances of the case, the sum of Rs. 1,30,045 represents income of the assessee for the assessment year 1958-59?" The facts found by the Tribunal are these : The assessee is a dealer registered under the U.P. Sales Tax Act. In the sale memos, sales tax had separately been charged besides the sale price of the cloth. The sale price was credited to the sales account while the sales tax collected was credited to the sales tax account. The credits in the sales tax account on account of collection of tax were made as and when sales were effected while the debits in the said accounts were made when the payment was made by the assessee to the sales tax department. In the immediately preceding assessment year, the assessee paid more sales tax than it had collected and the deficit was allowed as a deduction by the income-tax authorities in the computation of the assesssee's income. The Tribunal has further observed that the Sales Tax Act imposed an obligation on the assessee to collect sales tax from its customers and to pay the same to the sales tax authorities at specified intervals. According to the Tribunal both at the time the sales tax was collected as also at the time when the tax so collected was paid to the Government, there was a valid statute in force. It further held that the true nature of the amount both at the time of collection and till such time as it was actually paid to the sales tax authorities remained as money in trust with the assessee and at no point of time such collections could be treated to be the assessee's income. The short question, that we have to answer is as to whether the view taken by the Tribunal is right.
(3.) SECTION 3 of the U.P. Sales Tax Act is the charging section. It imposes tax on every dealer on the turnover of sales during an assessment year. The liability to pay sales tax is, therefore, on the dealer which term has been defined to mean a person carrying on business of buying or selling goods. There is no liability cast upon the purchasers to pay sales tax. Under SECTION 8A(2)(b) of the U.P. Sales Tax Act a registered dealer has been given the right to recover from his customers an amount equivalent to sales tax payable by him but he is not obliged to do so. If he does not collect the tax from his customers he is visited with no penalty nor is he absolved from the liability to pay the tax. Under these circumstances can it be said that the tax collected by a dealer is held by him on trust for the Government. The answer is obviously no. If the liability to pay the tax was that of the purchasers and a dealer was required by the statute to collect the same from them at the time of sale and to pay the same to the Government it could be said that the dealer collected the tax as the agent of the Government and held the amount so collected on trust for the Government. But such is not the position under the U.P. Sales Tax Act. The liability to pay tax is solely of the dealer whether he realises such tax or not from his customers. In Ashoka Marketing Ltd. v. State of Bihar, [1970] 26 S.T.C. 254, 260 [1970) 3 S.C.R. 455, A.I.R. 1971 S.C. 946 while examining the validity of certain provisions of the Bihar Sales Tax Act, authorising the Government to forfeit the sales tax collected by a registered dealer in excess of his statutory liability, the Supreme Court observed as follows in paragraph 11 : " In either case the liability to pay tax under the Act lies upon the dealer : he does not collect any tax for and on behalf of the Government. The dealer may recover from the purchaser the tax payable by him as part of the price, but on that account the purchaser is not the person liable to pay tax on the sale to the State." In Delhi Cloth and General Mills Co. Ltd. v. Commissioner of Sales Tax, [1971] 28 S.T.C. 331, 334; A.I.R. 1971 S. C. 2216 a question arose before the Supreme Court as to whether the sales tax realised by a dealer was a part of the prjce of goods sold by him. The Supreme Court observed in paragraph 8 : " Under Section 4, the liability to pay tax is that of the dealer. The purchaser has no liability to pay tax. There is no provision in the Act from which it can be gathered that the Act imposes any liability on the purchaser to pay the tax imposed on the dealer. If the dealer passes on his tax burden to his purchasers he can only do it by adding the tax in question to the price of the goods sold. In that event the price fixed for the goods including the tax payable becomes the valuable consideration given by the purchaser for the goods purchased by him. If that be so, the tax collected by the dealer from his purchasers becomes a part of the sale price fixed. ....." ;