(Appeals by special leave against the judgment and order, dated June 18, 1976 of the Andhra Pradesh High Court in R.Cs. Nos. 1, 2, 3 and 49 of 1975).

Income-tax---

----Income---Business expenditure---Mercantile system of accounting-- Amounts collected as "rusum" towards assessee's disputed sales tax liability-- Amendment of sales tax law with retrospective effect subjecting assessee to sales tax---Tax paid only after accounting period---Amounts collected as "rusum" are revenue receipts---Are also deductible as business expenditure in same year--Indian Income Tax Act, 1961, Ss.4, 37 &. 43B--[P. Krishna Rao v. CIT (1978) 112 I'm 26 partly reversed].

The appellant, carrying on business as commission agent, collected during the accounting period relevant to the assessment year 1968-69 certain amounts by way of sales tax under the name "rusum" inasmuch as its liability to sales tax was disputed by it and was questioned in various proceedings. It maintained its accounts on the mercantile system. In 1970, there was a retrospective amendment of (he sales tax law as a result of which the appellant's liability was upheld by the Courts. Though it had not remitted the tax during the assessment year 1968-69, the appellant paid the tax later. The questions were whether the amounts collected by the appellant in the name of "rusum" were the assessee's income, and whether the sales tax paid later was allowable as a deduction in the assessment year 1968-69. The High Court held that the amounts were income but were not deductible in the assessment year 1968-69. On appeal to the Supreme Court:

Held, (i) affirming the decision of the High Court, that the amounts collected in the name of "rusum" constituted business receipts of the appellant.

Chowringhee Sales Bureau P. Ltd. v. CIT (1973) 87 ITR 542; 31 STC 254 (SC) fol.

(ii) reversing the decision of the High Court, that, since the appellant had maintained its accounts on the mercantile basis, and section 43B of the Income Tax Act, 1961., was not there during the assessment year, the amounts were deductible as business expenditure for the assessment year 1968-69 though they had not been remitted in that year.

Kedarnath Jute Manufacturing Co. Ltd. v. CIT (1971) 82 ITR 363 (SC) fol.

P. Krishna Rao v. CIT (1978) 112 ITR 26 affirmed in part and reversed in part.

A. Subba Rao and A.D.N. Rao for some Appellants.

Dr. V. Gauri Shankar, Senior Advocate (S. Rajappa and P. Parameswaran, Advocates with him) for Respondent.

JUDGMENT

These appeals are directed against the judgment of the Andhra Pradesh High Court answering the two questions referred to it, one in favour of the Revenue and other against the Department. For the sake of convenience, we may refer to the facts in one of the appeals, viz., the one arising from R.C. No.l of 1975 (sec (1978) 112 ITR 26). The basic facts in all the cases are identical; only the assessment years and amounts are different. The two questions referred in R.C. No.l of 1975 read thus (at page 28):

"(1)Whether, on the facts and in the circumstances of the case, the sum of Rs.32,846, collected by the assessee towards rusum on commission sales of Jaggery constitutes income liable to tax for the assessment year 1968-69? .

(2) Whether, on the facts and in the circumstances of the case, a sum of Rs.32,846 is allowable as an admissible deduction as sales tax payable by the assessee under the Andhra Pradesh General Sales Tax Act for the assessment year 1968-69?"

The assessee is a commission agent in jaggery. The assessment year concerned is 1968-69. During the relevant accounting year, the assessee had collected certain amounts by way of sales tax but inasmuch as he was disputing the very levy of sales tax during that year, he collected it under the name "rusum". He was questioning his liability in various proceedings. Be that as it may, all doubts in that behalf were set at rest by the amendment effected in 1970 to the Andhra Pradesh General Sales Tax Act which was upheld by the High Court and this Court. By virtue of this amendment sections 5 and 11 of the Act were amended with retrospective effect from June 1,1963. As a result of the said amendment, the assessee became liable to pay sales tax on the sales/purchases effected by him during the relevant accounting year. It is an admitted fact that the assessee did not remit the tax during the assessment year 1968-69. He did it later. The questions raised in these appeals are whether the collection of the said amount in the name of "rusum" constitutes his business receipt and secondly whether it is a deductible expenditure for the assessment year 1968-69 notwithstanding the fact that he did not actually remit the tax during that assessment year. So far as the first question is concerned, there can hardly be any doubt. It constitutes his business receipt, though collected under the name "rusum". (See Chowringhee Sales Bureau P. Ltd. v. CIT (1973) 87 ITR 542 (SC)). The only question is whether it is deductible in that assessment year though it was not actually remitted. It is not disputed that the assessee maintained his accounts on the mercantile basis. Section 43B was not there during the relevant assessment year; it came into force much later. In these circumstances, it cannot be disputed in view of the decision of this Court in Kedarnath Jute Manufacturing Co. Ltd. v. CIT (1971) 82 ITR 363 that it is a deductible expenditure. In the circumstances, the first question is answered in the affirmative, that is, in favour of the Revenue and against the assesses. But, so far as the second question is concerned, it is answered in the affirmative, that is, in favour of the assessee and against the Revenue.

No other question is argued before us.

Accordingly, the appeals are allowed in part. The answer given by the High Court on question No.2 is set aside as indicated above. No costs.

M.B.A./2301/T Order accordingly.