1. In R. C. No. 4/75 the following two questions are referred for our opinion :

(1) Whether, on the facts and in the circumstances of the case, the sum of Rs. 51,220 collected by the assessee towards 'rusum' on commis-sion sales of jaggery constitutes an income liable to tax for the assessment year 1969-70? And (2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 51,220 is allowable as admissible deduction as sales tax payable by the assessee under the Andhra Pradesh General Sales Tax Act, 1957, as amended by the act 9 of 1970 for the assessment year 1969-70 ?

2. M/s. Buddala China Venkata Rao & Co., Attili, the assessee, is a firm carrying on business in jaggery and chillies on commission basis. In the financial year 1968-69, the firm collected a sum of Rs. 51,220 as "rusum" (local equivalent of sales tax). This amount represented the sales tax payable on jaggery transactions of that year. In the case of rusum for chillies, the Income-tax Officer, in the assessment order for 1968-69, held that the "rusum" was payable to the sales tax department but the amount of Rs. 51,220 collected as rusum for jaggery was held as income of the assessee and added that if, ultimately, the assessee is found liable to pay the sales tax to the State Government, the amounts so paid would be allowed as deduction in the" year of payment. The Appellate Assistant Commissioner affirmed the view of the Income-tax Officer. The Income-tax Appellate Tribunal found that the facts in the case were identical with the facts in I. T. A. No. 2/Hyd/70-71 of M/s. Shri Veera Venkata Satyanarayana & Company, and following their decision in that case, upheld the order of the Appellate Assistant Commissioner.

3. As to how the jaggery commission agents came to collect the sales tax and have not paid the amounts to the exchequer has a brief history. The commission agents under the A. P. General Sales Tax Act (Act 6 of 1957) till 1963 were required to obtain licences and if they conformed to the conditions prescribed in the licences they were not subjected to sales tax. The principal Act was amended by act 16 of 1963, and in that Section 11 was substituted, which changed the structure of assessment. The agents were made liable for payment of sales tax. The liability of the agent was made co-extensive with that of the principal. The sales tax authorities were making assessments on the turnover of sales of jaggery of several principals irrespective of the fact whether the turnover of each principal was not up to Rs. 10,000. This method was challenged by the commission agents successfully and the case is reported in Irri Veera Raju v. Commercial Tax Officer [1967] 20 STC 501 (AP). To get over the effect of the decision of this court. Amendment Act 5 of 1967 was enacted. A new Section 11 was substituted with retrospective effect from 1st August, 1963, enabling the sales tax authorities to levy and collect the tax from the agents de hors the liability of the principals in respect of the turnover of the principal specified in Subsection (1) of Section 5 of the Act 6 of 1957. The commission agents again successfully challenged the amended provisions as discriminatory. The decision is K. Venkata Ramana v. State of Andhra Pradesh [1969] 24 STC 367 (AP). The principal Act was amended for the third time by the A. P. General Sales Tax (Amendment) Act (Act 9 of 1970). Sections 2, 5, 8 and 9 were amended. Section 11 was again substituted with retrospective effect from 1st August, 1963. These amendments were held valid. The decision of the Supreme Court is Jonnala Narasimharao & Co. v. State of Andhra Pradesh [1971] 28 STC 262.

4. Shri Sastry for the assessee in this reference contends that "rusum" of Rs. 51,220 is not a trading receipt. This amount has to be paid to the sales tax authorities. The liability of the principal is a statutory liability under Section 11 of the Sales Tax Act. Therefore, he submitted, the income-tax authorities were wrong to treat the amount of Rs. 51,220 as income of the assessee. He elaborated the argument stating that the assessee maintains his books of account in mercantile system which "brings into credit what is due immediately it became legally due and before it is actually received and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed". Therefore, notwithstanding the retrospective effect of the amending act 9 of 1970, the amount of Rs. 51,220, he contended, cannot be treated as "income" of the assessee in the respective financial year 1969-70.

5. Sri Rama Rao, for the department argued that the amount collected by the commission agent in substance is the income of the assessee as held by the Supreme Court in Chowringhee Sales Bureau P. Ltd. v. Commissioner of Income-tax and in Sinclair Murray & Co. P. Ltd. v.

Commissioner of Income-tax [1974] 97ITR 615. He contended that the amount in substance was a trade receipt. In the account books of the assessee the amount was credited and, it is argued, the assessee treated the amount as trade receipt, yet it did not pay the amount to the exchequer nor paid the amount to the purchaser (the principal). Therefore, it is argued, this decision of the revenue that the amount is the trade receipt of the commission agent is correct.

6. The method of accounting followed by the assessee is the mercantile system. The effect of the receipt of amounts subsequent to the financial year and as to how such amounts could be treated and for what year of assessment directly arose in the case of Commissioner Of Income Tax, Madras. v. A. Gajapathy Naidu, Madras. . The assesses in that case supplied bread to a hospital during the financial year April 1, 1948, to March 31, 1949. The assessee was maintaining accounts on mercantile basis. The assessment for that year was completed. In November, 1950, the Government paid Rs. 12,447 to compensate the loss sustained by the assessee for the bread supplied in the financial year 1948-49. The question arose whether Rs. 12,447 could be treated as income in the financial year 1948-49. The Supreme Court, while referring to the practice in the United Kingdom, which was followed by the State High Court, observed (page 117):

"While considering the case law it is necessary to bear in mind that the Indian Income-tax Act is not in pari materia with the British income-tax statutes, it is less elaborate in many ways, subject to fewer refinements and in arrangement and language it differs greatly from the provisions with which the courts in England have had to deal. Little help can, therefore, be gained by attempting to construe the Indian Income-tax Act in the light of decisions bearing upon the meaning of the income-tax legislation in England. But on analogous provisions, fundamental concepts and general principles unaffected by the specialities of the English income-tax statutes, English authorities may be useful guides."

The Supreme Court disagreed with the view of the Madras, High Court and held that the amount of Rs. 12,447 constitutes income in the assessment year 1951-52 when the right to receive the amount arose.

7. The ratio of the decision in Commissioner Of Income Tax, Madras. v. A. Gajapathy Naidu, Madras. has a large bearing in the instant case in deciding whether the amount in question is the "income" of the assessee, for the amount represented sales tax payable to the Government as per the account books of the assessee.

8. The effect of retrospective legislation was considered by the Supreme Court in Venkatachalani, Income-tax Officer v. Bombay Dyeing & Manufacturing Company Ltd. . The assessee in that case was given credit of Rs. 50,063-15-0 on tax paid under Section 18A of the Indian Income-tax Act, 1922. There was an amendment to Section 18A by which a proviso was added. If the proviso covered the assessee's case, the assessee was entitled to a credit of Rs. 29,446-9-0. Therefore, under Section 29 for the excess credit of Rs. 29,446-9-0 the assessee was served with a notice to refund. On these facts the Supreme Court, differing from the view of the Bombay High Court, applied Section 35 of the Act of 1922 to the circumstances of the case. It was held, at page 150, that

"if a mistake of fact apparent from the record of the assessment order can be rectified under Section 35, we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified. Prima facie it may appear somewhat strange that an order which was good and valid when it was made should be treated as patently invalid and wrong by virtue of the retrospective operation of the Amendment Act....."

The action of the Income-tax Officer was held to be justified. To a like effect is the dicta laid down by the Judicial Committee in the case of Commissioner of Income-tax v. Banarsi Dass & Sons [ 1966] 61 ITR 414 (Punj).

9. The question when liability to pay sales tax arises was again considered by the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-tax . The observations are to the following effect :

"Now under all sales tax laws including the statute with which we are concerned, the moment a dealer makes either purchases or sales which are subject to taxation, the obligation to pay the tax arises and taxability is attracted..... It is not possible to comprehend how the liability would cease to be one because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail with regard to the quantum of liability, etc. An assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed. It can again not be disputed that the liability to payment of sales tax had accrued during the year of assessment even though it had to be discharged at a future date."

10. Therefore, applying the ratio of these cases and having regard to the fact that the assessee's method of accounting is mercantile, we are not in a position to agree with the counsel for the department that the "rusum" amount collected by the assessee was "income" of the assessee. The learned counsel for the department relied on the case of Chowringhee Sales Bureau P. Ltd. v. Commissioner of Income-tax . In that case, the assessee was an auctioneer and in the year ending with 31st March, received Rs. 32,986 as sales tax. This amount was not paid over to the exchequer nor was refunded to the person from whom it was collected. What is of significance is that the taxing authorities found that in reality the amount was a "portion of the sale price" and, therefore, held it as part of the assessee's income. In the case of Punjab Distilling Industries Ltd. v. Commissioner of Income-tax the amount was so treated applying a similar test. To the like effect are the observations in Sinclair Murray & Co. P. Ltd. v. Commissioner of Income-tax . All that is urged is that, in the instant case, the assessee had not paid the sales tax to the exchequer nor had paid it to his principal. The cases of Chowringhee Sales Bureau P. Ltd. , Sinclair Murray & Co. Ltd. and Punjab Distilling Industries Ltd. do not stand on any analogy to the facts of the case. Therefore, having regard to the circumstances of the case, we answer the two questions in favour of the assessee. The amount of Rs. 51,220 is not the income of the assessee and is admissible deduction as the amount is payable by the assessee to the sales tax authorities.

11. Sri Rama Rao brought to our notice the opinion of this court in R.C. Nos. 1, 2, 3 and 49 of 1975 dated June 18, 1976 [P. Krishna Rao v. Commissioner of Income-tax ] wherein on identical question a different view was taken by this court. We are unable to follow that decision for the reason that the earlier opinion in R.C. No. 35/74, decided on 15th December, 1975 (Additional Commissioner of Income-tax v. T. Nagireddy & Co. ) on identical questions, was not referred to in R.C. No. 1/75 & batch, and also because we are in respectful agreement with the view taken in R.C. No. 35/74.

12. The facts and the questions referred in R.C. Nos. 10 and 44 of 1975 are identical. Therefore, our answers are the same as in R.C. No. 4/75. The references are answered accordingly. The costs to be paid by the Commissioner of Income-tax in each. Advocate's fee Rs. 250.