K.L Roy, J.:— This is a reference under section 66(1) of the Income-Tax Act, 1922, and the point for our consideration is whether sales tax charged by an auctioneer forms part of his trading receipts and is as such liable to be assessed to Income-Tax.

2. The assessee is a private limited company, dealing in furniture and also acting as auctioneers. For the assessment year 1960–61, for which the corresponding accounting year was the financial year ending 31st March, 1960, the Income-Tax Officer found that the assessee had collected a sum of Rs. 32,986 from the purchasers in the auctions held by it over and above the amount of Rs. 50,187 which it had earned as commission. He found that the assessee had made out one cash memo in respect of each sale, including therein the price of the articles and also the amount of sales tax payable thereon. In his opinion that amount of Rs. 32,986 was in reality a portion of the sale price itself, because sales tax was not legally due from the purchasers of the goods but was the liability of the sellers only. As the amounts realised as sales tax had not been paid to the owners of the goods, the amounts formed part of the income of the assessee along with the amount of the commission and accordingly he also included the sum of Rs. 32,986 in the assessee's total income. On appeal by the assessee, the Appellate Assistant Commissioner noticed that in the cash memo issued by the assessee to the purchasers in the auctions, the assessee was shown as the seller. According to him, as between the purchasers and the assessee, the assessee was the full owner of the goods and, so long as the assessee's customers did not revoke the contract, the assessee continued to be the seller of the goods. Further, under the provisions of the Bengal Finance (Sales Tax) Act, the assessee was a dealer and was liable for sales tax. While the receipts of the amounts described as sales tax were receipts in the course of the assessee's business, yet, as the assessee had credited these amounts to the sales tax collection account and had not treated them as its liabilities, the amounts could not be held to be the assessee's income. The Appellate Assistant Commissioner noticed that on the assessee's petition under article 226 of the Constitution, the High Court of Calcutta, by its decision dated 16th November, 1960, had held that the assessee was not a dealer under the aforesaid Sales Tax Act and as such there was no liability on the assessee to pay sales tax. But as this decision was subject to appeal, the Appellate Assistant Commissioner was of the opinion that the assessee was justified in treating these amounts as liabilities and not as income. The Appellate Assistant Commissioner accordingly deleted the amount of Rs. 32,986 from the assessment.

3. The department appealed against the said order of the Appellate Assistant Commissioner to the Tribunal. The Tribunal found that the assessee has been following this practice since the year 1946 and the total balance standing to the credit of the sales tax account stood at Rs. 2,71,698 at the time of the hearing of the appeal, which had neither been paid to the State Government nor had been refunded to the persons from whom it had been collected. The Tribunal found as a fact that the assessee had collected sales tax in the course of its business as auctioneers. It has further found that the assessee had contested the claim of the sales tax authorities for sales tax on the ground that it was not a dealer within the meaning of Explanation 2 to section 2(c) of the Bengal Finance (Sales Tax) Act and that the assessee's contention was accepted by the High Court in its judgment in Chowringhee Sales Bureau Private Ltd. v. State of West Bengal [1961] 12 S.T.C 535.. The sales tax authorities have preferred an appeal against the aforesaid decision and the appeal is pending for hearing before a Division Bench of this court. The Tribunal rejected the department's contention that the receipts by way of sales tax were receipts bearing the same character as the receipts from the assessee's trade itself and that such receipts did not change their character by being credited to a separate account other than the trading account. The Tribunal held that as the amount of sales tax was collected by the assessee, not as its profit or gain, but merely for the purpose of making it over to the State in due time, it was a liability. It did not belong to the assessee either in the shape of a trading receipt or in the shape of a gain. The character of the receipt being that of a tax, it would not change such character merely because it had remained with the assessee. The Tribunal further observed that if the High Court finally decided that the assessee was liable to pay the amount collected as sales tax to the State, the amount would have to be made over to the Government. If, on the other hand, the High Court upholds the decision of the writ court and holds that the assessee is not liable for any sales tax, the amount would have to be refunded to the purchasers. Accordingly, the Tribunal upheld the decision of the Appellate Assistant Commissioner and dismissed the appeal.

4. However, at the instance of the Commissioner of Income-Tax, the Tribunal has referred the following question of law to this court, namely:

“Whether, on the facts and in the circumstances of the case, the sum of Rs. 32,986 had been validly excluded from the assessee's business income for the relevant assessment year?”

5. Mr. B.L Pal, learned counsel for the revenue, submitted that when an auctioneer charged a gross sale price from the purchasers and in the cash memo granted to the said purchasers showed one part as the price of the goods and the other part as sales tax on the amount of such price, the amount shown as sales tax was only a part of the sale price and the receipt of such sum by the assessee was in the course of its business as an auctioneer. Mr. Pal accepted the proposition that the question as to whether the sum of Rs. 32,986 would be assessable as income or not would depend upon its character at the time of its receipt.

6. Mr. Pal relied on a decision of this court in Bata Shoe Co. Ltd. v. Member, Board of Revenue, West Bengal [1938-50] 1 S.T.C 193, 53 C.W.N 278., where it had been held that the sale price “as defined in section 2(h) of the Bengal Finance (Sales Tax) Act, 1941, includes any amount charged or realised separately as sales tax from the purchaser by the dealer.” Mr. Pal also referred to the observation of the Appellate Assistant Commissioner that the receipts were in the course of the assessee's business and also the finding of the Tribunal that it was a fact that the assessee had collected sales tax in the course of its business as an auctioneer. Mr. Pal, accordingly, contended that as these amounts of sales tax, at the time of their receipt, were receipts in the course of the assessee's trade, they were revenue receipts and as such liable to be included in the computation of the assessee's income for tax purposes.

7. In the alternative, learned counsel argued that, as the assessee was under an apprehension that it would be liable to pay sales tax in respect of the sales made by it in the auctions and had charged sales tax from its customers, the receipts were receipts in the course of the assessee's trade as an auctioneer though they may not be part of the sale price of the goods. It appears from the judgment in the assessee's own case in this court in Chowringhee Sales Bureau P. Ltd. v. State of West Bengal, that in a previous decision of this court in Staynor & Co. v. Commercial Tax Officer it was held that an auctioneer was liable to sales tax as a dealer within the meaning of section 2(c) of the Bengal Sales Tax Act. Mr. Pal also strongly relied on the decision of the Supreme Court in the case of Punjab Distilling Industries Ltd. v. Commissioner of Income-Tax [1959] 35 I.T.R 519 S.C.. The facts in that case were that the assessee was a manufacturer and dealer in liquor. During the war difficulty was felt in obtaining supplies of bottles in which the liquor was to be sold and the Government devised a scheme whereby the distiller was entitled to charge the wholesaler a price for the bottles in which the liquor was supplied, at the rates fixed by the Government, which the distiller was bound to repay when the bottles were returned. In addition to the price fixed under the Government scheme, the assessee took from the wholesalers certain amounts, described as security deposits, without Government sanction and entirely as a condition imposed by the assessee itself for the sale of its liquor. The moneys, described as security deposits, were also returned as and when the bottles were returned, but, in this case, the entire amount of the deposit was refunded when 90 per cent of the bottles covered by it were returned. The amounts of the deposits were credited in an account called “empty bottles return security deposit account”. The question arose whether the assessee was liable to be assessed to tax in respect of the amount of these security deposits left after the refunds made thereout. The Supreme Court held that in realising the additional amount described as security deposit, the assessee was really charging an extra price for the bottles and the additional amount was actually a part of the consideration for the sale of the liquor and so part of the price of what was sold; it did not make any difference that the additional amount was entered in a separate ledger account. As the wholesalers were under no obligation to return the bottles, the additional sums taken were not security deposits and these sums were really the assessee's trading receipts. In the course of the judgment the Supreme Court considered the decision in Morley v. Tattersall. In that case the assessee was a firm of auctioneers which sold horses of its constituents on their behalf and received the price which it was liable to pay them. It so happened that, in the course of years, various customers did not come and demand the amounts due to them. Initially, the assessee showed these amounts in its accounts as liabilities which they really were. Later, it thought that it would not have to pay back these amounts and thereupon transferred them to the credit of its partners. The question was whether the amounts upon transfer became the assessee's income. The Supreme Court observed that it was never contended in that case that the amounts, when received as price of the constituent's horses sold, were the assessee's income. The Supreme Court quoted the following observation of Sir Wilfrid Greene:

“It seems to me that the quality and nature of a receipt for Income-Tax purposes is fixed once and for all when it is received. What the partners did in this case, as I have said, was to decide among themselves that what they had previously regarded as a liability of the firm they would not, for practical reasons, regard as a liability; but that does not mean that at that moment they received something, nor does it mean that at that moment they imprinted upon some existing asset a quality different from what it had possessed before. There was no existing asset at all at that time.”

8. The Supreme Court further observed that all that this case decided was that moneys which were not, when received, income—and as to this there was no question—could never later become income.

9. Mr. Pal argued that in this case also the amounts realised by the assessee as sales tax from its purchasers were amounts received in the course of the assessee's trade as an auctioneer and were really the assessee's trading receipts.

10. Mr. Pal finally cited a decision of the Andhra Pradesh High Court in Badri Narayan Balkishan v. Commissioner of Income-Tax. The facts in that case are somewhat similar to the facts of the case before us. The assessee was a firm of commission agents who used to sell rice on behalf of its customers. Apprehending that it may be made liable for payment of sales tax in respect of sales made to purchasers outside the State, on the introduction of Central sales tax on inter-State trading, the assessee charged sales tax from its purchasers outside the State and the amounts collected were credited to a separate account called the “deposit account” and were not treated as part of the sale proceeds. The invoices for the sales also showed that the amounts were collected separately as deposit. The assessee also represented that there was an understanding between it and the purchasers that if sales tax was ultimately demanded, payment would be made to the Government accordingly, but if it was not so demanded, the amount would be refunded to the purchasers. The question arose whether the amounts collected as sales tax and credited to the “deposit account” formed part of the assessee's trading receipts. After considering the case of Morley v. Tattersall, Punjab Distilling Industries case and several others, the court observed that the liability to return the money was not the criterion for determining the question whether the amount received was a trading receipt or not. What was important was whether these amounts were relatable to the trading activities, that is, whether they were part of the price relatable to the contract. If the amount received had no relation to this, then it could not be treated as a trading receipt. It was held that the amounts collected as deposits formed part of the price which was charged and it was immaterial how the trader would disburse such amounts, because, so far as the customer was concerned, the price of the goods included all those amounts which he paid. Even assuming that the amount was returnable, it was part of the price and hence a trading receipt.

11. Mr. Chakraborty, the learned counsel for the assessee, submitted that under the Bengal Finance (Sales Tax) Act, the imposition of the tax was on sales and it was the seller who was liable to pay the tax. Under the charging section of the Act, the charge was on every dealer whose gross turnover during any year exceeded the taxable quantum. Before its amendment, in 1950, the term “dealer” was defined by section 2(c) of the Act to mean any person who carried on the business of selling goods in West Bengal and included the Government. By the said amendment, Explanation 2 was introduced to the said sub-section, which is to the following effect:

“A factor, a broker, a commission agent, a del credere agent, an auctioneer or any mercantile agent, by whatever name called, and whether of the same description as hereinbefore mentioned or not, who carries on the business of selling goods and who has, in the customary course of business, authority to sell goods belonging to principals is a dealer.”

12. Section 2(h) defines “sale price” to mean the amount payable to a dealer as valuable consideration for the sale of any goods less any sum allowed as cash discount according to ordinary trade practice but including any sum charged for anything done by the dealer in respect of the goods at the time, or before, delivery thereof, other than the cost of freight or delivery or the cost of installation where such is separately charged. Mr. Chakraborty submitted that it was Explanation 2 to section 2(c) of the Act that made a person who sold the goods of others liable as a dealer. In the case of the assessee, the sales tax was charged not because of any apprehension but on account of an actual existing liability to pay the tax. The assessee had been charging sales tax from its customers since 1941 and had in the earlier years paid certain amounts as sales tax. As the assessee was denying its liability to pay sales tax, it kept the amounts credited in a separate account. He referred to the decision of D.N Sinha J. (as he then was) in the assessee's case in Chowringhee Sales Bureau P. Ltd. v. State of West Bengal, where it was held that:

“…an auctioneer, who sells goods belonging to a third party, is only the agent of the vendor and could not be treated as the seller of the goods. As the expression ‘dealer’ is used instead of the word ‘seller’, the tax is upon the footing that an auction sale is a sale of goods. Where the auctioneer is selling specific chattel and/or goods for an unknown principal or a disclosed principal and where the buyer knows that the auctioneer is not the owner, the auctioneer cannot be considered as the seller and there is no contract of sale between him and the buyer. In such a case, the auctioneer is not even a party to the sale. Therefore, in such a transaction, the auctioneer cannot be made liable to payment of sales tax and the extension of the definition of the word ‘dealer’ in Explanation 2 of section 2(c) of the Act, so as to include an auctioneer is ultra vires and must be declared as void.”

13. Mr. Chakraborty argued that if, as held aforesaid, the assessee is not a dealer, then the amounts collected as sales tax from the purchasers do not form part of the sale price. He also referred to a decision of B.P Sinha C.J (as he then was) in Commissioner of Income-Tax v. Anwarkhan Mahboob Co., where it has been held that the determining factor is not the terms in which the bill was made out, but the terms of the actual contract between the parties. It was further submitted by Mr. Chakraborty that the receipt of sales tax over and above the price of the goods was a receipt of sales tax simpliciter and not a receipt in the trading account. These amounts were being withheld by the assessee pending the final decision in the writ proceedings commenced by it. Even if these amounts are held to be trading receipts, they should be treated as the trading receipts of the vendors on whose behalf the tax was charged and collected by the assessee. For the proposition that the assessee received the sales tax as the agent of the vendors, Mr. Chakraborty referred to a decision of the Supreme Court in State of Bombay v. Ratilal Vadilal & Bros., where the respondents, who acted as del credere agents, arranged for the supply of coal to the persons holding certificates from the State Coal Controller by the collieries, and the collieries made out the bill to the respondents for the price of the coal and the respondents in their turn made out a bill in which they charged in addition to the amount of the bill of the colliery, a sum representing their commission. The liability to pay the colliery rested upon the respondents. On these facts the Supreme Court held that the respondents were not dealers inasmuch as they were not carrying on the business of selling coal and that their position was merely that of agents, arranging the sale to a disclosed purchaser, though guaranteeing payment to the colliery on behalf of their principal.

14. Mr. Chakraborty also referred to sections 217 and 218 of the Indian Contract Act and to Halsbury's Laws of England, 3rd edition, volume 2, at page 80, for the proposition that an auctioneer is an agent for the owner of the goods and must account for any moneys received by him on the vendor's behalf; he is a trustee in respect of such moneys.

15. That an auctioneer is an agent of the vendor when selling goods belonging to a third party is well-settled. It is also well-settled that any moneys received by an auctioneer on the vendor's behalf must be accounted for and paid back after retaining all moneys due to himself in respect of advances made or expenses properly incurred and also such remuneration as he may be entitled to.

16. It is not in dispute that the amount that the assessee collected from the purchasers as the price of the goods was refundable to the owners of such goods and did not or could not be treated as part of the assessee's trading receipts. But the assessee, in this case, was charging sales tax not on behalf of or an account of the vendors, but because, as an auctioneer, he was a dealer within the meaning of section 2(c) of the Bengal Finance (Sales Tax) Act and was, as such, liable to pay the sales tax himself. If the amounts of the sales tax were being charged on behalf of the vendors as part of the sale price, the amounts would be credited to the vendors accounts and could not be treated as deposits. In that case ultimately it was declared by the courts that if the assessee was not liable to pay sales tax as a dealer, such amounts would be refundable to the vendors. Mr. Chakraborty finally submitted that if ultimately no sales tax was payable by the assessee, then the assessee would be bound to refund the amounts to the purchasers from whom they were collected. But until such contingency arises, the amounts of sales tax collected must be held to have been realised by the assessee in its character as a trader, namely, an auctioneer, and the amounts would form part of its trading receipts. If, ultimately, the assessee is found liable to pay sales tax to the State Government, the amounts so paid would be allowed as a deduction in the year of payment. Similarly, if the assessee had to refund any moneys to the purchasers at the auctions, then such refunds would also be allowed as deduction in the year in which they are made. We cannot agree with the Tribunal that whether the amount or any part of it is ultimately payable to the State or to be refunded to the purchasers, it still retains its character as sales tax and nothing else. As pointed out by the Supreme Court in Punjab Distilling Industries case these amounts were an integral part of the commercial transaction of sales by auction carried on by the assessee and when they were received they were the moneys of the assessee and remained thereafter the moneys of the assessee as its trading receipts. The Income-Tax Officer was justified in bringing to tax the amount of Rs. 32,986 and the answer to the question referred to this court must be in the negative and against the assessee. The assessee is to pay the costs of this reference.

Sankar Prasad Mitra, J.:— I agree.

17. Reference answered in the negative.