Gokal Chand Mital, J.:— Sirsa Industries, Sirsa, the assessee, follows the mercantile system of accounting. It is engaged in the business of cotton ginning and pressing: In the course of business, it has been collecting central sales tax from its constituents on the sale of bales of cotton in the accounting years relating to the assessment years 1968-69, 1969-70 and 1970-71. The Central sales tax so realized was not paid to the Government and was shown as credited to the Central sales tax account in their books of account, and the same position was reflected in the balance-sheet. The Income-tax Officer did not add the amount of Central sales tax to the total income of the assessee and completed the assessment for all the three years. The assessee went up in appeal against the assessments for the years 1968-69 and 1969-70 in respect of matters other than Central sales tax accounts but did not file an appeal against the assessment for the year 1970-71. Some relief was granted by the appellate court with the result that the order of the Income-tax Officer for non-inclusion of the amount relating to Central sales tax in the total income of the assessee assumed finality.

2. The Income-tax Officer issued notices to the assessee under sections 154/155 of the Income-tax Act, 1961 (for short “the Act”), for the aforesaid three assessment years to show cause as to why the amounts shown in the Central sales tax accounts be not added to the total income of the respective years in view of the decision of the Supreme Court in Chowringhee Sales Bureau (P) Ltd. v. Cit, West Bengal, [1973] 87 ITR 542. The assessee represented to the Income-tax Officer, as also to the Central Board of Direct Taxes. The Central Board of Direct Taxes declined to express any opinion and before the Income-tax Officer could finally decide the matter, the notices were challenged by filing CWP No. 883 of 1976. For the three subsequent years 1971-72, 1972-73 and 1973-74, the assessee took up the same position regarding the Central sales tax received by it and the Income-tax Officer did not include that amount in the total income of the assessee and framed the assessment. Thereafter, the Income-tax Officer issued notices under sections 147 and 148 of the Income-tax Act for the aforesaid three years requiring the assessee to file returns of income within 30 days as he had reason to believe that income has escaped assessment. This action was also initiated in view of the aforesaid decision of the Supreme Court in Chowringhee Sales Bureau's case, [1973] 87 ITR 542. Civil Writ Petition No. 2196 of 1976 was filed in this court to impugn the notices.

3. Haryana Cotton Corporation, another assessee, who was carrying on the business of commission agent, used to follow the mercantile system of accounting. This assessee also received Central sales tax on the transactions of sale of cotton bales as commission agent and the amount so received was credited to the Central sales tax in their account books and during the assessment the amount was sought to be excluded from the total income and here we are concerned with the assessment years 1972-73 and 1974-75. The Income tax Officer while framing the assessment excluded the amount received as Central sales tax from the income of the assessee. However, later on, the Income-tax Officer issued separate notices for both the years under sections 147 and 148 of the Act and required the assessee to file returns for those years within 30 days as he had reason to believe that income has escaped assessment. Obviously, this was done in view of the aforesaid decision of the Supreme Court in Chowringhee Sales Bureau's case, [1973] 87 ITR 542. Separate Writ Petitions Nos. 2367 and 2376 of 1976 were filed to impugn the notices. Since identical questions were involved, all the four writ petitions were clubbed and were heard by an hon'ble single judge of this court, who, vide his judgment dated April 29, 1983, dismissed the same by following the decision of the Supreme Court consisting of three hon'ble judges in Chowringhee Sales Bureau's case, [1973] 87 ITR 542 in preference to the decision of the two hon'ble judges of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. v. CIT, [1971] 82 ITR 363.

4. L.P As. Nos. 640 to 643 of 1983 have been filed against the decision of the hon'ble single judge in the four writ petitions which we are disposing of by this common order.

5. There is no dispute that whether sales tax is separately added or is included in the sale price, it is a trading receipt within the meaning of the Act. Where an assessee follows the cash system of accounting, when the amount is received, it is shown as a trading receipt, and when the amount is paid, deduction can be claimed in regard to, the tax paid in the relevant assessment of the accounting year in which tax is paid. To this extent, there is no dispute between the parties.

6. When the mercantile system of accounting is followed by an assessee, the question arises as to when an assessee can claim deduction of the sales tax out of the trading receipts, whether upon payment or when the liability to pay arises. This question directly arose before the Supreme Court in Kedarnath's case, [1971] 82 ITR 363 and it was held that the moment a dealer made purchases or sales which were subject to sales tax, an obligation to pay the tax arose and since in that case the assessee was following the mercantile system of accounting, after upsetting the decision of the High Court, it was held that the assessee was entitled to deduct from the profits and gains of its business the liability to pay sales tax, which arose on sales made by him during the relevant previous year although the tax had not been paid. Following the aforesaid decision of the Supreme Court, the Income-tax Officer had initially granted the deduction of sales tax amount while computing the taxable turnover.

7. Later on, another decision of the Supreme Court in Chowringhee Sales Bureau's case (sic) came and in view thereof notices under sections 154/155 and 147/148 of the Act were issued to rectify or to reopen the matter, as the case may be. If the later decision of the Supreme Court has changed the position in law, then certainly the matter may fall within the ambit of sections 147/148 of the Act and not otherwise.

8. After hearing learned counsel for the parties at length and on consideration of the large number of decisions cited before us, we are of the opinion that the later decision of the Supreme Court has not changed the position of law from its earlier decision and as a consequence, the notices issued to the assessee for rectification or reopening the assessment are without jurisdiction.

9. As already noticed, the sales tax amount received by an assessee forms part of the trading receipt and if the assessee is liable to pay tax, the amount will be allowed as a deduction according to the accounting system adopted by the assessee. It is also beyond dispute that if ultimately it is found that an assessee, who has paid the amount and got the deduction, gets the sales tax by way of refund, the amount has to be added as a trading receipt in the relevant accounting year. Similarly, if an assessee who is following the mercantile accounting system and deduction of sales tax is granted on the basis of liability to pay the tax without actual payment and if ultimately it is decided that the whole or a part of the amount received as sales tax was not payable, in the assessment year relevant to the year in which the decision is taken, the whole or balance would be added as a trading receipt.

10. In the cases cited before us arising before the various High Courts, even the stand of the Revenue was not consistent. Since we are dealing with cases of mercantile system of accounting, we will be referring to all such cases. Whenever the assessee wanted deduction of sales tax amount in the year in which the liability accrued, the stand of the Revenue was that since the amount was not paid, deduction should not be granted. Whenever the assessee did not claim deduction in the year in which the liability accrued and claimed deduction after the sales tax was determined or paid in another assessment year, the Revenue pleaded that deduction was claimable only in the year in which liability accrued and not when the liability was finally determined Taking all these stands of the parties, the courts have taken an unanimous decision that wherever an assessee follows the mercantile system of accounting, deduction is claimable only in the year in which the tax liability accrues and not in the accounting year in which the liability is finalised or the amount is actually paid. Reference may be made to (1) Commissioner Of Income-Tax, Amritsar-I v. United India Woollen Mills, [1981] 132 ITR 457 (P&H), (2) CIT v. Guranditta Mai Shanti Parkash lira, [1987] 164 ITR 774 (P&H), (3) CIT v. Kumardhubi Engineering Works Ltd., [1978] 115 ITR 58 (Cal), (4) CIT v. K.A Karim and Sons, [1982] 133 ITR 515 (Ker) [FB], (5) N.K Textile Mills v. Commissioner Of Income-Tax, Delhi, [1985] 152 ITR 594 (Delhi), (6) CIT v. Deora pu Cabncon Mfg. Co. Pvt. Ltd., [1985] 152 ITR 654 (MP) and (7) CIT v. Tata Chemicals Ltd., [1986] 162 ITR 556 (Bom).

11. There is no view to the contrary except that the hon'ble single judge has considered that the Supreme Court has taken a different view in Chowringhee Sales Bureau's case, [1973] 87 ITR 542 contrary to its own decision in Kedarnath's case, [1971] 82 ITR 363. The decisions of all High Courts are after both the decisions of the Supreme Court.

12. Before the hon'ble single judge, it was sought to be argued on behalf of the assessee that while Kedarnath's case, [1971] 82 ITR 363 related to an assessee who was following the mercantile system of accounting, the assessee in Chowringhee Sales Bureau's case, [1973] 87 ITR 542 was not following such system. But the stand of the Revenue before the hon'ble single judge was that even in Chowringhee Sales Bureau's case, [1973] 87 ITR 542, the mercantile system of accounting was followed and a different view was taken.

13. We have closely read both the decisions of the Supreme Court and are of the opinion that while in Kedarnath's case, [1971] 82 ITR 363, the manner of keeping mercantile system of accounting and claim of deduction of sales tax from the profits without making actual payments, was allowed, such a point did not directly arise in Chowringhee Sales Bureau's case, [1973] 87 ITR 542. In Chowringhee Sales Bureau's case, [1973] 87 ITR 542, the sole point for consideration was whether an auctioneer would be a dealer within the meaning of the Bengal Finance (Sales Tax) Act, 1941. In the Sale of Goods Act, 1930, an auctioneer is neither the seller nor the buyer and is merely a commission agent. In an earlier decision (See [1969] 71 ITR 131), the Calcutta High Court had declared the provision whereby an auctioneer was made liable to sales tax, as ultra vires and, therefore, the precise question before the Supreme Court was whether the decision of the Calcutta High Court declaring the provision to be ultra vires was right or wrong and it did not agree with the Calcutta High Court and held that it was within the competence of the State Legislature to include within the definition of the word “dealer” an auctioneer who carries on the business of selling goods and who has, in the customary course of business, authority to sell goods belonging to the principal and, therefore, concluded that in law he was liable to pay sales tax and the sales tax received by him formed part of the trading or business receipts. The point whether the assessee was right in claiming deduction in the year in which liability to pay tax accrued or whether he was entitled to claim deduction in the year in which the amount was actually paid on the basis of its manner of maintaining accounts, did not directly arise. In spite of the point not having directly arisen, the following sentence was added.

“The party would, of course, be entitled to claim deduction of the amount as and when it passes it on to the State Government.”

14. The aforesaid sentence was considered by the hon'ble single judge as if a Bench of three judges had taken a view contrary to the decision of the two judges in Kedarnath's case, [1971] 82 ITR 363 (SC). The author who prepared the headnote of the Income Tax Reports has treated the aforesaid sentence as per curiam. We are of the view that the aforesaid sentence is a surplusage. In a later decision in Chowringhee Sales Bureau v. CIT, [1977] 110 ITR 385, by the Calcutta High Court, the precise question, which is before us, arose relating to the same assessee, namely, Chowringhee Sales Bureau P. Ltd., who was also before the Supreme Court in [1973] 87 ITR 542. In Chowringhee Sales Bureau P. Ltd.'s case, [1977] 110 ITR 385 for two later assessment years, Chowringhee Sales Bureau P. Ltd. collected certain amounts as sales tax and deduction was claimed on the basis of accrual of liability for maintaining the mercantile system of accounting, although the amount had not been paid to the sales tax authorities. Up to the Tribunal, the assessee failed but succeeded before the Calcutta High Court. The relevant headnote of the ITR is as follows:

“That the amounts collected by the assessee as sales tax formed part of its trading receipts. However, the liability to pay sales tax arises the moment a sale or purchase is effected and an assessee who maintains accounts on the mercantile system is entitled to deduction of his estimated liability to sales tax, even though they had not been paid to the sales tax authorities.”

15. In this judgment, the earlier decisions of the Supreme Court relating to the same assessee in [1973] 87 ITR 542 and in Kedarnath's case, [1971] 82 ITR 363 were noticed and in view of the fact that the assessee was maintaining the mercantile system of accounting, deduction was allowed on the basis of accrual of liability. This decision further explains that the point in [1973] 87 ITR 542 was different from the point which was decided in Kedarnath's case, [1971] 82 ITR 363 (SC), the cases referred to above relating to other High Courts and this court and the case before us. In view of the aforesaid discussion, although it is held that Chowringhee Sales Bureau P. Ltd. was maintaining the mercantile system of accounting, yet there is no conflict between Kedarnath's case, [1971] 82 ITR 363 (SC) and Chowringhee Sales Bureau P. Ltd.'s case, [1973] 87 ITR 542 (SC), as in [1973] 87 ITR 542, the precise point was not under consideration. Accordingly, following Kedarnath's case, [1971] 82 ITR 363 (SC), the two decisions of this court and of other High Courts referred to above, it is held that the Income-tax Officer had rightly allowed the deduction in the original assessment framed by him. Once the assessment orders were rightly framed, no case for rectification or for reopening under sections 147/148 and 154/155 of the Act arises and the notices are clearly illegal and without jurisdiction.

16. For the reasons recorded above, we set aside the decision of the hon'ble single judge and allow the writ petitions and declare the notices issued under sections 154/155 and 147/148 of the Act as illegal and quash the same. The assessee will have his costs, quantified at Rs. 500 in each case.