1949 (2) TMI 7 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Definition and scope of the term "dealer" under Section 2(b) of the Madras General Sales Tax Act, 1939.
2. Applicability of Section 8 exemption for commission agents.
3. Legitimacy of the collection of "rusum" by commission agents.
4. Distinction between buying and selling agency business in terms of tax liability.

Issue-wise Detailed Analysis:

1. Definition and Scope of the Term "Dealer" under Section 2(b):
The court emphasized a strict grammatical and etymological interpretation of the term "dealer" as defined in Section 2(b) of the Madras General Sales Tax Act, 1939. It was concluded that even commission agents, acting either as buying or selling agents on behalf of a known principal, should be deemed to be persons who carry on the business of buying or selling goods. Consequently, they would fall under the definition of "dealer" and be liable to pay tax under Section 3 of the Act. However, Section 8 provides specific exemptions for agents under certain conditions.

2. Applicability of Section 8 Exemption for Commission Agents:
The court analyzed the extent to which the exemption in Section 8 absolves commission agents from tax liability. The exemption applies if the agent buys or sells on behalf of known principals specified in his accounts for an agreed commission or brokerage. The court cited Blackburn, J.'s definition of a commission agency in Ireland v. Livingston, emphasizing that a commission merchant acts as a vendor to his principal, and the legal effect of the transaction is a contract of sale. The court examined three categories of transactions identified by the District Judge and concluded that the exemption could be invoked if the transactions were conducted transparently and the commission was agreed upon.

3. Legitimacy of the Collection of "Rusum" by Commission Agents:
"Rusum" was identified as an Urdu word meaning custom, fees, duties, or commission. The court noted that the collection of "rusum" by commission agents was essentially a commission. The legitimacy of this collection depended on whether it was an agreed commission between the principal and the agent. The court emphasized that any clandestine profit made by the agent without the principal's knowledge would disentitle the agent from the benefits of Section 8. The court found that in the cases examined, the "rusum" collected was agreed upon and transparent, thus falling within the scope of Section 8 exemption.

4. Distinction Between Buying and Selling Agency Business in Terms of Tax Liability:
The court distinguished between the buying and selling agency business. For the buying agency business, the court found no issue with the collection of "rusum" as it was often passed on to the sellers, and the transactions were transparent. However, for the selling agency business, the court noted that the plaintiffs collected "rusum" from buyers but did not pass it on to the principals. This practice led to the conclusion that the plaintiffs were not entitled to the Section 8 exemption for their selling agency business. The court upheld the District Judge's decision that sales tax was correctly levied on the entire turnover of the selling agency business.

Conclusion:
The court dismissed both the appeal and the memorandum of cross-objections, upholding the District Judge's decision. The plaintiffs were entitled to the Section 8 exemption for their buying agency business but not for their selling agency business due to the improper collection and appropriation of "rusum." The appeal and cross-objections were dismissed with costs.