1955 (4) TMI 26 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the Maharaja of Jeypore is a 'dealer' under clause (c) of section 2 of the Orissa Sales Tax Act.
2. Whether the transactions evidenced by leases amount to a lease of immovable property.
3. Whether the royalty and seigniorage payable under the lease constitute 'rent' or 'price'.
4. Whether the trees and forest produce are movable property coming under the definition of 'goods' under the Orissa Sales Tax Act or are immovable property.

Detailed Analysis:

1. Whether the Maharaja of Jeypore is a 'dealer' under clause (c) of section 2 of the Orissa Sales Tax Act:
The court examined whether the Maharaja, by leasing out the right to cut and remove timber and collect forest produce, could be considered a 'dealer' under the Orissa Sales Tax Act. The Maharaja's business primarily involved collecting rents from tenants and income from forest produce. The transactions in question pertained to agreements allowing contractors to extract and manufacture railway sleepers from his forests. The court noted that the Chief Forest Officer of the Maharaja's estate held a Dealer's Registration Certificate and paid sales tax for the timber sold from the depot. However, the court distinguished this activity from the transactions with sleeper contractors.

The court concluded that the Maharaja was not a 'dealer' as defined in the Act. The term 'dealer' implies a person engaged in the business of selling or supplying goods, which involves buying goods for resale or manufacturing goods for sale. The Maharaja neither purchased timber nor manufactured sleepers; the trees grew naturally in the forests, and the contractors were responsible for the extraction and conversion of the timber into sleepers. Therefore, the Maharaja did not meet the criteria of a 'dealer' engaged in the business of selling goods.

2. Whether the transactions evidenced by leases amount to a lease of immovable property:
The court found that the question of whether the agreement constituted a lease of immovable property was irrelevant. The agreement did not involve the sale of standing trees as immovable property. Instead, it granted contractors the right to fell marked trees and convert them into sleepers. The property in the extracted sleepers was conveyed to the contractor, and a proportionate amount of the sale price was paid as royalty. The court emphasized that royalty is a periodical payment for the benefits granted under the agreement, not the price of the timber.

3. Whether the royalty and seigniorage payable under the lease constitute 'rent' or 'price':
The court determined that the royalty payable under the agreement did not represent the 'sale price' of the timber. Royalty was considered a periodical payment for the continuous enjoyment of benefits under the lease, akin to rent. The court cited various legal precedents to support this view, including the Privy Council's decision in Kamakshya Narain Singh v. Commissioner of Income-tax, which held that royalties are income and not capital. Therefore, the royalty received by the Maharaja did not constitute the sale price of goods.

4. Whether the trees and forest produce are movable property coming under the definition of 'goods' under the Orissa Sales Tax Act or are immovable property:
The court did not find it necessary to decide whether the trees and forest produce were movable or immovable property under the Orissa Sales Tax Act. The primary focus was on whether the transactions constituted a sale of goods and whether the Maharaja was a dealer. Since the court concluded that the Maharaja was not a dealer and the transactions did not amount to a sale of goods, the question of the nature of the property was deemed irrelevant.

Conclusion:
The court answered the questions referred to it as follows:
1. The Maharaja of Jeypore is not a dealer under clause (c) of section 2 of the Orissa Sales Tax Act.
2. The royalty payable under the agreement constitutes 'income' and not 'sale price' of the goods sold.
3. Questions (3) and (4) referred to the court do not call for decision, and no opinion was offered on them.

The court declared that the tax levied on the Maharaja's transactions was not justified under the Orissa Sales Tax Act, and any tax paid should be refunded. The petitioner was also awarded costs of Rs. 250.

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