1967 (4) TMI 180 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of the definition of "business" under the Madras General Sales Tax Act, 1959 in relation to a fair price shop operated by a limited liability company for the benefit of its employees.

Analysis:
The judgment by the Madras High Court, delivered by Veeraswami, J., pertains to the assessment of a limited liability company operating a spinning mill manufacturing cotton yarn. The company was assessed for the year 1960-61 on a turnover of Rs. 64,89,000, including a disputed turnover of Rs. 1,10,025 from a fair price shop established for its employees. The company objected to the taxation of this turnover, which was initially overruled by the revenue. However, the Tribunal later ruled that the company was not a dealer concerning this turnover and thus not liable for tax on it.

The court analyzed the relevant provisions of the Madras General Sales Tax Act, 1959, particularly focusing on the definition of "business" and "dealer." The definition of "business" was amended by Madras Act 15 of 1964, broadening its scope to include any activity in the nature of trade or commerce, irrespective of profit motive or actual profit accrual. Prior to this amendment, the definition of "business" under the 1959 Act solely considered the factual aspect of profit accrual. The court highlighted the necessity for a transaction to exhibit a commercial character and be conducted in the course of trade or commerce to qualify as "business."

The court emphasized that under the amended definition, a transaction need not aim for profit or result in profit for it to be classified as "business." However, the activity must possess a commercial nature and be linked to trade or commerce. In the case at hand, the court found that the fair price shop operated by the company was primarily established to provide amenities to its workers, rather than as a commercial venture. The court scrutinized the company's articles of association and concluded that the fair price shop did not align with the definition of "business" under the Act, as it was not conducted in a trade or commercial sense.

Consequently, the court dismissed the tax case, ruling that the company was not a dealer concerning the fair price shop turnover and therefore not subject to taxation on that specific turnover. The judgment concluded with the dismissal of the petition and the imposition of costs on the petitioner.

In summary, the judgment delves into the interpretation of the definition of "business" under the Madras General Sales Tax Act, 1959 concerning a fair price shop operated by a limited liability company. It underscores the requirement for an activity to exhibit a commercial character and be conducted in the course of trade or commerce to fall within the ambit of "business." The court's analysis, based on the amended definition, elucidates that profit motive or actual profit accrual is not a prerequisite for an activity to be classified as "business."