1971 (2) TMI 100 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Exigibility of canteen sales to tax under the Mysore Sales Tax Act, 1957, after the amendment by Mysore Act No. 9 of 1964.
2. Interpretation of the term "business" post-amendment.
3. Applicability of precedents from other High Courts and their relevance to the case.

Detailed Analysis:

1. Exigibility of Canteen Sales to Tax:
The primary issue was whether the proceeds from sales made through the canteen run by the petitioner-company for its employees were subject to tax under the Mysore Sales Tax Act, 1957. The petitioner-company, engaged in the manufacture and sale of automobile parts, operated a canteen as a statutory obligation under section 46 of the Factories Act, 1948, serving food and drinks to its employees on a subsidized basis. The controversy centered on the period from 1st April 1964 to 31st December 1965, during which the amendment to the definition of "business" in section 2(1)(f-2) of the Act was in effect.

2. Interpretation of the Term "Business" Post-Amendment:
The amendment to the Mysore Sales Tax Act by Act No. 9 of 1964 redefined "business" to include "any trade, commerce or any adventure or concern in the nature of trade or commerce, with or without profit-motive." The Commercial Tax Department argued that this amendment fundamentally changed the concept of "business," making canteen sales taxable. However, the court held that the basic concept of "business" involving trade or commercial transactions had not been fundamentally altered by the amendment. The court emphasized that the activity must be of a commercial character, and the welfare activity of running a canteen did not amount to carrying on the business of buying or selling goods. Consequently, the proceeds from canteen sales were not exigible to tax.

3. Applicability of Precedents:
The petitioner-company's counsel cited decisions from the Madras High Court and the Calcutta High Court to support their contention that the canteen sales were not taxable. In Deputy Commissioner of Commercial Taxes v. Thirumagal Mills and Fort Gloster Industries Ltd. v. Member, Board of Revenue, West Bengal, it was held that activities carried out as a welfare measure under statutory obligations did not constitute "business" in a commercial sense. The court agreed with these precedents, stating that the absence of profit-motive was an additional ground, but the primary requisite was that the activity must be commercial. The court also distinguished the decision of the Allahabad High Court in Swadeshi Cotton Mills Company Ltd. v. Sales Tax Officer, which held that the concept of "business" had been fundamentally changed by an amendment similar to the one in Mysore. The court in the present case opined that the basic requirement of a commercial activity remained, even if the profit-motive was not essential.

Conclusion:
The court concluded that the welfare activity of running a canteen by the petitioner-company did not constitute a commercial activity. Therefore, the proceeds from sales made through the canteen were not part of the taxable turnover for the years 1964-65 and 1965-66. The assessment orders dated 30th September 1969 and 3rd December 1969, and the notices issued pursuant thereto, were quashed. The writ petitions were allowed with costs, and the second respondent was granted liberty to make fresh assessment orders excluding the proceeds of the canteen sales.