1973 (3) TMI 131 - HC - VAT and Sales Tax

Issues Involved:
1. Validity of assessment to sales tax under the Madras General Sales Tax Act, 1939.
2. Definition and interpretation of "dealer" under the Act.
3. Commercial nature of activities carried out by the Evangelical Literature Service.
4. Relevance of profit motive and utilization of profits in determining tax liability.

Issue-wise Detailed Analysis:

1. Validity of Assessment to Sales Tax:
The appeals concern the validity of the assessment to sales tax of Evangelical Literature Service, Madras, for the years 1954-55 to 1957-58 under the Madras General Sales Tax Act, 1939. The society purchased Bibles and Christian literature at a discount and sold them at marked prices, earning a profit up to 25%, which was used for propagating the society's objectives. The turnover exceeded Rs. 10,000 each year, leading to the assessment by the Commercial Tax Officer. The Appellate Assistant Commissioner set aside the assessment, but the Board of Revenue restored it. The society filed writ petitions, which were allowed by a learned Judge, prompting the State to appeal against this order.

2. Definition and Interpretation of "Dealer":
The learned Judge reasoned that under the Sales Tax Act, tax is attracted only by the turnover of a person carrying on the business of buying or selling. A "dealer" is defined as a person who carries on the business of buying, selling, supplying, or distributing goods for valuable consideration. The Judge emphasized that the transactions should be motivated by a commercial purpose to satisfy the definition of a dealer. The continuous conduct of buying and selling and the motive to make a profit, while important, are not solely decisive.

3. Commercial Nature of Activities:
The society's main object, as per its Memorandum of Association, is the printing, publishing, and distribution of Christian literature, which is not commercial in character. The learned Judge opined that adopting normal business means for achieving this object does not make the activity commercial. The case of Gannon Dunkerley & Co. v. State of Madras was cited, where it was held that activities not carried out with a view to make a profit do not constitute business. The learned Judges in that case stated that "business" must be understood in a commercial sense as involving an activity designed to earn profit.

4. Relevance of Profit Motive and Utilization of Profits:
The learned Judge in the present case noted that the society earned a profit up to 25% on book sales but did not consider this decisive, focusing instead on the ultimate object of the society. However, the appeals court disagreed, stating that the presence of a continuous activity of buying and selling for pecuniary gain constitutes carrying on business. The utilization of profits for charitable purposes is immaterial for tax assessment. The court emphasized that the Legislature did not intend for the taxing authorities to investigate the use of profits, and no provision in the Act requires such an investigation.

Separate Judgments:
The appeals court referenced authoritative decisions, including the case of the Incorporated Council of Law Reporting and the Religious Tract and Book Society of Scotland v. Forbes, which established that the motive to make a profit and the commercial nature of activities are critical in determining tax liability. The court also mentioned a decision of the Allahabad High Court, which followed the judgment under appeal but respectfully differed from its reasoning regarding the relevance of profit motive.

Conclusion:
The appeals were allowed, the order of the learned Judge was set aside, and the writ petitions filed by the assessee were dismissed. The court held that the Evangelical Literature Service was liable to assessment of sales tax, as their activities constituted business under the Madras General Sales Tax Act, 1939, due to the presence of a profit motive. The utilization of profits for charitable purposes was deemed irrelevant for tax assessment.

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