1974 (6) TMI 50 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the transactions of sale of groundnuts by the society by auction are liable to tax under the Bombay Sales Tax Act, 1959.
2. Whether the society acted as a commission agent or a broker.
3. Whether the society was engaged in a business activity with a profit motive.
4. Whether the society qualifies as a "dealer" under section 2(11) of the Bombay Sales Tax Act, 1959.

Detailed Analysis:

1. Tax Liability of Auction Sales:
The primary issue was whether the transactions of sale of groundnuts by the society through auction were liable to tax under the Bombay Sales Tax Act, 1959. The court examined the nature of the transactions and the society's role in these sales. It was determined that the society conducted public auctions for the groundnuts of its members and the highest bid was accepted by a resolution of the managing committee. The society collected the entire consideration from the purchaser and after deducting market yard charges and commission, credited the remaining amount to the individual member's account. The court concluded that these transactions were indeed sales liable to tax under the Act.

2. Role of the Society as Commission Agent or Broker:
The court analyzed whether the society acted as a commission agent or a broker. It was found that the society was not acting as a broker but as a commission agent. The modus operandi demonstrated that the society did business on its own behalf, fixing the sale price and conducting the auction. There was no privity of contract between the members and the purchasers, and the society was entrusted with the goods for the purpose of sale, thus acting as a commission agent.

3. Business Activity with Profit Motive:
The court examined whether the society's activities constituted a business activity with a profit motive. The Tribunal had initially found that the society did not make any profit from the sale of groundnuts and that the commission charged was merely to meet expenses. However, the court pointed out that the definition of "business" in taxing statutes includes an occupation or profession normally with the object of making profit. The court emphasized that the society's integrated activity of financing its members' production and selling the goods at an advantage indicated a business activity carried on with a profit motive, even if no actual profit was realized in a particular transaction.

4. Qualification as a "Dealer" under Section 2(11):
The court addressed whether the society qualified as a "dealer" under section 2(11) of the Bombay Sales Tax Act, 1959. The definition of "dealer" includes any person who for commission, remuneration, or otherwise carries on the business of buying or selling goods in the State. The court referred to the decision in Chowringhee Sales Bureau v. Commissioner of Income-tax, West Bengal, which upheld the inclusion of auctioneers within the definition of "dealer." The court concluded that the society, acting as a commission agent and carrying on the business of selling goods, met the criteria of a "dealer" under the Act.

Conclusion:
The court answered the reference in the affirmative, holding that the transactions of sale of groundnuts by the society through auction were liable to tax under the Bombay Sales Tax Act, 1959. The society was deemed to be acting as a commission agent, engaged in a business activity with a profit motive, and qualified as a "dealer" under section 2(11) of the Act. The petitioner was ordered to pay the costs of the respondent in this reference.

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