1976 (10) TMI 55 - AT - Income Tax

Summary

Issues Involved:
1. Whether the appellant is a dealer vis-a-vis the job work and job assignment in photographing clients and supplying such photographs.
2. Whether such transactions of photographing clients and supplying photographs are transactions of sale and, if so, the sale price thereof.

Issue-wise Detailed Analysis:

1. Whether the appellant is a dealer vis-a-vis the job work and job assignment in photographing clients and supplying such photographs:

The appellant, Ajanta Photo Studio, contended that their activity of photographing clients and supplying photographs was merely job work and job assignment, not liable to sales tax under the Delhi Sales Tax Act, 1975. They argued that these transactions did not amount to sales since the main contract was for work and labour, with the use of materials like photographic paper being ancillary.

The CIT, however, held that the contract in question was one of the sale of goods, making the appellant a dealer in photographs. The CIT relied on the Supreme Court's decision in The State of Madras vs. Gannon Dunkerley & Co., which emphasized that the expression "sale of goods" must be interpreted in its legal sense, involving an agreement to sell movables for a price with property passing therein pursuant to that agreement.

2. Whether such transactions of photographing clients and supplying photographs are transactions of sale and, if so, the sale price thereof:

The CIT determined that the transactions of photographing clients and supplying photographs were indeed transactions of sale, with the sale price being the amount paid by the customer for the stated number of copies of photographs, subject to a 10% tax rate.

The appellant challenged this view, reiterating that their transactions were contracts of work and labour, not sales. They cited various judgments where similar activities were deemed not liable for sales tax, emphasizing the distinction between contracts for work and labour versus contracts for sale.

The Tribunal examined multiple precedents, including cases from the High Courts of Madhya Pradesh, Patna, Madras, Gujarat, and Bombay, which had varying interpretations on whether such transactions constituted sales. The Tribunal noted that the judicial opinion was sharply divided on this matter.

In particular, the Tribunal found the reasoning of the Bombay High Court in Camera House vs. State of Maharashtra and the Gujarat High Court in Tasveer Kendra vs. State of Gujarat persuasive. These courts held that the contract of taking a photograph, developing the negative, and preparing the first print was a contract of work and labour, not liable to sales tax. However, the contract for preparing additional photographic prints was deemed a contract of sale, liable to sales tax.

Conclusion:

The Tribunal concluded that the contract of taking a photograph, developing the negative, and preparing the first print amounted to a contract of work and labour, not liable to sales tax under the Delhi Sales Tax Act, 1975. However, the contract for preparing further photographic prints and supplying them to customers was a contract of sale, liable to tax under the Act. This part of the contract was covered by the word "photographs" in entry No. 6 of the First Schedule of the Act.

The Tribunal modified the impugned order of the CIT accordingly, confirming that the contract for supplying photographs to customers was a sale transaction subject to sales tax, while the initial stages of taking and developing photographs were not.