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TMI Blog1982 (8) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... iia) of the Income-tax Act, 1961 ('the Act'). For the purpose of levy of additional tax on the undistributed income of certain companies under section 104 of the Act, the rate of levy is 37 per cent in the case of a trading company, and only 25 per cent in the case of any other company. The assessee is a company holding auctions of mainly tea. To some extent, it also holds auctions of rubber produced by a large number of tea estates. The auctions are held twice a week at Cochin. The ITO has stated in his order under section 104 for the assessment year 1976-77, the manner in which the assessee conducts its business of auction of tea. It has been submitted before us by the assessee's learned counsel that the statements contained in this order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take all reasonable steps to satisfy themselves as to the state and condition of the tea. Rule 14(c) of Part IV only provides that the brokers shall make full payment if received from buyers to the owners, etc., of the value less the charges involved. Rule 16(a) provides that if the buyer fails to pay for the tea or any part thereof on the due date for payment, the goods may be re-sold either by auction or private sale, at the option of the seller. These are the rules on which the assessee's counsel relied on to show that the assessee, as a broker-cum-auctioneer, is not involved in the transactions between a buyer and a seller, except to the extent of conducting the auctions, specifying the quality and quantity of the goods sold, etc. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading company' given in section 109(iia). The ITO took the same stand for the three assessment years. The assessee appealed against these orders. The Commissioner (Appeals), Sri K.C. Thomas, disposing of the appeal for the first two assessment years, held that the assessee is not a trading company within the meaning of section 109(iia). Accepting the fact as found by the ITO, he came to the conclusion that the holding of the tea auctions, the collection of the sale proceeds or the transmission thereafter to the seller typified merely the duties and functions of a middleman or a broker and that none of these functions would exceed the limits of the broker's functions or trespass on the field of a trader in the strict sense of the term. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as meaning 'a company engaged in the business of buying and selling goods'. In a sense he held that in order to be a trading company under section 109(iia) the company must have acquired ownership of the goods dealt in by it. 4. For the assessment year 1978-79, however, the Commissioner (Appeals), Sri C.P.A. Vasudevan, came to a different conclusion. He points out that the provisions of section 109(iia) have to be interpreted in the terms of the main provision, namely, section 104 which levies additional tax on certain companies. Under this provision, it is pointed out by him that the companies are divided into different categories on the method of binary classification, proceeding by way of successive division into two groups, the firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellate order for the assessment year 1978-79. It is also pointed out that section 109(iia) does not describe a 'trading company' as a 'dealer' but only as a company dealing in certain types of commodities. It is submitted that the word 'deal' merely means transacts business in and does not require that the person dealing in should be a trader in the sense that he buys and sells the commodities in question. It is also pointed out that under the Kerala General Sales Tax Act the auctioneer is also included in the definition of a tea dealer. On behalf of the assessee, reliance is placed on the appellate orders for the assessment years 1976-77 and 1977-78. It is submitted that the definition of the term 'dealer' given under the Kerala Gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered to be dealing in tea, that is to say, it does transact business in tea as an auctioneer, i.e., in the course of the conduct of its auction business, it deals in this particular commodity, namely, tea. Therefore, it must be said that the assessee is a company dealing in the particular types of commodities which would bring it within the purview of section 109(iia) and, therefore, it becomes a 'trading company' for this purpose. 7. In his appellate order for the assessment years 1976-77 and 1977-78, the Commissioner (Appeals) sought support for his view from the definition of the term 'trading company' contained in an order issued by the Ministry of Law, for the purpose of laying down the guidelines for audit of the various c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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