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TMI Blog1954 (4) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... intimate their principals, viz., A.V. Thomas and Company Ltd., Alleppey, with a branch at Calicut, to despatch the goods. The goods are sent either C.I.F. or F.O.B. Mostly the despatch is on F.O.B. and presenting the bill of lading at the bank in which the credit has been opened the commission agents realise the full value of the tea exported. 3.. In C.S. No. 51 of 1951 the case for the plaintiffs is as follows: During the year 1st April, 1947, to 31st March, 1948, the plaintiffs sold as commission agents tea and rubber of the total value of Rs. 43,03,172. Out of this sum a sum of Rs. 22,14,765 represented the price of goods sold on behalf of principals resident within the State; and the balance of Rs. 20,88,407 represented sales on behalf of foreign principals, Rs. 19,68,065 being the price of goods exported outside India and Rs. 1,20,342 being the price of goods sold within the State. By his order dated 9th December, 1949, the Deputy Commercial Tax Officer, Mannady Division, Madras, assessed the plaintiffs to a tax of Rs. 44,855 on the aggregate amount of Rs. 43,03,172. Against the said order the plaintiffs preferred an Appeal 308 of 1949-50 on the file of the Commer- cial Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Division, made an order on 8th February, 1950, determining the turnover of the plaintiffs at Rs. 2,96,750 and assessed them to a tax of Rs. 4,637 thereunder. The plaintiffs preferred an appeal to the Commercial Tax Officer, North Madras, in Appeal No. 359 of 1949-50 against the order of assessment made by the Deputy Commercial Tax Officer. On 4th April, 1950, the Commercial Tax Officer, North Madras, passed an order exempting sales on behalf of the principals resident within the State by validating the licence retrospectively for the entire period on payment of a penalty of Rs. 200 and as a result of the said validation reduced the assessable turnover to Rs. 25,470 and assessed the plaintiffs to a tax of Rs. 398. Against the said order the plaintiffs preferred a revision to the Board of Revenue and the Board by its order dated 4th November, 1950, confirmed the assessment made by the Commercial Tax Officer, North Madras (Note: I have rounded the figures to the nearest rupee for con- venience). 6.. The plaintiffs contend that they are not liable to be assessed for these amounts on the following five grounds: (a) The plaintiffs are commission agents and not dealers and the sales i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the transactions entered into by them? 2.. Are not the plaintiffs assessable to tax under section 14A of the Madras General Sales Tax Act and rule 5(1) of the Madras General Sales Tax Rules? 3.. What part of the turnover of Rs. 20,88,407-3-10 refers to com- mission agency sales on behalf of non-resident principals? 4. What is the extent of local sales of tea effected by the plaintiffs on behalf of resident principals. Are not the plaintiffs liable to pay tax in respect of such sales? 5.. Are plaintiffs entitled to exemption in respect of Rs. 19,68,064-11-7 being the value of tea exported to foreign countries? 6.. Are the sums of Rs. 16,62,293-8-4 and Rs. 3,05,771-3-3 repre- senting the value of tea exported to foreign countries from 1st January, 1948, to 31st March, I949, not liable to assessment? 7.. Are the local sales of tea from 1st April, 1947, to 31st December, 1947, amounting to Rs. 1,01,969-6-9 on behalf of foreign principals not liable for assessment? 8.. Are the local sales from 1st January, 1948, to 31st March, 1948, amounting to Rs. 18,373-1-6 not liable to be assessed? 9.. Are the plaintiffs entitled to exemption in respect of the sum of Rs. 1,971-1-6 being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the State of Madras; thirdly, that the plaintiffs are not entitled to claim exemption from assessment under section 5, clause (v), of the Madras General Sales Tax Act whatever might be the position of the non-resident foreign principals; fourthly, that the plaint- iffs are not entitled to the deductions claimed under rule 5(g) of the Turnover and Assessment Rules; and fifthly, that the Madras General Sales Tax Act is not opposed to Article 286 of the Constitution of India. Here are my reasons. 10.. Point (a): "Dealer" has been generally defined as any person who carries on the business of selling goods. In Madras, Mysore, Travancore-Cochin and Uttar Pradesh, the term includes a person who carries on the business of purchasing goods. In almost all the Acts except the Madras, Travancore-Cochin, Mysore and Bengal Acts a "dealer" has been defined as a person who sells or supplies goods. There does not seem to be any special significance for the word "supplies". If the supply of goods is for no consideration, then it cannot come with- in the sales tax levy, as there is no element of sale. The transaction is essentially a gift. If the supply of goods is for consideration, then there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k(3). The habitual doing of an act capable of producing profits for the purpose of profits is trade or business: Werle v. Colquohoun(4). The Privy Council in Commissioner of Income-tax v. Currimbhoy Ebrahim(5) appears to con- sider that the essence of business consists in a course of dealings. The motive to make a profit is not a sine quo non and if the characteristics (1) [1953] 4 S.T.C. 188. (4) (1888) 20 Q.B.D. 753. (2) [1953] 4 S.T.C. 133 at p. 142. (5) [1935] 3 I.T.R. 395; 60 Bom. 172. (3) (1942) 25 Tax Cas. 1 at p. 7. of a business are discernible, the absence of profit motive will not take it out of the category of business. Whether a person carries on business or not is essentially a matter of inference. Even if a person is taken to be carrying on a business, the question that may still arise is whether his transactions are assessable in any particular State. For that the trans- action will still have to be within the particular State. It has been held that if all that a person does is to solicit orders in any particular place, he cannot be said to be reasonably carrying on a business in that place: Grainger v. Gough(1). What is done is only ancillary to the exercise of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 3 S.T.C. 121; (1952) 1 M.L.J. 494. will be a "dealer" within the definition of section 2(b) and can be assessed to tax unless he takes a licence under section 8 and that a broker is an agent employed to make a bargain for another and receives a commission on the transaction which is usually called brokerage. He has usually neither the custody nor the possession of the goods. It is the broker's duty to establish privity of contract between the principal and the third party. The broker cannot sell in his own name nor can be sued on the contract. A commission agent on the other hand has according to accepted mercantile practice, control over or possession of the goods, and has the authority from the owner of the goods to pass the property in and title to the goods. When a commission agent sells goods belonging to his principal with his authority or consent, and with- out disclosing the name of the owner, there is certainly a transfer of property in the goods from the commission agent to the buyer. A busi- ness which consists in such transactions can properly be described as a business of selling goods. A similar position would arise even in the case of a commission agent buying for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case arising under the Sales Tax Act in T.R.C. No. 262 of 1953 (The State of Madras v. Messrs. Mysore Lachia Shetty and Sons Ltd., Mangalore(4)). Therefore the transactions in regard to which the exemp- tion is asked for were transactions effected within the State of Madras. 15.. Point (c): In regard to tea, section 2(a) lays down that agri- cultural or horticultural produce shall not be deemed to include tea. The Privy Council held in Kajit Mal v. Saligram that tea was an agri- cultural product. This definition has nullified the effect of that decision. This was done by means of an amendment of the General Sales Tax Act (Madras Act XXV of 1947) and which has apparently come into force under Part IV-B of the Fort St. George Gazette Extraordinary dated 11th December, 1947. The period for which exemption is now claimed is for a period of nine months prior to the coming into existence of this amendment. In regard to rubber no decided case has been brought to my notice. But the recent decision of the Privy Council in Raja Mustafa Ali Khan v. Commissioner of Income-tax(6) has to some extent facilitated the evolving of clearer definition of the expression. In the above case Lord Simond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax(15); Toddy cultivation is agricultural income: Commissioner of Income-tax v. Yagappa Nadar(16). The above does not, however, represent an exhaustive list. The use of the word "horticulture" in juxtaposition with the word "agriculture" cannot be construed to mean, that the word "agri- culture" is used in a narrow sense. The decisions under the Madras Estates Land Act in Raja of Venkatagiri v. Ayyappa Reddi(17) and Seshayya v. Raja of Pithapur(18) cannot be pressed into service in con- struing this Act as in these cases the report of the Select Committee omitting the words "silviculture" and "posturing" from the bill was taken to show that the legislature contemplated only a restricted interpretation of the word. Rubber on these principles may be construed as an agricultural produce. But the sale of agricultural or horticultural produce is exempt from the levy of sales tax in the hands of a grower of such produce or a person having an interest in the land in which the produce is grown: see section 2(i). (1) (1901) I.L.R. 24 Mad. 421. (10) [1938] 6 I.T.R. 502; A.I.R. 1938 Rang. (2) (1894) I.L.R. 17 Mad. 98. 260. (3) (1922) I.L.R. 45 Mad 710. (11) (1945) I.L.R. 1945 Mad. 61. (4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estate owners and cannot be claimed in regard to tea produced outside the province by non-resident estate owners and sold within the province by their accredited representatives or agents. 19.. The other part of the contention of the State of Madras that even if the exemption can be claimed by the non-resident estate owner producing and selling tea in question this cannot be done by his com- mission agent inside the Madras State and can only be claimed by the principal is equally well-founded. Section 14-A as has been pointed out by Sri N. R. Raghavachariar in his locus classicus "Sales Tax in Madras" published by the Law Weekly, Madras, assisted by Sri V.C. Srikumar is designed to afford an easy method for collection of taxes due in respect of transactions carried on by persons residing outside the State through agents residing inside the State. The tax under the Act being one on dealings irrespective of the person who deals, it is neces- sary that the taxes due in respect thereof should be made payable by the person immediately concerned in such transactions and since the principal in respect of those transactions when residing outside the State cannot be easily reached, his a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esident dealer. If the non-resident's turnover is (1) [1954] 5 S.T.C. 5; (1953) 2 M.L J. 48 (Short Notes). (2) (1921) 44 Mad. 773; 1 I.T.C. 447. less than Rs. 10,000, then also the agent will be taxed. There will be no exemption for the turnover being less than the assessable minimum. But the agent is assessable only to the extent of the turnover of such non-resident with which he is concerned. If the non-resident has several agents in several places or even in each place, each of such agent will be assessable separately. The agent is safeguarded by being authorised under the Act to retain out of any amount payable to the non-resident an amount equal to the tax assessed on or paid by him in respect of the non-resident's turnover. This is without prejudice to his other rights like a right to file a suit. The non-resident is equally safe- guarded because if proved that his entire turnover in the State was less than the minimum assessable under section 3(3) he may apply to the assessing authority, if there has been only one assessment, through his agent for refund of the tax, if any, paid on his behalf. If there has been more than one assessment then the State Government is empowered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y upon all. It may require military service in time of war, or civil service in time of peace. It always requires pecuniary support. This is taxation. The obligation to pay taxes is co-extensive with the protection received. An exemption from taxation is a release from this obligation. It is the receiving of protection without contributing to the support of the autho- rity which protects. It is an exception to a rule, and is justified and upheld upon the theory of peculiar benefits received by the State from the property exempted. Nevertheless it is an exception; and they who claim under an exception must show themselves within its terms. More- over, exemption laws are in derogation of equal rights, and this is an equally important reason for construing them strictly. And a third reason appears from the courts language in Bank of Commerce v. Tennessee(2). "Taxes being the sole means by which sovereignties can maintain their existence, any claim on the part of any one to be exempt from the full payment of his share of taxes on any portion of his property must on that account be clearly defined and founded on plain language. There must be no doubt or ambiguity used upon which the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In other words, the busi- ness of the commission agent is to pay the tax assessed on him and keep a lien on the moneys acquired by him on behalf of the principal and leave it open to that principal to make applications to the assessing authorities and establish to their satisfaction that either the turnover was less than the minimum prescribed or that the agricultural produce assessed in the hands of the agent was grown by himself or grown on any land in which such a non-resident principal has an interest. 23.. I therefore accept the contention of the State that the com- mission agent is not a person who can claim the exemption and refund and it is the non-resident principal who should do so if he is entitled to any such exemption and refund. Therefore, looked at from any point of view this point (c) has to be decided against the claim of the plaintiffs in its entirety. 24.. Point (d): The claim for deductions cannot be supported because the items referred to in the plaint reproduced above are not admissible deductions under rule 5(1) of the Turnover and Assessment Rules. The sales tax has been levied on the price of the goods and it has no concern with the overhead expenses incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments and tender the goods they represent. It is in short a transfer of symbols rather than physical property: Manbre Sacchrine Co. v. Corn Products Co.(7) Property passes to the buyer as soon as the documents are delivered to him. 27.. There is generally another type of contract called C. F. contract. In such contracts, the buyer undertakes to insure the goods while in transit. A C. F. contract is for all practical purposes an F.O.B. contract. It was held by this Court in an unreported case, Com- missioner of Income-tax v. Burugu Viswanatha Rao (Ref. Case No. 61 of 1948), that in the case of such contracts property passes not when the (1) [1923] 1 K.B. 343. (5) A.I.R. 1937 Lah. 566. (2) [1921] 1 K.B. 302. (6) [1920] A.C. 144. (3) [1911] 1 K.B. 934 at p. 940. (7) [1919] 1 K.B. 198. (4) A.I.R. 1930 Lah. 660. goods are ascertained but subsequently. As to when property passed, Satyanarayana Rao, J., observed that it was unnecessary in that case to determine the point of time when property passed while Raghava Rao, J., said "the time of shipment is the time of passing of the property to the buyer." 28.. Therefore point (d) has got to be decided against the plaintiffs. 29.. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41) 2 M.L.J. 607. (7) [1953] 4 S.T.C. 133; A.I.R. 1953 (3) [1942] 1 S.T.C. 104; (1942) 2 M.L.J. 327. S.C. 252. (4) [1945] 1 S.T.C 135; (1945) 1 M.L.J. 225. (8) [1953] 4 S.T.C. 205. (5) [1952] 3 S.T.C. 367; (1952) 2 M.L.J. 598. (9) [1952] 3 S.T.C. 434. R. Srinivasan begin their excellent treatise Law of Sales Tax in India (M.L.J. publication), "Whoever hopes a faultless tax to see, Hopes, what ne'er was, or is, or e'er shall be." (M'Culloch Adaptation of Pope). "To tax and to please, no more than to love and to be wise, is not given to men" (Cicero). 31.. In the result, I find in both the suits that the plaintiffs are commission agents and not principals; that the plaintiffs are assessable to tax under section 14-A of the Madras General Sales Tax Act and rule 5(1) of the Madras Turnover and Assessment Rules; that the sale transactions in dispute took place within the State of Madras; that the plaintiffs are not entitled to the deductions asked for; that the plaintiffs are not entitled to claim exemptions on behalf of the non-resident principals; that the Sales Tax Act is not invalid as opposed to the pro- visions of the Constitution of India; and that the plaintiffs are entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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