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TMI Blog1964 (10) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... is turnover of Rs. 4,20,000 on the ground that the two are furnaces were not sold in the course of the business of the company but that the sale represented an isolated sale of the fixed capital asset of the company, as the same was found to be unsuitable for being installed in their factory. The assessing authorities and the Tribunal rejected this claim of the assessee; hence this revision. For a person to be "a dealer" under the Act he should carry on the business of buying and selling goods whether for cash or for deferred payment, and the entire controversy has centred round this aspect, i.e., that buying and selling is qualified by the words "carries on the business". The question therefore arises as to when a person can be said to carry on the business of buying or selling, in which event only he will be liable to pay sales tax on the turnover of his dealings. On behalf of the assessee it was contended that the arc furnaces were purchased for the purpose of being installed in the factory to be used as a capital asset, and not as a stock-in-trade, that at the time when they were purchased, the assessee had no idea of selling the same, that the purchase was not actuated by an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied foodgrains for the benefit of the workmen and recovered the cost of the food-grains by debiting the value against the wages of the workmen, and one of the questions that arose for decision was whether the assessees were liable to pay sales tax on the value of the food-grains which they had supplied to the workmen on the ground that the assessees were carrying on the business of buying and selling foodgrains. The claim of the department was negatived by the Bench of this Court. It was observed therein that it was implicit in the definition of a "dealer" that the sale should be in the course of carrying on of a business, and that the word "business" was not used in the Act in a general sense but should be understood in a restricted and commercial sense, i.e., that the activity must be with a view to earn profit. The matter was put thus at page 242: "If we omit the expression 'who carries on the business of' in the definition of dealer, it would only mean that a dealer is a person who merely buys or sells goods. The object of the Act is not to impose tax upon such a person. The words 'buying and selling' are qualified by the expression 'carries on the business of'. The context, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity which is not a business activity was pointed out in this decision. The matter was put thus at page 502: "When the steel was ordered, nothing was further from the mind of the Society than any idea of selling it to any one whatsoever. Therefore, in our opinion, even though it might be said that the bricks and steel were sold or supplied by the Society, inasmuch as they did not carry on the business of selling or supplying these goods they do not come within the ambit of the definition of 'dealer' contained in section 2(c). In our opinion, on the facts of this case it is clear that the Society never carried on the business of selling or supplying any goods." The next decision to which reference can be made is Steelage Industries Ltd. v. State of Bombay [1957] 8 S.T.C. 376.In that case the assessee who was carrying on the business of manufacture and sale of steel furniture sold a motor car, which was purchased for the use of the managing director, after its use for more than three years. It was held that the assessee was not liable to pay sales tax in respect of the sale proceeds of the resale of the car. Learned counsel for the petitionerassessee in the instant case place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d repeated does not make it a business activity as understood in the commercial sense, and that the words "carries on the business of selling or supplying goods" in the definition of a dealer must be construed in its commercial sense in which the profit motive was implicit. This decision supports the contention of the assessee in the instant case as it emphasizes that the selling or buying must be connected with the business activity of the dealer coupled with a profit motive. Reference can next be made to the decision in Ebrahim Co. v. State of Bombay [1962] 13 S.T.C. 877. on which reliance was placed by counsel on both sides. In that case the assessee was carrying on the business of selling separated parts of ship machinery, and in the course of the business the assessee purchased a ship with a view to either use it as a ship for trading or breaking it and selling the separated parts. As the assessee got a good price he sold the ship as a whole, for a consideration of about Rs. 4 1/2 lakhs. The question arose whether the sale price of the ship was liable to be included in the turnover of the assessee. It was held that the activity of the assessee "selling the ship" had a ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Commercial Taxes, Coimbatore v. Sri Lakshmi Saraswathi Motor Service [1954] 5 S.T.C. 128. referred to earlier, was followed and it was held that the assessee's sales of unserviceable vehicles and motor accessories were not sales by a dealer in the course of his business of selling or supplying those goods. In this case the learned Judges did not accept the contention that frequency, regularity and volume of sales effected by the assessee would be sufficient to make him a dealer within the meaning of the Act. The learned Judges were further of the opinion that an activity though continuous, serious and large cannot assume the characteristics of a business unless it is an activity coming within the definition of "dealer", or an activity carried on as a business with a view to earn profit. The ratio of this decision is that the test of frequency, regularity and volume may be offset by the total absence of any profit motive, so as to take the case out of the definition of a dealer. Learned counsel contends that the same principle should apply to the instant case. But learned counsel appearing for the State however urges that the test of frequency, regularity and volume of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Madras [1964] 15 S.T.C. 201. and the recent decision of the Supreme Court in State of Andhra Pradesh v. Abdul Bakshi Bros. [1964] 15 S.T.C. 644. dealing with tanners and dealers in hides and skins. In Sadak Thamby Co. v. State of Madras [1963] 14 S.T.C. 753., the assessees were dealers in tanned hides and skins and they were sought to be assessed to sales tax on the turnover representing the purchase value of the tanning materials which were purchased and used by the assessees in their business. The assessees's contention was that they were not dealers in tanning materials, that the tanning materials were not purchased by them with a view to carry on business or sell them but that they were purchased solely for the purpose of being used in their business for tanning so as to enable them to sell tanned hides and skins. The reasonings contained in this decision show that the learned Judges accepted the test, that, to satisfy the definition of a dealer, the course of business activity of the assessee should be actuated by a profit-making motive, and that that test was amply satisfied in that case as the tanning materials were purchased by the dealer with a view to employ it in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere purchase of some goods for consumption would not bring the assessee within the ambit of section 2(e) and rule 5(2) containing the definition of a "dealer" and the "purchase turnover". The Andhra Pradesh High Court also held that the purchase of the particular commodity (in respect of which sales tax was sought to be levied) should be actuated by a profit motive. The Supreme Court in State of Andhra Pradesh v. Abdul Bakshi Bros.[1964] 15 S.T.C. 644. did not accept this view of the matter and reversed the decision of the Andhra Pradesh High Court. A perusal of the judgment of the Supreme Court shows that to regard an activity as a business, there must be a course of dealings with a profit motive, and that for a person to be a dealer the activity need not be one of buying, selling or supplying the same commodity. The Supreme Court has observed that if the commodity was purchased in the course of business either for sale or for use with a view to make profit within the integrated activity of buying and disposal, the test of the definition of a dealer would be satisfied. The matter was put thus at page 647: "We are unable to agree with this view of the High Court. A person to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see no force in this contention. In the first place the important test of continuity of the course of dealing is not satisfied, so as to make it a business activity. In the case before the Supreme Court there was a continuous course of dealing consisting of purchases of tanning materials. Secondly, the turnover which was liable to sales tax in that case was a purchase turnover and the fact of purchase with a profit motive satisfied the test of a dealer. In the instant case the facts are entirely different. The next decision to be referred to is the decision of this Court in Fiaz Ahmed Co. v. State of Madras [1964] 15 S.T.C. 201. That case dealt with a case of assessees who were mere tanners, whose occupation was to tan hides and skins for certain specified charges. For the purpose of tanning they purchased tanning materials and it was held that they were liable to pay sales tax on the purchase value of the tanning materials. The decision in Sadak Thamby Co. v. State of Madras (1), referred to earlier, was followed. In that decision it was observed that the purchase of the tanning materials was directly and intimately connected with the carrying on of the tanning business of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingrained in the business which the assessee was carrying on. Further the test of reasonable connection with the normal course of business, which test has been accepted by the learned Judges, is completely absent in the instant case. We may next refer to the Bench decision of the Maharashtra High Court in Commissioner of Sales Tax v. Hindoostan Spinning and Weaving Co. Ltd. [1964] 15 S.T.C. 69. In that case the assessee-company carrying on the business of manufacturing cloth sold some of the old machinery and replaced the same by new machinery. The question arose as to whether the company was a dealer within the meaning of the Bombay Sales Tax Act in regard to the sale of its old machinery and whether it was liable to pay sales tax on the sale proceeds thereof. It was held that even though the sale of the old machinery was one of the items of such several sales effected by the assessee during the previous years, the sale could not be said to be in the course of the business activity, and that the assessee was not a dealer as regards that sale. On the facts it was found that in 1953-54 the assessee-company had disposed of old machinery of the value Rs. 2,65,709 and odd; in 195455 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e there was only one isolated sale of the arc furnaces and it is not necessary to determine when the sales of unserviceable articles embarked in the business should be held to be co-extensive with the carrying on of a business, so as to make the assessee, a dealer within the meaning of the Act. It is sufficient to notice that the trend of the later decisions seems to be that frequency, regularity and volume, though relevant factors, and are helpful in determining whether any particular transaction is in the course of business or not, but by themselves they will not be sufficient to hold that the particular transaction is a business transaction. Cases may arise in which it may be difficult to decide to which category, the one or the other, that the sales may belong. But our attention has not been drawn to any single decision in which the view has been taken that a single instance of an isolated sale would amount to carrying on of a business when the business activity of the dealer is of an entirely different description in different commodity. Learned counsel for the assessee relied upon the Bench decision of this Court in P.K.N. Co. Ltd. v. Commissioner of Income-tax [1963] 47 I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessity for substituting modern machinery. The ratio of this decision is that the total absence of a profit motive and the special circumstances in which the sales were effected were sufficient to offset the inference which would flow from frequency, regularity and volume of the transactions in question. The learned Judges were not inclined to accept the view taken in the Full Bench decision of the Kerala High Court and they preferred to follow the decision of the Maharashtra and the Madhya Pradesh High Courts referred to earlier. After referring to the decision of the Supreme Court in Venkataswami Naidu Co. v. Commissioner of Income-tax [1959] 35 I.T.R. 594. in which the Supreme Court laid down the tests for determining the factors which would constitute the carrying on of a business the learned Judges put the matter thus at page 376: "It will be seen from these observations that though transactions effected by a person may be indicative of several factors, none of them by itself would be decisive and, therefore, it would be necessary to consider them all from the point of view of their cumulative effect and then ascertain if that gives the transaction a distinctive characte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordinarily one cannot be said to be carrying on business of selling assets and therefore, sales of such assets, when they have become useless or unserviceable either by reason of their having to be substituted by modern machinery or by the usual wear and tear, cannot be regarded as business or business activity." With respect, this is a correct statement of the law and applying this test we have no hesitation in holding that the turnover of the sale of arc furnaces is not liable to sales tax. The fact that the sale price exceeded the cost price of the arc furnaces does not mean either that it is a business activity or that it is actuated by a profit motive. Such difference between the cost price and the sale price may only augment the revenues of the company but it does not alter the legal character of the transaction so as to make it a business activity of a dealer. In order to ascertain the existence or otherwise of a profit motive all the surrounding circumstances and the motive which operated at the time of the sale as well as the original purchase should be taken into account. In the course of the hearing our attention was also drawn to the details of the sales of the mac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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