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TMI Blog1975 (8) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... erned?" The assessee-dealer was running a studio known as Tasveer Kendra during the relevant assessment period and his business was to take photos of the customers and to supply prints thereof. He dealt in photographic materials, besides taking photo and supplied photo prints to the customers. Before the decision of this court in Chelaram Hasomal v. State of Gujarat[1965] 16 S.T.C. 1021., there is no dispute that the department was till 31st March, 1966, severing the contract so far as the job-work realisation and the photo copy realisation work were concerned in the ratio of 60: 40. But after the aforesaid decision of this court it has now been held that the entire work of producing these photo copies being by way of commercial practice of photography by supplying as many copies as the customers needed with a view to make a profit, the transaction was clearly one of indivisible sale of the photographic materials, in the end-product as a whole, and the assessee having been taxed as such, he has sought the present reference, especially, as the Tribunal did not even follow the course adopted by the Maharashtra High Court in Camera House, Bombay v. State of Maharashtra[1970] 25 S.T.C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere were really two agreements, though there was a single instrument embodying them, and, in such cases, their Lordships held that the power of the State to separate the agreement to sell materials, from the agreement to do work and to render service, and to impose a tax thereon could not be questioned, and that aspect remained untouched by that judgment. In T.V.S. Iyengar Sons v. State of Madras[1975] 35 S.T.C. 24 (S.C.); A.T.R. 1974 S.C. 2309., a distinction between a contract of sale and a contract for work and labour was laid down in the following words from Halsbury's Laws of England, Vol. 34, page 6, Third Edition: "The distinction between the two contracts is often a fine one. A contract of sale is a contract whose main object is the transfer of the property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of the materials, nor the value of the skill a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re under a separate contract or were incidental to the execution of the contract of sale. We will also consider at this stage the decision in State of Himachal Pradesh v. Associated Hotels of India Ltd.[1972] 29 S.T.C. 474 at 483 (S.C.)., where the transaction between a hotelier and its resident-visitor was held to be one of essential service, in the performance of which and as part of which, by way of only the amenities incidental to that service, the hotelier served meals at stated hours. The revenue was, therefore, not entitled to split up the transaction into two parts, one of service and the other of sale of food-stuffs and to split up also the bills charged by the hotelier as consisting of charges for lodging and charges for foodstuffs served to him with a view to bring the latter under the Act. It may be noted that their Lordships at page 477 had an occasion to consider one of the earliest decisions in D. Masanda Co. v. Commissioner of Sales Tax[1957] 8 S.T.C. 370. of the Madhya Pradesh High Court, where the question was whether supply of photographic materials imported and used in the process of manufacturing photographic work, copies of which were supplied by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of service. That is why their Lordships pointed out categorically that in spite of difficulties in the construction of such contracts of work and labour on the one hand and contracts for sale, their fine distinction must be recognised. That was particularly so, when the contract was a composite one involving both the contract of labour and contract of sale, and that distinction rested on a clear principle. The contract of sale was one whose main object was the transfer of property in, and the delivery of possession of, a chattel as a chattel to the buyer. Where the principal object of work undertaken by the payee of the price was not the transfer of a chattel qua chattel, the contract was one of work and labour. Their Lordships pointed out that the test was whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of materials, nor the value of the skill and labour as compared with the value of the materials, was conclusive, although such matters might be taken into consideration in determining, in the circumstances of a particular case, whether the contract was in substance one for work and labour or one f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order would complete the contract. On a parity of reasoning, mere supply of photographic prints, howsoever blurred or defective and not bringing out the true tasveer of the client concerned, would never amount to completion of the contract or delivery of the very goods which the customer bargained for. Therefore, the property in the materials of the first print passed only incidentally or as ancillary to the main bargain for photographic services of taking a true photograph of the individual customer. No doubt, at the stage of further copies, where the primary object of the bargain is of commercial sale of the further prints, there may be a different consideration permitting severance of the two separate distinct contracts. But so far as the photographic services are concerned, which are really in their essence professional services by an individual to an individual, their contract is of a highly subjective type, which could never by any stretch of imagination be treated as a contract of sale of materials and not of the essential professional services of the photographer. Such a contract of individual photographer's skill so as to bring out the true tasveer of the customer could ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing photographic services, and it is only incidentally that the materials passed so far as the first copy was concerned. Any aspect of sale could arise only at a later stage when further copies were multiplied. In the Federal Commissioner of Taxation v. Riley[1935] 53 C.L.R. 69., a Bench of five Judges had under the Australian Sales Tax Assessment Act held that photographs, whether tinted or untinted, taken of, and supplied to, clients for reward in the course of photographer's business carried on within the Commonwealth are "goods manufactured in Australia" within the meaning of the Sales Tax Assessment Act and, accordingly, are liable to tax. The relevant statutory definition attracted sales tax levy on the sale value of goods manufactured by a taxpayer in Australia and sold by him. The statutory definition of "manufacture" included production in the widest manner by covering all operations conducted for the purpose of bringing tangible things into existence for sale. It was first pointed out at page 79 that the language of the relevant section 17 would not apply to many productions and pursuits in the exercise of which physical things incidentally came into existence and became ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t test. Even though the learned Judges took the view that a photographer's services differed so essentially from other productive arts in the fact that its products must be designed in each case for one individual and in its attempt to secure some aesthetic value, the decision had been rested solely on the fact that it was sufficient for that definition to be attracted that photographer's process was practised commercially to produce article which was clearly "manufactured" within the statutory definition. The dissenting view of Evatt, J., boldly sets out the professional nature of the artistic services of the personal character of such a photographer, which could never be treated as commercial services in any sense of the term, unless the professional man commercialised at a later stage by multiplying copies with a view to make profits. It is Evatt, J.'s reasoning which has appealed to our Supreme Court as pointed out in the aforesaid decision in Associated Hotels[1972] 29 S.T.C. 474 (S.C.)., where their Lordships characterised D. Masanda's decision[1957] 8 S.T.C. 370. as a border-line case, as it was also possible to hold such photographer's contract as a works contract where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d it is Evatt, J.'s dissenting view which finds favour with our Supreme Court even in the industrial context. Besides, the end-product test which was treated as determinative in the context of the Australian statute could never be pressed in aid in the context of our sales tax law, where the material test is whether the agreement was one for services or one for sale of materials. As pointed out by their Lordships, while treating the borderline case of D. Masanda v. Commissioner of Sales Tax[1957] 8 S.T.C. 370. , even in photographic services, the other view was possible to hold it as a contract of service, or at the most to sever the two contracts, when there were two separate bargains for services and for the sale of materials. Therefore, as per the aforesaid settled legal position Riley' ratio could never hold the field so far as the sales tax legislation in our country is concerned. Even apart from the first principles, which are so well-settled as pointed out by us, even the host of authorities which has been relied upon before us can be easily reconciled on the aforesaid settled legal position. The first decision of our own High Court in Chelaram Hasomal v. State of Gujarat[ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at distinction has been ignored in this line of decisions. On the other hand, the decision of a sculptor, D.P. Roy Chowdhury v. State of Madras[1962] 13 S.T.C. 866. and V.K. Baraskar v. State of Madras[1963] 14 S.T.C. 615 at 619. and of T.V.S. Sarma Studio v. State of Madras[1963] 14 S.T.C. 784. by the Madras High Court rightly preferred Robinson's[1935] All E.R. 935.ratio in the context of such photographic services which are professional services by an individual to an individual and, therefore, the contract was held to be essentially a works contract, as the passing of materials was only incidental. The question of severability had not arisen in those cases, and that question has been specifically considered by the Maharashtra High Court in Camera House case[1970] 25 S.T.C. 354. This ratio is applied by the Maharashtra High Court later on in Durga Khote and Patel Productions[1975] 36 S.T.C. 77., even in the context of cinematographic film production by treating them as works of art and the contract in question as contract of services, as the commercial bargain would only have to be severed at the stage of further prints by way of commercial exploitation. We completely agree wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tressed, because there also it is only at the stage of multiplication of copies that commercial character predominates and, therefore, there is no different test involved. Therefore, no ground whatsoever has been made out by Mr. Nanavati, which would justify invocation of Chelaram's(1) ratio to the facts of the present case. In the result, we must answer the reference by holding that the Tribunal was not right in holding the transactions in question as sales and as not amounting to works contracts; but the Tribunal should have allowed the alternative contention and proceeded on the footing that the transactions were divisible, consisting of two separate contracts of photographic services in taking a photograph, developing the negatives and retouching the negatives and in preparing the first print, and it is only the second bargain, which should have been held to be a sale of photographic prints which attracted sales tax levy. In other words, the two contracts should have been severed as laid down in Camera House decision(2). The reference is accordingly disposed of with no order as to costs in the circumstances of the case. Reference answered accordingly. - - TaxTMI - TMIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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