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TMI Blog1982 (3) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... the combined period?" Briefly stated, the facts giving rise to this reference are as under: The opponent-society is a co-operative society registered under the Bombay Co-operative Societies Act. It has 62 members on its register of members. The objects, inter alia, of the society for which it was incorporated are to safeguard the interest of the labourers engaged in the business of winning minor minerals such as sand and kankro from the river bed and for sale thereof to the prospective customers. These labourers are popularly known as vanjaras who are mostly illiterate people, and they are exploited by the selfish business interests on account of their illiteracy and want of business experience. It is with a view to put an end to the exploitation of these labourers and to ensure them payment of reasonable wages for the labour which they put in that the opponent-society was incorporated. The opponent-society (hereinafter referred to as "the assessee") entered into an agreement of lease with the President, Jhilla Panchayat, Mehsana, on 29th January, 1965, and it was agreed by and between the parties that the assessee was to win the aforesaid materials from the river bed on payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment was made under section 35 of the Bombay Act. The assessee, therefore, carried the matter in appeal before the Assistant Commissioner by filing four appeals who dismissed the same. The assessee, therefore, carried the matter in second appeal before the Tribunal by filing four appeals. The Tribunal held that if the assessee was held to be a dealer, the Sales Tax Officer could have assessed it within a period of five years prior to the date of the issue of notice, that is, 6th March, 1973, and, therefore, all the assessments were time-barred. The Tribunal further held that the assessee was not a dealer since its objects, inter alia, were to safeguard the interest of the labourers and to provide them with gainful employment, and that it was not carrying on any business in a commercial sense with a view to earn profits. Consequently therefore the Tribunal held that the assessee-society was not liable to registration and pay tax under the Bombay Act: Four contentions were raised before the Tribunal on behalf of the assesseesociety. The first contention urged on behalf of the assessee-society before the Tribunal was that since there was no concealment on the part of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... questions set out above for opinion of this Court. At the time of hearing of this reference, the learned Government Pleader appearing on behalf of the State Government urged that the Tribunal committed an error of law in holding that the assessee-society was not a dealer inasmuch as it failed to appreciate the relevant bye-laws of the society which defined the objects in promoting the society which, according to the learned Government Pleader, are commercial in the true sense of the term and the entire organisation of the society was promoted for carrying out commercial activity though in its process the exploitation of its labourer-members was sought to be prevented by ensuring adequate and reasonable wages for their labour. The relevant byelaws providing for distribution of profits were relied upon for purposes of persuading us that the profit-motive was also present in the mind of the promoters of the society and the fact that the society earned profit or not was irrelevant for purposes of determining whether the society was a dealer or not. On behalf of the assessee-society the above contentions were sought to be repelled by urging that the dominant object for promotion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employment to its workers by purchasing tools and instruments propelled by machines." Clause 7 provides for qualification of being a member of the society. Any person who is a resident of Vijapur Taluka not below the age of 18 years and being a worker or labourer engaged in winning sand or kankro, and who is not a member in any other similar society and also not being a contractor himself could be a member of the society on his written application being sanctioned by the majority of the working committee. Clause B provides that in the case of the society employing any worker or labourer who is not a member, he would be paid at the labour rate prevalent in the area where he is employed for purposes of the work, and such non-member worker shall be entitled to make an application for being a member on completion of one year of his employment. The opponent-society was registered under the Bombay Co-operative Societies Act, 1925, as it appears from the certificate of incorporation of 8th February, 1962, which must be under the Bombay Co-operative Societies Act, 1925, because the Gujarat Co-operative Societies Act came into force on 1st March, 1962. Clause 32 of the bye-laws provides f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to its unemployed members. A certified copy of the bye-laws together with the certificate of incorporation sent under the cover of the letter of the Registrar dated 8th February, 1962, have been produced before us by the learned Advocate with the consent of the learned Government Pleader. Leaflet "GG" annexed to the said certified copy gives an idea as to what is the true nature of this workers' society. It, inter alia, states that the workers' societies are ordinarily included in and treated as producers' societies. The term "producers' society" has been defined by the Bombay Co-operative Societies Act, 1925, as under: "3. (2) A 'producers' society' means a society formed with the object of producing and disposing of goods as the collective property of its members and includes a society formed with the object of the collective disposal of the labour of the members of such society." The only difference between a workers' society and a producers' society is, according to this leaflet, that a producers' society is formed of skilled workers and they require workshops, mechanical tools, workers, etc., for purposes of production of their goods. An illustration has been given of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity of selling must be with a view to carrying on business. The Division Bench held as under in that case: "........The Bombay Sales Tax Act has a much narrow ambit and scope. Its object is not to tax income or to tax profits. Its object, which is a very narrow object, is to tax sales effected by persons carrying on the business of selling or supplying. Let us again emphasise that its object is not to tax sales; its object is to tax only those sales which are effected by persons who carry on the business of selling or supplying goods. In our opinion if we construe the expression 'carrying on the business of selling or supplying goods' in a commercial sense, then it is clear that the object of the person who carried on that business must be to sell or to supply. A person may either produce goods or purchase goods with the object ultimately of selling them. Unless that object is present and unless that intention is clear, the mere activity of selling or supplying would not constitute the carrying on of business of selling or supplying. If the Advocate-General's contention were to be accepted any continuous activity or any repeated activity seriously undertaken which results in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statement of the case makes it clear that bills were furnished to M/s. Gannon Dunkerley Co., they were debited with the amount of the bricks supplied to them, and this, says the Advocate-General, clearly shows that the transaction was a transaction of sale and that the society was carrying on the business of selling. Now, in all these taxing matters we must not look to the form but to the substance of the transaction. Inasmuch as the contractor had to purchase bricks and that would have formed part of the bill which the contractor would have ultimately submitted to the society for the purpose of book-keeping, the society adopted a particular form of accounts, but that form does not in any way affect the real nature of the transaction, and the real nature of the transaction is what we have already indicated. It is absurd to suggest that on these facts the society was selling bricks to their contractors, M/s. Gannon Dunkerley Co. Even the Advocate-General could not really press this part of the case. But the Advocate-General was more eloquent with regard to the other aspect of the matter and that is the sale of the surplus bricks to sister societies and other individuals, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit-motive. By the use of the expression 'profit-motive' it is not intended that profit must in fact be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. It Predicates a motive which Pervades the whole series of transactions effected by the Person in the course of his activity. In actual practice, the profit-motive may be easily discernible in some transactions: in others it would have to be inferred from a review of the circumstances attendant upon the transaction. For instance, where a person purchases a commodity in bulk and sells it in retail it may be readily inferred that he has a profit-motive in entering into the series of transactions of purchase and sale. A similar inference may be raised where a person manufactures finished goods from raw materials belonging to him or purchased by him, and sells them. But where a person comes to own in the course of his business of manufacturing or selling a commodity, some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, as stated in the indenture dated 21st October, 1896, which was made (after sic) before 100 years is that the institution was established for the purpose of keeping and preserving the lives of stray dogs, stray cattles and other stray animals. The institution is actuated entirely by charitable or religious or philanthropic motive of non-violence by Preserving the lives of those voiceless animals. It is this essential activity whose stamp is borne on all the sales which are in dispute before us, except probably the agricultural activity of growing cotton on the lands. ...... We cannot agree with this contention of the learned Advocate-General for the simple reason that the essential character of this institution is one of maintaining animals to save the lives of those voiceless animals and it does not carry on any business activity with any profit-motive and merely because incidental sales are done of the animal products, it could not be considered as carrying on business of selling these goods." In Deputy Commercial Tax Officer v. Enfield India Ltd. Co-operative Canteen Ltd. [1968] 21 STC 317 (SC), the Supreme Court was concerned with the question whether a co-operative societ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes some real, substantial and systematic or organised course of activity or conduct with the set purpose of making profit. Two elements must be present in order to constitute business: first, there must be a systematic or organised course of activity or conduct and secondly, it must be pursued with the set purpose of making profit. It is only if these two elements co-exist that a person can be said to be carrying on business so as to fall within the main part of the definition in section 2(11)." The last decision which requires a reference is that of the Supreme Court in Director of Supplies and Disposals v. Member, Board of Revenue [1967] 20 STC 398 (SC). The Supreme Court was concerned with the Directorate of Disposals which was an organisation of the Government of India responsible for disposal of the surplus American war equipment which had been taken over by the Government of India. The surplus goods were sold to public in a series of transactions, and therefore, a question which arose was as to whether the Director of Supplies and Disposals carried on business of selling the goods in West Bengal within the meaning of section 2(c) of the Bengal Finance (Sales Tax) Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit. To infer from a course of transactions that it is intended thereby to carry on business, ordinarily there must exist the characteristics of volume, frequency, continuity and system indicating an intention to continue the activity of carrying on the transactions for a profit. But no single test or group of tests is decisive of the intention to carry on the business. It must be decided in the circumstances of each particular case whether an inference could be raised that the assessee is carrying on the business of purchasing or selling of goods within the meaning of the statute." In this decision, Shah, J., has referred to the decision of the Judicial Committee in Commissioner of Taxes v. British Australian Wool Realization Association Ltd. [1931] AC 224. The facts in the case before the judicial Committee were that the assessee-company was incorporated for the purpose of selling surplus wool originally acquired during the war. The Commonwealth Government of Australia transferred its undivided half of the Australian wool to the assessee-company which also agreed to sell on behalf of the British Government the rest of the wool for a commission. A large surplus remained in the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hilla Panchayat, and the minor minerals won from the river-bed were sold to different customers, and therefore, the tests of frequency, continuity and systematic course which are relevant for determining the nature of the activity were present, but that would not be conclusive and the question whether the society in question was a dealer or not-since in the ultimate analysis the answer will depend on whether there was any intention to carry on business-which can be determined only on consideration of the totality of circumstances. The promoters of the opponent-society have to frame bye-laws for the society for purposes of incorporating it, and no doubt, the bye-laws of the assessee-society provide for the distribution of profits but the question cannot be determined by looking at those bye-laws in isolation and the substance of the transaction can be ascertained by finding out the intention of the assessee-society which is to be gathered from the totality of the circumstances. The obvious purpose of promoting the society was not to undertake commercial activities with a set purpose of earning profit. No doubt the frequency, volume, continuity and regularity of transactions carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bombay Act and was, therefore, not liable to registration and payment of tax. Our attention has been invited by the learned Government Pleader to a decision of a Division Bench of this Court in Harmadia Vividh Karyakari Sahakari Mandali Ltd. v. Commissioner of Sales Tax [1974] 34 STC 409, where the bye-laws of the assessee-society before it registered under the Bombay Co-operative Societies Act, 1925, enabled it to raise funds to advance loans at cheap rates to its members, especially for the needs of farming, and to purchase agricultural implements, household goods, etc., and sell them to its members, non-members and others working in that area, and which bye-laws authorised the society to sell on commission crops of its members as well of the members of the other co-operative societies functioning in that area and also to sell products of village industries. Every member of the said society, to whom loan had been advanced by it, was under an obligation to sell his crop in excess of the needs of his family through the society. The society maintained two sets of accounts one for money lending and another for sales and stores. In the course of assessment period from 1st January, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Mody.....This is purely a business transaction, where capital is invested with a profit-motive and the goods so financed and produced are ultimately sold through the society. Therefore, the society satisfies all the ingredients of carrying on business activity. It may be that in a particular transaction of auction sale, the commission amount may not be adequate to yield substantial profit to the society. But when the integrated activity of the society is considered as a whole on these undisputed facts, it could hardly lie in the mouth of the society to contend that it is not a selling organisation and its activity is not a business activity carried on with a profit-motive......" We do not think that this decision can be of any assistance to the case of the revenue since it is on its peculiar set up of the organisation by the bye-laws of the society that the Division Bench has held that the entire arrangement was pure and simple commercial business arrangement with a profit-motive though in a particular transaction the society might not have earned the profit. We do not think that the organisation set up by the bye-laws of the society with which we are concerned in this refere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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