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TMI Blog1988 (8) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... ncidental to its main activity and, therefore, the sale of such scrap material must be subjected to sales tax. It is further contended that though the activity of the corporation is commercial in nature which might not attract sales tax but any other activity like sale of scrap material would come within the definition of "business" or commerce and, therefore, it must be subjected to sales tax. Section 2(1)(e) of the Andhra Pradesh General Sales Tax Act is the relevant statutory provision which deals with the definition "dealer". It reads: " 'dealer' means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration or other valuable consideration, and includes We may now advert to the case law on which reliance was placed by both sides. Shri Reddappa Reddy, learned standing counsel for "APSRTC", placed reliance upon a decision of a Division Bench of this Court in Andhra Pradesh State Road Transport Corporation v. Commercial Tax Officer [1971] 27 STC 42. This case is the first one that dealt with the corporation in question directly. The question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a motive to make gain or profit and whether or not any gain or profit accrues therefrom; and (ii) any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern.' In view of the terms of its incorporation the Andhra Pradesh State Road Transport Corporation is not authorised to carry on any activity except that of providing or securing or promoting the provision of an efficient, adequate, economical and properly co-ordinated system of road transport service in the State. It is not one of its objects to carry on the business of purchase or sale of any scrapped vehicles or other types of scrap." In State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Co. of India Ltd. [1973] 31 STC 426, the Supreme Court approved the ratio laid down by this Court in Andhra Pradesh State Road Transport Corporation's case [1971] 27 STC 42 by holding: "The learned Advocate for the respondent in the second of the appeals contended that the very two learned judges of the Andhra Pradesh High Court had earlier rendered a decision in A.P. State Road Transport Corporation v. Commercial Tax Officer [1971] 27 STC 42 which is in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying on business in the normal connotation of that term, it would be 'business' within clause (i) of that sub-clause as introduced by the amending Act." It was further held: "We also think that there is no fallacy in thinking that the railway since it is concerned in the activity of transportation is engaged in commerce within the meaning of clause (i) of the definition and that the sale of unserviceable materials and scrap-iron, etc., is transaction in connection with or ancillary to such commerce within the clause (ii) of that definition." In joint Director of Food v. State of A.P. [1976] 38 STC 329 (SC), in order to ensure equitable supplies of commodities essential to the life of the community at fair prices, the Central Government was procuring foodgrains and fertilisers and selling them to the States or their nominees. On the question whether inter-State sales and intra-State sales of such goods by the assessee (the joint Director of Food) to the Andhra Pradesh State were liable to sales tax under the Central Act and the Andhra Pradesh Act respectively, the Supreme Court held: "That the assessee represented the Central Government in the sales and, therefore, cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h had been taken as sales on the footing that they constituted the assessee's business did not really constitute its business and with reference to that the assessee could not be treated as a dealer under the Act. Even if disposals by the assessee were considered as ancillary, it was necessary that the other tests of 'business' should extend to such transactions. On looking at the matter from a broad perspective, the transactions relating to disposal of scrap and new parts which were no more necessary for the business of the assessee did not constitute business and the assessee could not be treated as a dealer in respect of such transactions." In Indian Express (P.) Ltd. v. State of Tamil Nadu [1987] 67 STC 474 (SC), unused and unsold newspapers were later on sold as waste paper, which were subjected to tax and on being challenged, it was held by the Supreme Court: "In this appeal learned counsel for the appellant contends that when the surplus copies of the newspapers were sold they possessed the character of newspapers and were, therefore, exempt from sales tax. It seems to us clear that when newspapers are sold to the reading public they are sold as a medium containing infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Supreme Court in Commissioner of Incometax v. Andhra Pradesh State Road Transport Corporation [1986] 159 ITR 1; AIR 1986 SC 1054. In this case the Supreme Court faced with the question whether the corporation is entitled to claim exemption in respect of the income derived by it under section 11(1)(a) of the Income-tax Act, 1961, held: "The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit." The objects for which a road transport corporation is established by a State Government are set out in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransport corporation is established and to prescribe the manner in which the general duty of the corporation set out in section 18 is to be performed. It is now firmly established by the decisions of this court in the Surat Art Silk Cloth Manufacturers Association's case [1980] 121 ITR 1; AIR 1980 SC 387 and the Bar Council of Maharashtra's case [1981] 130 ITR 28; AIR 1981 SC 1462 that the test is 'What is the predominant object of the activity-whether it is to carry out a charitable purpose or to earn profit?' If the predominant object is to carry out a charitable purpose and not to earn profit, the purpose would not lose its charitable character merely because some profit arises from the activity." The Supreme Court also held: "There is no factual foundation for the submission based upon section 23(2) and other sections of the RTC Act which empower a road transport corporation to issue shares including issuing shares to members of the public and to pay dividend thereon. It is an admitted position, as pointed out by the High Court in its judgment under appeal, that no share capital has been raised under section 23(2) and the entire capital has been provided by the Government u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by it. We are afraid, we cannot agree with the contention advanced by the learned Government Pleader. The decision relied upon by him would not be of any assistance to him. The corporation in question was constituted by a Central Act. Objects have been clearly laid down. In the light of those objects it was held by this Court in Andhra Pradesh State Road Transport Corporation v. Commercial Tax Officer [1971] 27 STC 42 that they do not constitute either trade or business so as to attract sales tax. The Supreme Court also while dealing with the very same corporation under the Income-tax Act, held in Commissioner of Income-tax v. Andhra Pradesh State Road Transport Corporation [1986] 159 ITR 1; AIR 1986 SC 1054 that the activities of the corporation are of general public utility and, therefore, they are charitable in nature and consequently exempted from tax. While dealing with that aspect, it was further held by the Supreme Court: "What section 22, therefore, does when it states that it shall be the general principle of a road transport corporation that in carrying on its undertakings it shall act on business principles is to emphasise the objects set out in section 3 for whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e APSRTC does not carry on any business except to provide transport service to the people, the burden of proving that the APSRTC was carrying on selling or buying unserviceable goods was on the department. The department has nothing on record to prove that the APSRTC was carrying on business either in purchase or sales of unserviceable vehicles or unserviceable material. The activity which the corporation has been conducting is not an activity as a business. The sales of unserviceable materials were incidental to the statutory duty of the corporation. Sales of unserviceable material by the corporation cannot be characterised as being a system or organised course of activity as a business. Before an activity can come within the purview of a business activity, it must be a commercial activity and not incidental to the fundamental activity of the corporation, i.e., providing transport service to the people. When the primary activity of the corporation itself cannot be treated as a business activity, it is indeed difficult to say how it can at all be said that the activity of selling discarded and unserviceable material was an activity of the dealer. It would be seen that where a perso ..... X X X X Extracts X X X X X X X X Extracts X X X X
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