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TMI Blog1996 (2) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise. The expression "secured loan or advance" is defined under section 5(n) and means a loan or advance made on the security of assets, the market value of which is not at any time less than the amount of such loan or advance. Section 6 of the Act sets out the forms of business in which banking companies may engage and subsection (1)(a), inter alia, provides that in addition to the business of banking, a banking company may engage in lending or advancing of money either upon or without security. Section 6(1)(a) to (n) sets out various forms of business in which the banking companies can engage. Clause (f) confers power on the banking company to manage, sell or realise any property which may come into the possession in satisfaction or part satisfaction of any of its claims, while clause (i) authorises the banking company to undertake the administration of estates as executor, trustee or otherwise. Clause (o) of sub-section (1) of section 6 entitles the banking company to engage in any other form of business which the Central Government may specify as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Manager of the appellant-bank informing that the disposal of gold and silver forfeited against the loans outstanding is liable for tax under the provisions of the Karnataka Sales Tax Act and 2 per cent in respect of articles and at 1 per cent in respect of bullion. The General Manager was called upon to furnish the information of such disposals within a period of one week from the date of receipt of the notice. The period for which the information was sought, was from April 1, 1983, to March 31, 1988. The appellant-bank sent reply pointing out that incidence to pay sales tax arises only if a person is a "dealer" and it is not that every person who sells the goods becomes a dealer or a casual trader. The bank also pointed out that auction sale of gold ornaments by the banks for realisation of loans advanced cannot be equated with the expression "sale" as defined under the Sales Tax Act. The expression "sale" is defined under section 2(1)(t) with all its grammatical variation and cognate expressions and means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of trade or business for cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the Commercial Tax Officer, on the other hand, submitted that the decision in the case of Karnataka Pawn Brokers' Association [1992] 87 STC 366 (Kar) was upheld by the Division Bench in the case of Karnataka Pawn Brokers' Association v. State of Karnataka [1994] 94 STC 243 (Kar); ILR 1993 240 and the ratio laid down by the Division Bench would squarely apply to the case of the appellantbank. It was further submitted that though section 8 prohibits the banking companies from trading, there are certain exceptions set out under the section and when the bank, for realisation of the security, sells the goods, then the bank becomes a "dealer" and is liable to pay sales tax. It was further submitted that even if the bank is not carrying on the business of selling, still the bank performs the duties which are of a commercial nature and consequently, it carries on business and as such, should be treated as "dealer". In view of the rival submissions, the question, which falls for determination, is whether a banking company constituted under the Banking Regulation Act can be treated as a "dealer" when, in realisation of loans advanced to the customers, securities are sold. 5.. As menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iament, in its wisdom, has carved out the three exceptions to the rule of prohibition of trading with a view to enable the banking companies to function smoothly and to achieve the object of public service. The first exception of sale of securities for realisation of loans was necessary because in the absence of sale of securities, the bank would not recover the loans and which were advanced from the funds deposited by the customers. The second exception enables the bank to sell the goods which are hypothecated or in respect of which the bank holds a floating charge. The third exception enables the bank to dispose of the properties while administering the estate as executor or trustee. While the securities are sold or the goods are sold or the properties in administration are sold, the banking companies are not carrying on any business, trade or commerce. The assumption of the Commercial Tax Officer that every sale of property would attract the provisions of the Sales Tax Act is entirely erroneous. The imposition of tax is in respect of sale effected by the dealer who carries on the business of buying or selling for consideration. It is futile to suggest that the provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the banking companies are prohibited from trading, then it is not accurate to suggest that the transaction of selling of secured goods is incidental or ancillary to the trade or commerce. In our judgment, the assumption of the Commercial Tax Officer that the appellant-bank was a "dealer" as contemplated under the Sales Tax Act and was required to so register and pay the tax, was clearly misconceived. 6.. The reliance placed by the counsel appearing for the respondents, on the decision of the Division Bench of this Court in Karnataka Pawn Brokers' Association's case [1994] 94 STC 243; ILR 1993 Kar 240, is not accurate. The Karnataka Legislature passed the Karnataka Pawn Brokers Act and section 3 of that Act demands that no person shall carry on business as a pawn broker unless a pawn broker's licence under the Act is secured. The expression "pawn broker" is defined under section 2(7) and means a person who carries on the business of taking goods and chattels in pawn for a loan. The expression "loan" is defined under section 2(5) and means an advance at interest whether of money or in kind and includes any transaction which the court finds in substance to amount to such an advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Member, Board of Revenue, West Bengal v. Controller of Stores, Eastern Railway [1989] 74 STC 5 (SC); AIR 1989 SC 1468. The Supreme Court was examining the question as to whether the Eastern Railway, Calcutta, was a "dealer" within the meaning of the Bengal Finance (Sales Tax) Act, 1941. In this case also, the South Eastern Railway had disposed of unclaimed and uncollected goods and subsequently had applied for registration as a "dealer" and was accordingly registered. Later, the Railway applied for cancellation of the registration and the claim was not accepted by the Commercial Tax Officer. The revision application filed by the respondents was rejected and so also, the second revision. The Board of Revenue, West Bengal, upheld the decision and at the instance of the Railways, reference was made to the Calcutta High Court. The High Court accepted the claim of the respondents and held that the disposal of the goods did not indicate that the Railway was carrying on business as a "dealer" liable to assessment under the Act. The Supreme Court reversed the decision of the High Court by observing that the activity of disposing of the goods was adjunctive to the principal acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice calling upon the bank not to deliver the goods unless the sales tax liability was determined and cleared. The bank challenged the notice and claimed that the provisions of the Sales Tax Act are not attracted. The learned Judge relied upon the decision in Karnataka Pawn Brokers' Association's case [1994] 94 STC 243 (Kar); ILR 1993 Kar 240, and referred to the two decisions of the Supreme Court cited hereinabove. The attention of the learned single Judge was specifically invited to the provisions of section 8 of the Banking Regulation Act and the learned Judge felt that while there is a general prohibition restraining the bank from carrying on the activity of buying and selling, the exception carved out of the section establishes that the prohibition contained in section 8 has no application when the bank sells the hypothecated goods for realisation of the loans advanced. We are afraid, we cannot share the view of the learned single Judge for the reasons recorded hereinabove. Another decision recorded by a learned single Judge on September 12, 1995, in Writ Petition No. 18249 of 1989 (Vijaya Bank v. C.T.O.*) taking an identical view relying upon the earlier decisions, was ref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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