Full Judgment Text
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PETITIONER:
DIRECTOR OF SUPPLIES & DISPOSALS, CALCUTTA
Vs.
RESPONDENT:
MEMBER, BOARD OF REVENUE, WEST BENGAL,CALCUTTA
DATE OF JUDGMENT:
24/04/1967
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
SIKRI, S.M.
RAMASWAMI, V.
CITATION:
1967 AIR 1826 1967 SCR (3) 778
ACT:
Bengal Finance (Sales-tax) Act (6 of 1941), s. 2(c)-Dealer-
Central Government disposing of surplus war material-If
liable to sales-tax as dealer.
HEADNOTE:
Section 2(c) of the Bengal Finance (Sales-tax) Act, 1941
defines a "dealer" as meaning any person who carries on the
business of selling goods in West Bengal and as including
the Government. The appellant was a widespread Organisation
of the Government of India set up for the disposal of
surplus American war equipment which included goods of at
diversity and which ’had been taken over by the Government
of India after the Second World War. The Government of
India received the equipment free of cost. A part of the
equipment was appropriated by the Government of India to
their own use, some equipment was sold to the State
Governments and other autonomous bodies, and the rest was
sold to the public. The sales were spread over a number of
years and goods of the value of several lakhs had been sold
in auctions held from time to time after advertising in
newspapers.
On the question whether the appellant was a "dealer" and
therefore liable to pay sales-tax,
HELD : (Per Sikri and Ramaswami JJ.) : In disposing of the
goods the appellant was not carrying on the business of
selling goods, and therefore, the appellant was not a
"dealer" within the meaning of s. 2(c) of the Act, and, the
transactions of sale were not liable to be taxed under the
Act. The appellant was not selling the goods for profit but
was merely disposing them of by way of realisation of
capital. [786 B-D]
Commissioner of Taxes v. British Australian Wool Realisation
Association, [1931].A.C. 224 (P.C.) applied.
State of Andhra Pradesh v. M/s. Abdul Bakshi & Bros.,
[1964] 7 S.C.R. 664; 15 S.T.C. 644 (S.C.) and State of
Gujarat ’ v. Raipur Manufacturing Co. Ltd., [1967] 1 S.C.R.
618; 19 S.T.C. 1 (S.C.), referred to.
Per Shah J. (dissenting) : It could be inferred from the
totality of circumstances that the appellant was not merely
realising capital, but was carrying on business, and was
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therefore a dealer within the meaning of s. 2(c) of the Act
and liable to he assessed to sales-tax. [780 A, H]
It cannot be said that because the Government of India
received the equipment free, of cost it could not set up a
business to dispose of that equipment. There was an
organised course of activity which was systematic and with
the set purpose of making profit and the tests of volume.
frequency, continuity and system generally applied for
deciding whether there was an intention to carry on business
were also satisfied. [779 G-H; 780 F-G]
Nirain Swadeshi Mills v. Commissioner of Excess Profit Tax,
26 I.T.R. 765 (S.C.) and State of Andhra Pradesh v. Abdul
Bakshi & Bros., [19641 7 S.C.R. 664; 15 S.T.C. 644 (S.C.)
referred to.
779
Commissioner of Taxes v. British Australian Wool Realisation
Association Ltd. [1931] A. C. 224 (P.C.) explained and
distinguished.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 616 of 1966.
Appeal by special leave from the judgment and order dated
November 26, 1964 of the Calcutta High Court in Sales Tax
Reference No. 4 of 1962.
R. Ganapathy Iyer, V. D. Mahajan and S. P. Nayyar, for the
appellant.
B. Sen, P. K. Chatterjee, G. S. Chatterjee for P. K. Bose,
for the respondent.
SHAH J. delivered a dissenting Opinion. The Judgment of
SIKRI and RAMASWAMI, JJ. was delivered by RAMASWAMI J.
Shah, J. I regret my inability to agree with the view
expressed by Ramaswami, J.
Section 2(c) of the Bengal Finance (Sales Tax) Act, 1941,
defines a "dealer" as meaning "’any person who carries on
the
business of selling goods in-West Bengal and as including
the Government."
The Government of India set up an organisation the
Directorate of Disposals (United States Transfer
Directorate)-to dispose of war equipment taken over by them
from the American forces after the Second World War. This
Organisation had severalbranches under its control. A part
of the equipment was appropriated by the Government of India
to their own use; some equipment was, sold to the State
Governments and other autonomousbodies; and the rest was
sold to the public. The taxing authorities held that the
Directorate was a dealer within the meaning of theBengal
Finance (Sales Tax) Act, 1941, and the High Court ofCalcutta
in a reference made under S. 21(3) agreed with that view.
It is common, ground that the Government of India paid
noconsideration for acquiring the equipment; they merely
set up an Organisation to dispose of the equipment. It
is not, and cannotbe argued that because the Government
of India received theequipment free of cost it could not
set up a business to disposeof that equipment. An owner of
goods may commence business inthose goods by converting
them into stock-in-trade of his business.The sales made
by the Government of India through the Directorate were not
casual : they were spread over a number of years. The
equipment included goods of great diversity which were
disposed of with the help of a widespread Organisation. The
goods offered for sale were frequently advertised in
newspapers and
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780
auctions were held from time to time to dispose of the
goods. Was the Government of India, in entering upon this
activity merely realizing capital or was it carrying on
business in the American surplus war equipment ?
This Court observed in The State of Andhra Pradesh v. If.
Abdul,Bakshi and Bros,.(1)
"The expression ’business’ though extensively
used is a word of indefinite import. In
taxing statutes it is used in the sense of an
occupation, or profession which occupies the
time, attention and labour of a person, nor-
mally with the object of making profit. To
regard an activity as business there must be a
course of dealings, either actually continued
or contemplated to be continued with a profit,
motive, and, not for sport or pleasure."
In Narain Swadeshi Weaving Mills v. Commissioner of
Excess Profits Tax(2), Das, J., delivering the judgment of
the Court observed
"The word ’business’ connotes some real,
substantial and systematic or organised course
of activity or conduct with a set purpose."
An owner of goods may dispose of his property in one
lot or from time to time in different lots. By merely
realizing the value of a capital asset, the owner does
not become a dealer. Where, however, he sets up an
organisation a substantial and systematic course of
activity-to sell the goods with a profit motive, he may in
the light of other circumstances be deemed to have entered
into an activity in the nature of business or trade. The
line between the two classes of case is thin and sometimes
may be blurred. But in the present case, it cannot be said
that the activity undertaken by the Government of India for
disposal of the American surplus war equipment was, merely
an activity of the nature of realization of capital.
There was an organised course of activity, it was systematic
and it, was with a set purpose of making profit. The tests
of frequency, continuity and system which are generally
employed in determining whether an activity for the disposal
of goods owned by a person indicates an intention to
carry on business are satisfied in this me. The inference
does not arise merely from the existence of a selling
Organisation or systematic sales, but from the totality of
circumstances.
In Commissioner of Taxes v. British Australian Wool
Realization Association Limited($), the Judicial Committee
was called
(1) 15 S. T. C., 644.
(3) [1931] A. C. 224.26 1. T. R. 765.
781
upon to consider whether surplus resulting from sale of wool
aquired for the purpose of the First World War was exigible
to,, income-tax under the Income Tax Act, 1915 (Victoria; 6
Geo. 5 No. 2668). The Judicial Committee agreeing with the
Supreme Court of Victoria held that the sale of surplus wool
merely resulted in realisation of capital assets and no part
of it was income chargeable to tax. The assessee Company
was incorporated for the purpose of selling surplus. wool
originally, acquire during the, war. The Commonwealth
Government of Australia transferred to the Company its
undivided half of the Australian wool, and its share of
profits ’already realised, in, consideration of the issue of
priority wool certificates and fully paid Shares. The
Company also agreed to sell on behalf of the British
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Government the rest of the wool for a commission. The
proceeds of sale of the half share of the Australian wool
exceeded the cost at which., it had been taken into the
books of the Company. After the priority woo certificates
were redeemed, and the whole of the capital credited as paid
on the shares was paid off, a large surplus remained in the
hands of the Company. ’The Supreme Court of Victoria held
that the surplus proceeds of the sale did not arise from
trade, but were realization of capital assets and were
therefore not taxable under the Income Tax Act, 1915, and
with that the Judicial Committee agreed. The transaction
was unusual. Vast quantities of wool had accumulated both
in the hands of the British Government and of the.
Commonwealth Government: they had to be realized or wasted.
It was of vital interest to the Commonwealth of Australia
that the realization of surplus wool should not be conducted
so as to destroy the market for the current production: it
was also essential that the operation of realization should
be conducted with due regard to the legitimate interests of
the British consumers With a view to devise an effective
machinery to serve ’this twin objective, the Company which
was to act as a common agency for disposal of ’surplus wool
in the hands of the two Governments was set up with a
nominal capital. The constitution of the Company was the
direct result of an agreement between the two Governments, ’
and the attainment of the Government purposes was secured by
agreements which the Company- entered- into with, the two
Governments. The Government of the Commonwealth assigned
the profits accrued from sales of surplus Australian wool in
consideration of fully paid up shares and priority
certificates to be issued in the names of ’persons or,
bodies nominated by the Commonwealth Government. There was
a separate agreement between the British Government and the
Company about the disposal of wool belonging to that
Government. Interest of the Commonwealth Government in the
surplus wool a sum exceeding’ pound 6 million was
transferred to the Company, and it became an instrument of
conversion of the whole of the surplus wool still, unsold.
’For the share of the Commonwealth Government in the
782
wool it became a medium of distribution of the net surplus
amongst the original suppliers of wool. The Company also
took over the organization under which the realization of
wool was proceeding for over two years before it was. set
up, "and a realization of surplus wool whose sole or even
primary purpose was the acquisition of gain, whether by the
imperial Government in respect of one moiety, or by the
Association or its members in respect of the other was
never again entertained". The Judicial Committee observed
at p. 249
". . . . in truth and in fact the Associa-
tion’s interest in the wool always was fixed
capital and never was circulating capital.
Its purpose with reference to it was to
realize the asset,, having done so to dis-
tribute the proceeds among these entiled and
then itself, to disappear."
The Judicial Committee again observed at p.
252
"All that its British board did was to utilize
on its behalf the organization under which
they had acted when, as a committee of the
Ministry of Munitions, they were engaged in
the same task of realization. In other
words, in their Lordships’ judgment there is
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in the special case neither a finding, nor any
statement of facts warranting the conclusion
that this Association ever indulged in. any
activity except that of realization which, as
Rowlatt, J., has said, ’is not a trade. Upon
the facts stated, any other conclusion would
be tantamount to saying that a realization
such as that effected by the Association must
be a trade because of the bringing into
existence of a selling organization, made
necessary only by reason of the mere magnitude
of the realizations proposition not to be
entertained."
I have stated the facts of the case before the Judicial Com-
mittee and the reasoning of the Board in some detail to
indicate that the case bears little analogy with the case we
are dealing with. I am unable to hold that a case which has
been decided on its very special facts can be deemed to be
an authority governing the present. The decision of’-the
Judicial Committee enunciates no new principle it applies
settled principles to a very unusual set of facts.
There is no finding by the Sales Tax Tribunal that the
Directorate was only set up for realization of the surplus
equipment, and the High Court has declined to raise any such
inference. The High ’Court has clearly found that the
Directorate of Disposals (the United States Transfer
Directorate) was carrying on business
783
within the meaning of S. 2(c) of the Bengal Finance (Sales
Tax) Act, 1941. It is difficult to upset that finding of
the High Court in an appeal with special leave, and to hold
that on the facts established the Directorate of Disposals
was not I carrying on business of selling goods.
The appeal must therefore fail.
Ramswami, J. This appeal is brought, by special leave, from
the judgment of the Calcutta High Court dated November 26,
1964 in a reference under S. 21(3) of the Bengal Finance
(Sales Tax) Act, 1941 (Bengal Act VI of 1941), hereinafter
referred to as the ’Act’.
The Director of Disposals, the United States Transfer Direc-
torate, is an organisation of the Government of India. It
is responsible for the disposal of surplus American war
equipment which had been taken over by the Government of
India-. When the equipment was substantially disposed of,
its work was reduced to a great extent and therefore it
merged with the office of the Regional Commissioner
(Disposals) on January 11, 1950. Later on the Supply and
Disposal Services of the Government of India were merged and
the department was redesignated as Directorate of Supplies &
Disposals. The function of this directorate was to dispose
of surplus goods, and to purchase goods on behalf of the
Government of India. The Director of supplies & Disposals
(hereinafter called the appellant’) was asked by the Sales-
tax officials of the West Bengal Government to get himself
registered as a ’dealer’ under the Act. The appellant
declined to do so, contending that he was not a ’dealer’ and
that he was not engaged in the business of buying and
selling and was, therefore not liable to pay any sales-tax,
but the contention of the appellant was overruled and he was
assessed to sales-tax for three periods from April 1, 1949
until May 31, 1951. The appellant took the matter in appeal
to the Assistant Commissioner of Commercial Taxes, Calcutta
who modified the orders of assessment, holding that the
supplies made by the appellant were liable, to be taxed
except those which were proved to be mere transfers to its
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sister departments in the Government of India. The
appellant filed revision petitions to the Commissioner of
Commercial Taxes and to the Board of Revenue, but these
petitions were dismissed. As directed by the High Court,
the Board of Revenue referred the following question of law-
for the decision of the High Court under S. 21(3) of the Act
"Whether the Director of Supplies and
Disposals, United States Transfer, Directorate
having his office situated at No. 6, Esplanade
East, Calcutta, carries on the business of
selling goods in West Bengal and is, there-
784
fore, a ’Dealer’, within the meaning of
section 2 (c) of the Bengal Finance, (Sales,
Tax) Act, 1941
By its judgment dated November 26, 1964, the High Court
answered the question in the affirmative and against the
appellant.
The question to be considered in this appeal is whether the
appellant is a ’dealer’ within the meaning of s. 2(c) of the
Act defining a ’dealer’ as "any person who carries on the
business of selling-goods in West Bengal and as including
the Government. It was argued on behalf of the appellant
that the surplus material was left in India at the
conclusion of the last war by the American Government to be
dealt with by the Government of India just as it pleased.
The Government could have used the goods itself or made a
gift of them to others or thrown them away as scrap. As a
matter of fact, it was pointed out that a considerable
portion of the surplus material was used by the Government
itself and the balance instead of being thrown away was sold
to the public, and that selling of such material did not
involve carrying on of a ’business’ and the appellant was
therefore not liable to be taxed as a ’dealer’ under S. 2(c)
of the Act. The opposite view-point was put forward on
behalf of the respondent. It was submitted that surplus
material was sold in a series of transactions and good of
the value of several lakhs had been sold and there was a
profit motive behind the transactions. It was contended
that the sales were not casual but they were spread over a
number of years and the surplus ’Lyood’s were disposed of
with the help, of a widespread organization It was also said
that the goods which were offered for sale were advertised
in the newspapers and auctions were also held from time to
time. As pointed out by this Court in State of Andhra
Pradesh v. M/s Abdul Bakshi and Bros.(1) a person to be a
dealer must be engaged in the business of buying or selling
or supplying goods. The expression "business"
though extensively used in taxing statutes, is a word of
indefinite import. In tasking statutes, it is used in
the sense of an occupation, or profession which occupies the
time,, attention and labour of a person, normally with the
object of making profit. To regard an activity as business
there must be a course of dealings, either actually
continued or contemplated. to be continued with a profit-
motive; there must be some real and systematic or organised
course of activity or conduct with a set purpose of making
profit. 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
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(1) 15 S.T.c. 644.
785
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 a recent decision of this Court in The State of Gujarat
V. Raipur Manufacturing Co. Ltd.(1) the question arose.
whether a company which carried on the business of
manufacturing and selling cotton textiles was liable to
sales-tax when disposing of old’ and discarded items such as
stores, machinery, iron scrap, cans boxes, cotton ropes,
rags, etc. It was held that the mere fact that the sales of
the items were frequent and their volume, was large, did not
lead to the presumption that when the goods were acquired
there was an intention to carry on the business in these
discarded materials, and a person who sold goods which Were
unserviceable or unsuitable, for his business did not on
that account become a dealer in those goods, unless he had
an intention to carry on the business of selling those
goods. At page 7 of the Report Shah, J. speaking for the
Court, observed as follows
"It is clear from these cases that to
attribute an intention to, carry on business
of selling goods it is, not sufficient that
the assessee was carrying on business in some
commodity and he. disposes of for a price
articles discarded, surplus or unserviceable.
It was urged however, on behalf of the State
that where a dealer with a view to reduce the
cost of production disposed of unserviceable
articles used in the manufacture of goods and
credits the price received in his accounts, he
must be deemed to have a profit-motive,for
it would be uneconomical for the business to
store unserviceable articles and to survive as
an economic unit. But the question is: of
intention to carry on business of selling any
particular class of goods. Undoubtedly from
the frequency, volume, continuity and
regularity of transactions carred on with a
profit-motive, an inference that it was in-
tended to carry on business in the commodity
may arise. But it does not arise merely
because the price received by sale of
discarded goods enters the accounts of the,
trader and may on an overall view enhance his
total profit,- or indirectly reduce the cost
of production goods in the business of selling
in which he is engaged. An attempt to realize
price by sale of surplus unserviceable or
discarded goods does not necessarily lead to
an inference that business is intended- to be
carried on in those goods, and the-fact that
unserviceable goods are-sold and not stored so
that badly needed space is available for the
business of the assessee also does not, lead
to
(1) 19 S.T.C 1.
786
the inference that business is intended to be carried on in
selling those goods. "
Having examined the facts found by the High Court in the
present case, we are satisfied that the appellant was not
carrying on the business of buying or selling goods within
the meaning of S. 2 (c) of the Act. It is not disputed that
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large quantities of war material were handed over to the
Government of India under the provisions of the Indo-U.S.
agreement for the prosecution of the war. A part of the war
material was used by the Government for defence and military
activities and there was a huge surplus left with the
Government of India which was either no longer useful or
had become obsolete. We are of the opinion that in
disposing ,of this surplus war material the appellant was
not carrying on the ,business of selling goods and the
transactions of sale were not liable to be taxed under the
provisions of the Act. In our opinion, the appellant was
not selling surplus goods for profit but he was merely
disposing of the surplus material by way of realisation and the
transactions were therefore not taxable as sales
falling within the provisions of the Act. The view that we
have expressed is borne out by the decision of the Judicial
Committee in Commissioner of Taxes v. British Australian
Wool Realization Association Limited(1) in which the
respondent-company was incorporated in 1920 in Victoria
pursuant to an agreement between the Imperial and
Commonwealth Governments, for the purpose of selling the
undisposed of surplus of wool acquired for the war, and dis-
tributing the proceeds. The Commonwealth Government trans-
ferred to the company its undivided half of the Australian
wool and in cash its share of profits already realized, in
consideration of the issue of priority wool certificates and
fully-paid shares to its nominees, the wool suppliers. The
company also agreed with the Imperial Government to sell on
its behalf for a commission all the rest of the wool,
whether Australian or not. The wool was :all sold during
the,years 1921 to 1924; the company had no other dealings in
wool. The proceeds of the half share of the Australian wool
largely exceeded the sum at which it had been taken into the
books of the company. The priority wool certificates were
redeemed, and the whole of the capital credited as paid on
the shares was paid off under successive schemes sanctioned
by the Court; there remained a large surplus in the hands of
the liquidator of the company. Assessments were made upon
the company under the Income Tax Act, 1915, of Victoria, in
respect of proportions of the surplus proceeds of sale and
of the commission ,earned. The company raised objections
thereto, and a special ,case was stated for the opinion of
the Supreme Court of Victoria which held that the surplus
proceeds of sale were not a result of the trade but
realization of capital assets and were therefore not
(1) [1931] A.C. 224.
7 8 7
taxable under the Act. The judgment of the Supreme Court of
,Victoria was affirmed by the Judicial Committee which held
that the surplus resulted merely from the realisation of
capital asset& and therefore no part of it was income
chargeable to tax. At page 250 of the Report, Lord
Blanesburgh stated as follows :-
"To their Lordships, therefore, there is
disclosed, on their view of the facts here, a
case entirely within the terms of the
following words from the judgment in Cali-
fornian Copper Syndicate v. Harris [(1904)5
Tax Cas. 159, 165], which have since been so
often cited with approval. It is quite a well
settled principle in dealing with questions of
assessment of income tax, that where the owner
of an ordinary investment chooses to realise
it, and obtains a greater price for it than he
originally acquired it at, the enhanced price
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is not profit........ assessable to income
tax.’ Equally applicable, in the view of their
Lordships, are the words of Lord Dunedin in
Commissioner of Taxes v. Melbourne Trust
[(1914) A.C. 1001, 1009], where he says : ’If
the liquidator of one of the banks had made,
an estimate of the various assets held by him
for realization, and then on realization had
obtained more than that estimate, such surplus
would not have been profit assessable to
income tax."
Lord Blanesburgh further observed at page 252
of the Report
"All that its British board did was to utilize
on its behalf the organization under which
they had acted when, as a committee of the
Ministry of Munitions, they were engaged in
the same task of realization. In other words,
in their Lordships’ judgment there is in the
special case neither a finding, nor any
statement of facts warranting the conclusion
that this Association ever indulged in any
activity except that of realization which, as
Rowlatt, J. has said, ’is not a trade.’ Upon
the facts stated, any other conclusion would
be tantamount to saying that a realization
such as that effected by the Association must
be a trade because of the bringing into
existence of a selling organization made
necessary only by reason of the mere magnitude
of the realization-a proposition not to be
entertained."
The material facts of this case are closely parallel to
those in the present case and it must be held that the
appellant was not carrying on the business of selling goods
and was not a "dealer" within the meaning of the Bengal
Finance (Sales Tax) Act, 1941 (Bengal Act VI of 1941).
788
For these reasons we hold that the appellant did not carry
on the business of selling.goods in West Bengal and
therefore was not a dealer within the meaning of S. 2 (c) of
the Act and the question referred to the High Court. under
s, 21-(3) of the Act must be answered in the negative and in
favour of the appellant. We accordingly set aside the
judgment of the High Court dated November 26, 1964 and allow
this appeal with costs.
ORDER
In accordance with the opinion of the majority, this appeal
is allowed with costs.
V.P.S.
789