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PETITIONER: BOARD OF REVENUE ETC.

       Vs.

RESPONDENT: A. M. ANSARI ETC.

DATE OF JUDGMENT17/03/1976

BENCH: SINGH, JASWANT BENCH: SINGH, JASWANT RAY, A.N. (CJ) BEG, M. HAMEEDULLAH

CITATION:  1976 AIR 1813            1976 SCR  (3) 661  1976 SCC  (3) 512  CITATOR INFO :  R          1976 SC1860  (10)  E&D        1985 SC1293  (115)  R          1988 SC1845  (11)

ACT:      Indian Stamp  (Andhra Pradesh  Extension and Amendment) Act XIX  of 1959-Arts.  31(c) and  35(c)-Scope of-Lease  and licence-Distinction.      Sales Tax-Whether payable on annual auction Sales.

HEADNOTE:      Under the terms and conditions of sale the respondents, who were  the  highest  bidders  at  an  auction  of  forest produce,  were   called  upon  to  pay  stamp  duty  on  the agreements to  be executed by them as if they were leases of immovable property  falling under  Art.  31(c)  and  on  the deposits of  security as  mortgages under  art. 35(c) of the Indian Stamp Act, 1899 as also sales tax on the bid amounts. In a petition under art. 226, the respondents contended that the right to pluck, collect and take away the forest produce was not a right or interest in immovable property within the meaning of  art.  31(c)  of  the  Stamp  Act,  the  security deposits were  not mortgages nor did the Government carry on any business  of sale  and, as such, they were not liable to pay  the  amounts  demanded.  The  High  Court  allowed  the petitions.      Dismissing the State’s appeal, ^      HELD :  The acquisition by the respondents not being an interest in  the soil  but merely a right to cut the fructus naturales, the  agreements possessed  the characteristics of licences and  did not  amount to leases so as to attract the applicability of art. 31 (c) of the Stamp Act. [667D]      Firm Chhotabhai  Jethabai Patel  & Co.  & Ors.  v.  The State of  Madhya Pradesh,  [1953] S.C.R.  476 and Mahadeo v. State of  Bombay 1959  S.C.J. 1021:  A.I.R.  1959  S.C.  735 referred to.      (1) A  study of  the definitions  of immovable property occurring in  the Transfer of Property Act, the Registration Act and  the General  Clauses  Act  shows  that  it  is  the creation of  an interest in immovable property or a right to

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possess it  that distinguishes  a lease  from a  licence.  A licence does not create an interest in the property to which it relates  while a lease does. In the case of a lease there is transfer  of a  right to  enjoy  the  property.  For  the purpose of  deciding whether a particular grant amounts to a lease or a licence, it is essential to look to the substance and essence of the agreement and not to its form. [665F-G]      Associated Hotels  of India Ltd. v. R. N. Kapoor A.I.R. 1959  S.C.   1262;  Kauri  Timber  Company  Limited  v.  The Commissioner of  Taxes, [1913]  A.C. 771  (776) Marshall  v. Green (1875)  L.R.I.C.P.I.D. 35 and Firm Chhotabhai Jethabai Patel &  Co. &  Ors. v.  The State  of Madhya Pradesh [1953] S.C.R. 576 referred to.      Mahadeo v.  State of  Bombay 1959 S.C.J. 1021: AIR 1959 S.C. 735 distinguished.      In the  instant case the salient features emerging from the agreements  are (i)  that they  were made  for  a  short duration of  9 to  10 months;  (ii) they  did not create any estate or  interest in  the land  and (iii)  the respondents were not  granted exclusive  possession and  control of  the land but  were merely granted the right to pluck, cut, carry away and  appropriate the forest produce, present or future. The right  to go  on the land was only ancillary to the real purpose of the contract. [667C-D] 662      (2) The  respondent could  not be  called upon  to  pay stamp duty  under Art.  35(c)  of  the  Stamp  Act.  For  an instrument to  fall within  the definition  of mortgage deed contained in  s. 2(17) of the Stamp Act it is necessary that it should  satisfy the  essential conditions  by creating  a right over  or in  respect of a specified property in favour of another person. [671D; 670G]      In the  instant case  there is  nothing in the relevant clause of the sale notice to indicate that any right over or in the  security deposits was created in favour of the State Government. [671A]      Reference under  Stamp Act,  Section 46  15 I.L.R. Mad. 134 and  Rishidev Sondhi  v. Dhampur Sugar Mills A.I.R. 1947 All. 190 F.B. approved.      (3) (a)  The respondents  were not  liable to pay sales tax. It  cannot be  said that  the  Government,  by  holding auction of  forest produce,  carried on business in the sale of that  class of  goods, which is an essential condition to make the respondents liable to pay sales tax. [670D]      State of  Gujarat  v.  Raipur  Manufacturing  Co.  Ltd. (1967) 19 S.T.C. 1(S.C.) followed.      (b)  The  consideration  of  profit  motive  cannot  be regarded as  an essential  ingredient of the term ’business’ in view  of the  amendment in  the definition of ’dealer’ in 1966. The  auctions were carried on only annually and not at frequent intervals. The important element of frequency being lacking it  cannot be  held that the Government was carrying on the business of sale of forest produce. [669D-E]      P.T.C.C.S. Merchants  Union v.  State of A.P., (1958) 2 An. W.R.  100: (1958)  9 S.T.C.  723; Raja  Bhairabendra  v. Superintendent of  Taxes (1958)  9 S.T.C.  60; Orient  Paper Mills Ltd. v. The State of Madhya Pradesh and Ors. (1971) 28 S.T.C. 532;  Deputy Commissioner  of Agricultural Income-Tax and Sales  Tax, Quilon  v. Travancore  Rubber  and  Tea  Co. (1967)  20   S.T.C.  520   (S.C.);  Deputy  Commissioner  of Agricultural Income-tax  and Sales  Tax, Quilon  v.  Midland Rubber and  Produce Co.  Ltd. [1970]  25  S.T.C.  57  (S.C.) Ramakrishna Deo v. The Collector of Sales Tax, Orissa (1955) 6 S.T.C. 674 referred to.

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JUDGMENT:      CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 67 to 122 and 238 of 1969.      From the  Judgment and  Decree dated the 21-8-67 of the Andhra Pradesh  High Court  in Writ Petitions Nos. 489, 491, 537, 538,  539, 540, 541, 561, 635, 636, 638, 639, 677, 684, 686, 688,  695, 710, 711, 712, 713, 714, 715, 716, 717, 718, 719, 811,  812, 813, 830, 831, 832, 853, 854, 855, 867, 870, 1146, 1216,  1219, 1260, 1261, 1265, 1284, 1285, 1292, 1293, 1294, 1309,  1310, 1340,  1446, 1447,  1697 and  687 of 1967 respectively.      P. Ram Reddy, B. Parthasarthi for the Appellants.      K. J.  John and J. B. Dadachanji for Respondent in CAs. 67, 78, 79, 100, 101, and 103 of 1969.      G. Narayana Rao for Respondent in CAs. 69-73/69.      H. K. Puri and R. V. Pillai for Respondents in CAs Nos. 77, 83, 89, 90, 93, 95, 96, 102 and 120/69.      The Judgment of the Court was delivered by      JASWANT SINGH,  J.-This bunch of Civil Appeals Nos. 67- 122  238  of  1969  by  certificate  granted  under  Article 133(1)(b)  of   the  Constitution   by  the  High  Court  of Judicature of Andhra Pradesh at 663 Hyderabad by  its order  dated June,  28, 1968  against  its common judgment  and order  dated August 21, 1967, passed in Writ Petition Nos. 489, 491, 537 to 541, 635, 684, 685, 687, 688, 830 to 832, 561, 1219, 715 to 719, 812, 813, 1216, 677, 638, 639,  695, 853 to 856, 636, 867, 870, 1146, 1285, 1260, 1261, 1284,  1292, 1293,  1294, 1309, 1310, 1340, 1447, 1697 and 1265  of 1967  which raise  interesting questions of law relating to  the interpretation of some of the provisions of the Indian  Stamp Act,  1899 and  the Andhra Pradesh General Sales Tax Act, 1957 shall be disposed of by this judgment.      The facts  giving rise to these appeals are: The Forest Department of  the Government of Andhra Pradesh after giving a sale  notice  held,  in  accordance  with  the  terms  and conditions thereof, an auction in 1967 in respect of various items of  forest produce  viz. timber,  fuel, bamboos, minor forest produce,  beedi leaves,  tanning barks,  parks  mohwa etc. Clause  23  of  the  notice  inter  alia  required  the contractors to  pay within  10 days  of the  receipt of  the confirmation orders  of the  competent  authority:  (a)  the balance of  the 1st  instalment amount, as might be fixed by the Divisional  Forest Officer, (b) 6 1/4% of the bid amount as security  deposit; (c) sales tax on the bid amount at the rates current  at the  time of  the sale.  Clause 60  of the notice provided  that the  contractors would  at  all  times comply with  the provisions  of  the  Indian  Stamp  (Andhra Pradesh Extension  and Amendment)  Act XIX  of 1959, and the Andhra Pradesh Court Fees and Suits Valuation Act, 1956, and all the  rules that  might, from  time to  time, be in force thereunder.      The respondents  herein being  the highest  bidders  in respect of some items of the forest produce were called upon to pay in terms of the above noted conditions the stamp duty on the  agreements to  be executed  by them  as if they were leases of immovable property falling under Article 31 (c) of the Indian  Stamp Act,  1899. They  were also called upon to pay sales  tax on  the bid amount in terms of clause (23) of the sale  notice. They were further called upon to pay stamp duty on  the deposits  made by  them by  way of  security as mortgages, falling  within Article  35(c) of  the Stamp Act. Aggrieved by  the said  notices, the  respondents filed  the

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aforesaid petitions  under Article  226 of  the Constitution for issue  of appropriate writs etc. declaring the aforesaid demand notices  as illegal  and  void  and  restraining  the appellants from  enforcing or  taking any proceeding for the levy and  recovery of  the amounts  mentioned  therein.  The respondents contended  before the  High Court  that  as  the right to  pluck, collect  and take  away beedi leaves and to cut and  carry away  bamboos, standing timber etc. was not a right or  interest in  immovable property  so as  to attract Article 31(c)  of the  Stamp Act, there could be no question of payment  by them  of the stamp duty. The respondents also challenged the  demand made  from them  for payment of sales tax on  the bid  amount on the ground that as the Government did not  carry on  any business  of  sale,  the  demand  was illegal. They  further challenged  the demand  of stamp duty under Article  35(c) of  the Stamp  Act  pleading  that  the security deposits  were not  mortgages so  as to attract the provisions of the said Article of the Stamp Act. 664      The petitions  were contested  by the appellants herein who contended inter alia that pursuant to clause (60) of the terms and  conditions of  the sale  notice, the  respondents were bound  to pay  the stamp duties that were chargeable in view of  the extension  of the Indian Stamp Act to the whole of the  State of  Andhra Pradesh by the Indian Stamp (Andhra Pradesh Extension and Amendment) Act XIX of 1959 with effect from April  1, 1959,  and repeal of the Hyderabad Stamp Act, and the  rules, notifications,  instructions  etc.  made  or issued  thereunder:   that  the   right  acquired   by   the respondents was  not merely  a right to collect, appropriate and sell  beedi leaves  that had  already grown but also the right to  collect, use  and sell  beedi  leaves  that  would subsequently grow  on the  standing trees and their branches taking nourishment  from the land during the period of lease which  showed   that  the  respondents  obtained  under  the agreement an  interest in immovable property. The appellants further contended  that the  respondents were,  according to the sale  notice, liable  to pay sales tax on the bid amount as also  the stamp  duty on  security  deposits  which  fell within the  definition of  mortgages as  contemplated by the Stamp Act.      On a  careful consideration of the respective stands of the parties, the High Court negatived the contentions of the appellants and  allowed  the  petitions.  Aggrieved  by  the Judgment and order of the High Court, the appellants applied for certificate  under Article 133(1)(b) of the Constitution which, as  already stated,  was granted to them. This is how the appeals are before us.      Three  questions   fall  for   consideration  in  these appeals. The  first question  that we  are  called  upon  to determine is  whether the  agreements which  the respondents were called  upon to  execute in  respect of  the  aforesaid rights relating  to forest  produce were  in the  nature  of leases or licences.      It is  necessary in  this connection  to notice  at the outset the  distinction between  a lease  and a  licence  by reference to  the relevant Acts. Section 2 (16) of the Stamp Act defines  the lease  as  meaning  a  lease  of  immovable property but  this definition, it would be noted, is neither exhaustive nor  self-explanatory. We  are, therefore, driven to find  out the  true meaning of the term by turning to the Transfer of  Property Act.  Section  105  of  the  said  Act defines ’lease’ as follows :-           "A lease  of immovable property is a transfer of a      right to  enjoy such property, made for a certain time,

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    express or  implied, or  in perpetuity in consideration      of a price paid or promised, or of money."      ’Licence’ is defined in section 52 of the Easement Act, 1882 as under:-           "Where one  person grants  to  another,  or  to  a      definite number  of other  persons, a  right to  do, or      continue to  do, in  or upon  the immovable property of      the grantor,  something which  would, in the absence of      such right, be unlawful, and such right does not amount      to an  easement or  an interest  in the  property,  the      right is called a licence". 665      The expression  ’immovable property’  is not defined in the Stamp Act but is defined in section 3 of the Transfer of Property Act,  section 2(6)  of  the  Registration  Act  and section 3(26)  of the General Clauses Act. An idea as to the meaning of  the expression  can also be gleaned from section 2(7) of the Sales of Goods Act. According to learned counsel for the  appellants, it  is  the  definition  of  ’immovable property as  given in  section 3 (26) of the General Clauses Act that  has to  be applied  in  determining.  whether  the agreements in question fall within the definition of ’lease’ or not.  It would  be useful  at this  stage to  set out  in juxtaposition the  definitions of  ’immovable  property’  as contained in  the aforesaid  Acts, as also the definition of goods as given in the Sale of Goods Act:- ------------------------------------------------------------ Section 3(26) of Section 3 of  Section 2(6) of  Section 2(7) General Clauses  Transfer of   Registration     Sale of Act.             Property Act. Act.             Goods Act. ------------------------------------------------------------ "Immovable pro-  In this Act,  "Immovable pro-  In this Act, perty" shall     unless there   perty" includes unless there include land,     is something   land, buildings is anything benefits to      repugnant in   hereditary      repugnant in arise out  of     the subject    allowances,     the subject land, and         or context     rights to       or context, things attached   "immovable        ways, lights,    "goods" to the earth,    property"      ferries, or     means every or permanently   does not       any other bene- kind of mov- fastened to  any- include  stand- fits  to arise   able pro- thing attached    ding timber,   out of land,    perty other to the earth.    growing crops  and things      than action-                   or grass.      attached to the able claims                                   earth or per-   money; and                                 manently fas-   includes                                 ened to any-    stock and                                 thing which is  shares, grow                                 attached to the ing crops,                                 earth, but not  grass and                                 standing timber things atta-                                 growing crops   ched to or                                 nor grass.      forming part                                                  of the land                                                 which are                                                 agreed to be                                                 severed                                                 before or                                                 under the                                                  contract or                                                 sale. ------------------------------------------------------------      A close study of the above definitions shows that it is the creation  of an  interest in immovable property or right to possess  it that  distinguishes a lease from a licence. A

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licence does not create an interest in the property to which it relates  while a  lease does.  There is  in  other  words transfer of  a right  to enjoy  the property  in case  of  a lease. As  to whether  a particular  transaction  creates  a lease or  a licence is always a question of intention of the parties which  is to  be inferred  from the circumstances of each case.  For the purpose of deciding whether a particular grant amounts  to a  lease or  a licence,  it is  essential, therefore, to  look to  the substance  and  essence  of  the agreement and not to its form. We are fortified in this view by the  decision of this Court in Associated Hotels of India Ltd. v.  R. N. Kapoor where Subba Rao, J. (with whom Das, J. agreed) observed:      "If a  document gives  only a right to use the property      in a  particular way  or under  certain terms  while it      remains in possession and control of the owner thereof,      it will  be a licence. The legal possession, therefore,      continues to be 666      with the  owner of  the property,  but the  licensee is      permitted to  make use of the premises for a particular      purpose. But  for the  permission, his occupation would      be unlawful.  It does  not create  in  his  favour  any      estate or interest in the property. There is therefore,      clear  distinction   between  the   two  concepts.  The      dividing line is clear though sometimes it becomes very      thin or  even blurred.  At one time it was thought that      the test  of exclusive possession was infallible and if      a person  was given exclusive possession of a premises,      it would  conclusively establish  that he was a lessee.      But there was a change and the recent trend of judicial      opinion is reflected in Errington v. Errington [1952] 1      All ER 149, wherein Lord Denning reviewing the case law      on the  subject summarizes the result of his discussion      thus at p. 155:           "The result of all these cases is that, although a      person who  is let  into exclusive possession is, prima      facie, to  be considered  to be tenant, nevertheless he      will not be held to be so if the circumstances negative      any intention to create a tenancy."           The Court of Appeal again in Cobb v. Lane [1952] I      All ER  1199, considered  the legal  position and  laid      down that  the intention  of the  parties was  the real      test for  ascertaining the  character of a document. At      p. 1201, Somervell L.J., stated:           "..... The  solution that  would seem to have been      found is,  one would expect, that it must depend on the      intention of the parties".           Denning L.J.  said much  to the  same effect at p.      1202:           "The  question  in  all  these  cases  is  one  of      intention: Did the circumstances and the conduct of the      parties show  that all  that was  intended was that the      occupier should  have  a  personal  privilege  with  no      interest in the land?"           The  following  propositions  may,  therefore,  be      taken as  well-established: (1)  To ascertain whether a      document creates  a licence  or lease, the substance of      the document  must be  preferred to  the form:  (2) the      real test  is the intention of the parties-whether they      intended to  create a  lease or  a licence;  (3) if the      document creates  an interest  in the property, it is a      lease; but,  if it  only permits another to make use of      the property,  of which  the legal possession continues      with the  owner, it  is a licence; and (4) if under the

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    document a  party  gets  exclusive  possession  of  the      property, ’prima  facie’  he  is  considered  to  be  a      tenant, but  circumstances  may  be  established  which      negative the intention to create a lease."      The crucial  tests to  be  employed  in  cases  of  the present nature can be gathered from the observations made by Lord Shaw  while delivering  the judgment  of the  Board  in Kauri Timber Company Limited v. 667 The   Commissioner   of   Taxes(1).   According   to   those observations, in  order, an agreement can be said to partake of the  character of lease, it is necessary that the grantee should have  obtained an interest in and possession of land. If the  contract does not create an interest in land then to use the  words  of  Lord  Coleridge,  C.J.  in  Marshall  v. Green(2) the land would be considered as a mere warehouse of the thing  sold and  the contract  would be  a contract  for goods.      For  the   purpose,  therefore,   of  ascertaining  the intention of  the parties  and finding  out the character of the agreements  in question,  it is  necessary to notice the salient  features  of  the  agreements.  The  first  salient feature of  the agreements  is that  they were  for a  short duration of nine to ten months. The second important feature of the  agreements is that they did not create any estate or interest  in   land.  The   third  salient  feature  of  the agreements  is   that  the   respondents  were  not  granted exclusive possession and control of the land but were merely granted the  right to pluck, cut, carry away and appropriate the forest produce that might have been existing at the time of the  contract or  which might  have come  into  existence during the  short period  of the currency of the agreements. The right  to go  on the land was only ancillary to the real purpose  of  the  contract.  Thus  the  acquisition  by  the respondents not  being an  interest in the soil but merely a right to  cut the  fructus naturales,  we are clearly of the view  that   the  agreements   in  question   possessed  the characteristics of  licences and did not amount to leases so as to  attract the  applicability of  Article 31(c)  of  the Stamp Act.      The conclusion arrived at by us gains strength from the judgment of this Court in Firm Chhotabhai Jethabai Patel and Co. &  Ors. v.  The State  of Madhya Pradesh where contracts and agreements  entered into  by person  with  the  previous proprietors of certain estates and mahals in the State under which they  acquired the  rights to pluck, collect and carry away tendu  leaves, to  cultivate, culture  and acquire lac, and to  cut and carry away teak and timber and miscellaneous species of  trees called  hardwood and  bamboos were held in essence and effect to be licences.      There is, of course a judgment of this Court in Mahadeo v. State  of Bombay(4)  where seemingly a somewhat different view was  expressed but  the facts  of that  case were quite distinguishable. In  that case  apart from the bare right to take the  leaves of tendu trees, there were further benefits including the  right to  occupy the land, to erect buildings and to  take  away  other  forest  produce  not  necessarily standing timber,  growing crop  or grass and the rights were spread over many years.      For the  foreging reasons, the first question has to be decided in favour of the respondents.      The second  question that  falls for  consideration  is whether the  respondents could be validly called upon to pay the sales tax. For 668

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the decision  of this question, it is necessary to examine a few provisions  of the Andhra Pradesh General Sales Tax Act, 1957. The  charging section  is section 5 which in so far as it is relevant for the purpose of these appeals runs thus:-           "5. Levy  of tax  on Sales or Purchases of Goods:-      (1) Every  dealer (other  than a  casual trader  and an      agent of  a non-resident  dealer) whose  total turnover      for a  year is not less than Rs. 25,000 and every agent      of a  nonresident dealer  whatever be  his turnover for      the year, shall pay a tax for each year, at the rate of      four paise on every rupee of his turnover:           "Every casual  trader shall  pay a tax at the rate      of four paise on every rupee of his turnover:           Provided that  a dealer in jaggery shall pay a tax      at the  rate of  two paise on every rupee upto the 31st      March 1966  and at  the rate  of three  paise on  every      rupee on  and from the 1st April 1966, of his turn-over      irrespective of the quantum of turnover".      The term  ’dealer’ has  been defined in section 2(e) of the Act as follows:-           "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  (i)  the      Central   Government,   a   State   Government,   local      authority, a  company, a  Hindu undivided family or any      society (including  a co-operative society), club, firm      or association which carries on such business ......"      The term  ’business’ has been defined in section 2(bbb) of the Act as follows:-           " ’business’  includes-(i) any trade, commerce, or      manufacture or  any adventure  or concern in the nature      of trade, commerce or manufacturing whether or not with      trade,  commerce,  manufacture,  adventure  concern  is      carried on  or undertaken 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".           ’Sale’ is defined in section 2(n) thus:           ’Sale’ with  all its  grammatical  variations  and      cognate  expressions   means  every   transfer  of  the      property in  goods by  one person  to  another  in  the      course of  trade or business, for cash, or for deferred      payment, or  for any  other valuable consideration, and      includes  any   transfer   of   materials   for   money      consideration in the execution of a 669      works contract  provided  that  the  contract  for  the      transfer of  such materials  can be  separated from the      contract for  the services  and the work done, although      the two  contracts are embodied in a single document or      in the  supply or  distribution of  goods by  a society      (including  a  co-operative  society),  club,  firm  or      association to  its members,  but does  not  include  a      mortgage, hypothecation  or pledge  of, or a charge on,      goods".      In order  that the  sales tax  should be payable by the respondents in  accordance with  the obligation  imposed  on them by clause (23) of the sale notice, it is necessary that the Government  of Andhra  Pradesh should have been carrying on the  business of  selling the forest produce. In State of Gujarat v.  Raipur Manufacturing  Co. Ltd., this court while

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examining the  term ’business’  in another  context observed that ’whether  a person  carries on business in a particular commodity must 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. The Court further went on to observe  that when  a subsidiary product is turned out in the factory  of the  assessee regularly and continuously and it is being sold from time to time, an intention to carry on business in such product may be reasonably attributed to the assessee. As  the consideration  of profit  motive cannot be regarded an  essential constituent of the term ’business’ in view of  the amendment  introduced in  the definition of the term ’dealer’  in 1966,  what we  are left  to  consider  is whether the  other ingredients  of the  term ’business’ viz. volume, frequency, continuity and regularity of transactions of sale and purchase are satisfied in the instant cases. The auctions of  the forest  produce by the Government of Andhra Pradesh are  admittedly carried  on only annually and not at frequent intervals.  Thus the important element of frequency being lacking  in the  instant cases, it cannot be held that the said  Government was carrying on the business of sale of forest produce.  In P.  T. C. C. S. Merchants Union v. State of A.P.  where a  person who  grew agricultural products and incidentally sold  the same,  it was  held that no sales tax was payable  as it could not be said that the person carried on  business.   A  similar   view  was   expressed  in  Raja Bhairabendra v.  Superintendent of  Taxes where standing sal trees grown  spontaneously in his Zamindari were sold by the Zamindar by  auction and  the purchasers  were permitted  to fell  the  trees  and  sell  them  after  sawing  and  other processes.      In Orient  Paper Mills  Ltd. v.  The  State  of  Madhya Pradesh &  Ors. it was held that the State Government or the forest department  could not,  merely by  selling the forest produce grown  on their land, be regarded as carrying on any business of buying, selling, supplying or distributing goods and therefore  in respect  of mere  sales of forest produce, neither the State Government nor the forest department was a dealer within  the meaning of the definition in section 2(d) of  the   M.P.  General  Sales  Tax  Act,  1958.  In  Deputy Commissioner 670 of  Agricultural   Income-tax  and   Sales  Tax,  Quilon  v. Travancore Rubber  and Tea  Co. and  Deputy Commissioner  of Agricultural Income-tax  and Sales  Tax, Quilon  v.  Midland Rubber and  Produce Co. Lt. where the only facts established were that  the assessee  converted the latex tapped from its rubber trees into sheets and effected a sale of those sheets to its customers and the conversion of latex into sheets was a process  essential for  the transport and marketing of the produce, it  was held  that the department had not been able to discharge  the onus  of proving  that  the  assessee  was carrying on business and was, therefore, a dealer within the meaning of  section 2(b) of the Central Sales Tax Act, 1956. In Ramakrishna  Deo v.  The Collector  of Sales  Tax, Orissa where Maharaja  of Jeypore  had sold  the sal trees from his forest for preparing sleepers, it was held that he was not a dealer within  the meaning  of the Orissa Act because he was not carrying  on the  business of  selling or  supplying the goods for  the reason  that the  element of purchase, one of the necessary ingredients of the business was absent.      In view  of the foregoing discussion, we find ourselves unable to  hold that  the Government  of Andhra  Pradesh  by holding auction of forest produce carried on business in the

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sale of  that class of goods. As such, the respondents could not be made liable to pay the sales tax.      There now  remains  for  consideration  only  the  last question as  to whether  the security  deposits made  by the respondents were  in the  nature of  mortgages so as to make the respondents  liable to  pay the stamp duty under Article 35(c) of  the Stamp  Act.  For  the  determination  of  this question, it  is necessary  to scrutinize  the definition of ’mortgage deed’  as contained  in section 2(17) of the Stamp Act which runs thus:-           "2(17). Mortgage-deed  includes  every  instrument      whereby, for the purpose of securing money advanced, or      to be  advanced, by  way of  loan, or  an  existing  or      future debt,  or the  performance of an engagement, one      person transfers,  or creates  to,  or  in  favour  of,      another, a  right  over  or  in  respect  of  specified      property".      A bare  perusal of  the above definition makes it clear that in  order that  an instrument  should fall  within  the above definition, it is necessary that the instrument should satisfy the essential conditions by creating a right over or in respect  of a  specified property  in favour  of  another person.      Bearing  in   mind  the   above   mentioned   essential requisites of  a deed of mortgage let us examine clause (17) of the  sale notice  to which  alone our  attention has been invited. Clause (17) runs thus:-           "Earnest money  deposit to be returned-The earnest      money deposits  of all  bidders  except  those  of  the      successful  bidders  collected  at  the  time  of  sale      according to condition 5 above, will be returned to the      depositors, on the conclusion 671      of the  sales provided  that the officer conducting the      sale, may  if he  considers it  advisable,  retain  the      deposits of any bidders".      There is  nothing in  the above clause to indicate that any right  over or  in the  security deposits was created in favour of the State Government.      In Reference  under Stamp  Act, section  46(1) where  a licence issued to an arrack renter expressly required as one of its  conditions that  the licensee  should deposit  a sum equal to  three months’  rental as  a security  for the  due performance of  the contract  and the  licensee  executed  a muchalka stating  that  he  agreed  to  all  the  terms  and conditions mentioned  in  the  licence,  it  was  held  that neither the  licence nor  the muchalka  taken separately  or together fulfilled  the conditions  of a mortgage as defined in the  Stamp Act  i.e., neither thereby actually created an interest in the deposit in favour of the Government.      In Rishidev  Sondhi v.  Dhampur Sugar Mills it was held that an  instrument in which specific sums have been offered as security  is not  a mortgage  deed within  the meaning of section 2(17) as money is not ‘specified property’.      In view  of the  above we  have no manner of doubt that the respondents  could not  be called  upon to pay the stamp duty under Article 35(c) of the Stamp Act.      In the result the appeals fail and are hereby dismissed with costs. P.B.R.                                    Appeals dismissed. 672