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PETITIONER: M/S.  CHOWRINGHEE SALES BUREAU (P) LTD.

       Vs.

RESPONDENT: C.I.T., WEST BENGAL

DATE OF JUDGMENT10/10/1972

BENCH: KHANNA, HANS RAJ BENCH: KHANNA, HANS RAJ HEGDE, K.S. REDDY, P. JAGANMOHAN

CITATION:  1973 AIR  376            1973 SCR  (2) 618  1973 SCC  (1)  46  CITATOR INFO :  F          1975 SC 198  (7,8,10,12,14)  R          1980 SC2047  (17)  R          1988 SC1263  (15)

ACT: Bengal  Finance (Sales Tax) Act,  1941-Whether  "Auctioneer" covered  by  expression "Dealer’ in explanation  2  of  Sec. 2(c)-Definition of the word "Dealer" whether ultra vires the power  of  the State legislature under Entry  48,  List  II, Schedule  VII of Govt. of India Act,  1935-Assessee  company acting as autioneer-Amount realised as sales tax in  auction sales  and  credited separately under Sales  Tax  Collection Account, whether part .,of appellant’s income.

HEADNOTE: The appellant assessee is a private limited Company  dealing in furniture and also acts as an auctioneer.  In respect  of the  sales  effected  by the  appellant  as  auctioneer,  it realised,  during the year in question, in addition  to  the commission,  Rs.  32,986/- as sales tax.   This  amount  was credited  separately  in  the  books  under  the  Sales  Tax Collection  Account.  This sum was neither paid over to  the ex-chequer  nor was it refunded to the persons from  it  had been  collected.  For the year in question, the I.T.O.  held that  the sum of Rs. 32,986/- was a part of the  appellant’s income  of the same nature as the commission received by  it on the auction sales.  The appellant relying on the decision of  the Calcutta High Court, [1961] 12 S.T.C. 535  contended that  as the State Government had legislative competence  to include  "auctioneer" in the definition of "dealer"  in  the Bengal Finance (Sales Tax) Act, 1941, the amount in question was not a trade receipt liable to tax under Income Tax Act. The   Appellate  Asstt.   Commissioner  and  the   Appellate Tribunal  held  in  favour of  the  appellant.   However,  a reference under Sec. 66(1) of the Indian Income Tax Act, was answered  by  the  High Court against  the  appellant.   Two questions  were  posed before this Court : (1)  Whether  the decision of the Calcutta High Court in [1961] 12 S.T.C.  535 was  correct and (2) whether the answer to the reference  by the High Court was right ? HELD : An auction sale in, view of the provisions of Sec.  4

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read  with  64  of the Sale of Goods Act would  have  to  be considered  to  be a sale for the purpose of Sale  of  Goods Act.   There is nothing in Entry 48 of List II  of  Schedule VII  of the Government of India Act (corresponding to  Entry 54  of List II of the Seventh Schedule of the  Constitution) which  restricts the power of the Legislature in the  matter of  the imposition of the Sales Tax to the levy of such  tax an  the owner of the goods on whose behalf they are sold  or the purchaser where the transaction is one of sale of goods. In  view of the wide amplitude of the power of the State  or provincial legislature to impose tax on transactions of sale of goods, it would be impermissible to read a restriction in entry  48  on the power of the State  legislature  as  would prevent  the  State  legislature from imposing,  tax  on  an auctioneer  who carries on the business of selling of  goods and  who  has in customary course of business  authority  to sell  goods belonging to the people.  What is sought  to  be taxed is the transaction of the sale of goods.  If there  is a  close  and direct connection between the  transaction  of sale and the person made liable for the payment of tax as in the  present  case, the statutory provision  providing  for, such levy on ’sales tax would not 619 offend  entry  48.   As such, the  definition  of  the  word "Dealer"  in  explanation  2 of S. 2(c) of  the  Bengal  Act cannot  be  deemed  to be ultra vires.  It  Was  within  the competence of the provincial legislature to include  within, he definition of the word "dealer" an auctioneer who carries on  the  business  of selling of goods and who  has  in  the customary  course  of  business,  authority  to  sell  goods belonging to the principal. [622H] J.   K.  Jute  Mills  Co. Ltd. v. State  of  Uttar  Pradesh, [1961] 12 S.T.C. 535, overruled. State  of  Madras, v. Cannon Dunkerley & Co.  (Madras)  Ltd. [1958] 9 S.T.C 353, K. L. Johar & Co. v. Dy.  Commercial Tax Officer, [1965] 16, S.T.C.    213, J. K. Jute Mills Co. Ltd. v. The State of Uttar Pradesh, [1961]   12    S.T.C.    429, followed. Zakria  Sons P. Ltd.  V. State of Madras, [1965]  16  S.T.C. 136, referred to. As the amount of sales tax was received by the appellant  in its character as an auctioneer, the amount should be held to form  part  of  its  trading  or  business  receipts.    The appellant  would, of course, be entitled to claim  deduction of the amount as and when it pays to State Government.   The fact  that  the appellant credited the  amount  received  as sales  tax  under the head "Sales  Tax  Collection  Account" would  not make any natural difference. , It is  the  nature and the quality of the receipt and not  he head under  which it is entered in the account books that is decisive. [624B] Punjab Distilling Industries Ltd. v. C.I.T., Simla 1959,  35 I.T.R., followed

JUDGMENT: CIVIL,  APPELLATE  JURISDICTION  :       Civil  Appeal  Nos. 168, (NT), of 1969. Appeal  by special leave from the judgment and  order  dated June 18,1968 of the Calcutta High Court in Income-tax  Refe- rence No. 77 of 1966. B.   Sen and B. P. Maheshwari, for the appellant. F.   S. Nariman, Additional Solicitor-General, T. R. Rama- chandran,  B.  D.  Sharma  and  R.  N.  Sachthey,  for   the respondent,

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Gobinda Mukhoty, G. S. Chatterjee, for Intervener, (for  the State of West Bengal & Advocate-General West Bengal). The Judgment of the Court was delivered by KHANNA, J.-This appeal by special leave is directed  against the  judgment  of  Calcutta High Court  whereby  that  court answered ,he following question referred to it under section 66(1)  of the Indian Income Tax Act, 1.922 in  the  negative and against the assessee appellant "Whether  on the facts and in the circumstances of the  case the  sum  of Rs. 32,986 had been validly excluded  from  the assessee’s business income for the relevant assessment year 620 The matter relates to the assessment year 1960-61 for  which the  relevant  previous year ended on March 31,  1960.   The appellant assessee is a private, limited company dealing  in furniture.   It also acts as an auctioneer.  In  respect  of the  sales  effected  by the  appellant  as  auctioneer,  it realised  during  the year in question, in addition  to  the commission,  Rs.  32,986 as sales  tax.amount  was  credited separately  in  the  books under the  sales  tax  collection account.  The total balance standing to the, credit of  this account  since 1946 up to the end of the  relevant  previous year stood at Rs. 2,71,698.  This sum was neither paid  over to  the  exchequer nor was it refunded to the  persons  from whom  it  had been collected.  In the  earlier  years  these collections  were not added to the appellant’s income.   For the  year in question, however, the Income Tax Officer  held that the said sum was in reality a portion of the sale price itself  because the sales tax was not the liability  of  the purchasers of the goods but was the liability of the sellers of  the goods only.  The owners, of the goods who sent  them to the appellant for being auctioned had received only their sale price less the amount charged by the appellant as sales tax  from the purchasers.  The Income Tax Officer held  that the  sum of Rs. 32.986 was a part of the appellant’s  income of  the same nature as was the commission received by it  on the  auction sales.  The said sum was accordingly  added  to the appellant’s income. The  appellant preferred appeal to the  Appellate  Assistant Commissioner  who took note of the fact that  the  appellant had  not  treated  the amount as part of  its  income.   The Appellate Assistant Commissioner referred to a decision of a single  judge of the Calcutta High Court in a writ  petition filed  by  the appellant against the State of  West  Bengal. The  decision in that case is reported in (1961)  12  S.T.C. 535.  It was held by the High Court that where an auctioneer is  selling specific chattel, or goods for an unknown  or  a disclosed  principal  and  where the buyer  knows  that  the auctioneer  is  not  the owner,  the  auctioneer  cannot  be considered  as the seller and there is no contract  of  sale between  him and the buyer.  In such a case the  auctioneer, according to the High Court, is not even a party to the sale and  cannot  be made liable for payment of sales  tax.   The definition of the word "dealer" in Explanation 2 of  section 2(c)   of   the  Bengal  Finance  (Sales  Tax)   Act,   1941 (hereinafter  referred to as the Bengal Act) was held to  be ultra vires in so far as it included an auctioneer. As  an appeal was pending against the above decision of  the learned  single  judge  in  the  Calcutta  High  Court,  the Appellate  Assistant Commissioner observed that it was  only when  the  matter was finally decided by the High  Court  or when the assessee itself ’treated the said sales tax receipt as  income  that  the said sum (could  be  included  in  the assessee’s total income and only in the 621

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year  in which that event came to pass.  The amount  of  Rs. 32,986 was accordingly excluded from the assessee’s income. On  further appeal the decision of the  Appellate  Assistant Commissioner  was affirmed by the Income Tax Appellate  Tri- bunal.    The  question  reproduced  above  was   thereafter referred  to  the High Court.  The High  Court,  as  already stated,   answered   the  question  against   the   assessee appellant. When  the appeal came up for hearing before us on  September 21,  1972  Dr. Pal on behalf of the appellant  assailed  the correctness  of  the answer given by the High Court  and  in this  connection  relied upon the dictum laid  down  in  the appellant’s  case  reported  in (1961) 12  S.T.C.  535.   As against  that  the learned Additional Solicitor  General  on behalf of the respondent questioned the correctness of  that decision.  As the said decision related to the vires of  the provisions  of  section 2(c) of the Bengal Act  we  directed that notice be issued to the State of West Bengal as well as its  Advocate  General.   Arguments  have  thereafter   been addressed  before us by Mr. Sen on behalf of  the  appellant and  the  Additional  Solicitor General  on  behalf  of  the respondent.   Mr.  Mukhoty on behalf of the  State  of  West Bengal has adopted the arguments of the Additional Solicitor General. Before dealing with other matters, it would be convenient to examine  the correctness of the view taken by  the  Calcutta High  Court  that  the definition of the  word  "dealer’  in Explanation  2 of section 2(c) of the Bengal Act  was  ultra vires in so far as it included an auctioneer’.  The,  Bengal Act  was  enacted  by  the Bengal  Legislature  in  1941  in pursuance of the powers conferred by entry 48 of List II  of Schedule VII of the Government of India Act, 1935.  The said entry  relates  to  "taxes  on the  sale  of  goods  and  on advertisements".  The entry in so far as it relates to taxes on  sale of goods corresponds to entry 54 in List 11 of  the Seventh  Schedule of the Constitution.  The words  "sale  of goods"  in  entry  48  in List II of  Schedule  VII  of  the Government  of  India Act, 1935 were the subject  matter  of judicial  interpretation  by this Court in the case  of  The State of Madras v. Gannon Dunkerley & Co. (Madras)  Ltd.(1). It  was  held that those words cannot be  construed  in  the popular sense but must be interpreted in the legal sense and should be given the same meaning which they had in the  Sale of  Goods  Act, 1930.  In arriving at  this  conclusion  the Court  acted on the principle that words having known  legal import  should be construed in the sense which they  had  at the  time of the enactment.  Another dictum which  was  laid down  in  that ease was that "a power to enact  a  law  with respect  to tax on sale of goods under entry 48 must, to  be intra  vires, be one relating in fact to sale of goods  and, accordingly, the Provincial (1)  [1958] 9 S. T. C. 353. 622 Legislature cannot, in the purported exercise to tax  sales, tax transactions which are not sales by merely enacting that they  shall be deemed to be sales." This Court in that  case dealt  with  a building contract which was one,  entire  and indivisible,  and  observed  that  in the  case  of  such  a contract there is no sale of goods and it is not within  the competence  of the Provincial Legislature under entry 48  to impose  a tax on the supply of the material used in  such  a contract by treating it as A state. The view taken by this, Court in the Gannon Dunkerley’s Case (supra)  that  the  word "sale" in entry 48 of  List  II  of Schedule VII of the Government of India Act and entry 54  of

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List 11 of the Seventh Schedule of the Constitution has  "he same  meaning as that given in the Sale of Goods  Act,  1930 was  reiterated  by  this Court in K. L. Johar  and  Co.  v. Deputy  Commercial  Tax  Officer(1)  while  dealing  with  a contract of hire purchase. It  cannot be disputed that sale by an auction is a sale  as contemplated  by these Sale of Goods Act, 1930 (3 of  1930). Section 4 of that Act provides, inter alia, that a  contract of sate of goods is a contract whereby the seller  transfers or agrees to transfer the property in the goods to the buyer for  a price.  Where under a contract of sate, the  property in  the- goods is transferred from the seller to the  buyer, the contract is called sale.  Further, according to  section 64  of  that Act, in the case of sale by auction  where  the goods  are put up for sale in lots, each lot is prima  facie deemed  to  be the subject of a separate contract  of  :ale. The  Calcutta  High Court in holding the definition  of  the word  "dealer"  in  Explanation 2 of section 2  (c)  of  the Bengal  Act  to  be  ultra vires  in  the  appellant’s  case reported in (1961) 12 S.T.C. 535 observed :               Entry  48  authorizes the  imposition  of  tax               either on a seller or a purchase or both.  if,               however,  the legislature purports to  levy  a               tax upon a person who is neither a seller  nor               a purchaser, the legislation must be  declared               ultra view, because it treats an operation  as               a  sale of goods which, according to the  Sale               of  Goods  Act,,  does not amount  to  such  a               sale." We   find   ourselves  unable  to  agree  with   the   above observations.   An auction ale in view of the provisions  of section  4  read with section 64 of the Sale  of  Goods  Act would  have to be considered to be a for the purpose of  the sale  of  goods  Act.  There is nothing in  entry  48  which restricts the power of the legislature in the matter of  the imposition  of the sales tax to the levy of such tax on  the owner of the goods on whose behalf they are sold or (1) [1965] 16 S.T.C.213 623 the  purchaser  only.  Where transaction is one of  sale  of goods  as  known  to law, the power of  the  legislature  to impose   a  tax  thereon,  in  our  view,  is  plenary   and unrestricted subject only to any limitation which might have been  imposed  by  the  Government  of  India  Act  or   the Constitution (See J. K. Jute Mills Co. Ltd. v. The State  of Uttar  Pradesh(1).   In view of the wide  amplitude  of  the power  of the State or Provincial Legislature to impose  tax on transactions of sale of goods, it would, in our  opinion, be  impermissible to read a restriction in entry 48  on  the power  of  the State Legislature as would prevent  the  said Legislature  from imposing tax on an auctioneer who  carries on  the  business  of  selling goods  and  who  has  in  the customary  course  of  business,  authority  to  sell  goods belonging  to the principal.  What is sought to be taxed  is the  transaction of the sale of goods.  If there is a  close and  direct connection between the transaction of  sale  and the  person  made liable for the payment of sales  tax,  the statutory  provision  providing for such levy of  sales  tax would not offendentry 48.  It cannot be disputed that  there is  a close and direct connection between an auctioneer  and the transaction of auction sale.  As such, the definition of the  word "dealer" in Explanation 2 of section 2 (c) of  the Bengal  Act cannot be deemed to be ultra vires the power  of the  Provincial or State Legislature on the ground that  the legislature purports to levy tax on a person who is  neither

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a  seller nor a purchaser.  It was, in our  opinion,  within the  competence  of the Provincial  Legislature  to  include within the definition of the word "dealee’ an auctioneer who carries on the business of selling goods and who has in  the customary  course  of  business  authority  to  sell   goods belonging to the principal. We may also observe that a Division Bench of the Madras High Court  in the case of Zackria Sons Private Limited v.  State of  Madras(1)  has  dissented from the  view  taken  by  the Calcutta  High  Court in the appellant’s  case  against  the State of West Bengal. It  is  apparent from the order of the  Appellate  Assistant Commissioner  and  has not been disputed before  us  in  the present case that in the cash memos issued by the  appellant to the purchasers in the auction sales it was the  appellant who  was  shown as the seller.  The amount realised  by  the appellant  from  the  purchasers included  sales  tax.   The appellant,  however, did not pay the amount of sales tax  to the  actual  owner  of  the  goods  auctioned  because   the statutory  liability for the payment of that sales  tax  was that  of the appellant.  The appellant company did not  also deposit the amount realised by it as sales tax in the  State "chequer  because  it took the position that  the  statutory provision creating that liability upon it was not valid.  As the amount of sales tax was received by the appellant in its character as an auctioneer, the (1) (1961) 12 S. T. C. 429. (2) (1965) 16 S. T. C. 136. 624 amount,  in  our view, should be held to form  part  of  its trading  or  business  receipt.   The  appellant  would,  of course, be entitled to claim deduction of the amount as  and when it pays it to the State Government. The fact that the appellant credited the amount received  as sales  tax  under the head "sales  tax  collection  account" would not in our opinion, make any material difference.   It is  the true nature and the quality of the receipt  and  not the  head under which it is entered in the account books  as would  prove decisive.  If a receipt is a  trading  receipt, the fact that it is not So shown in the account books of the assessee  would  not prevent the  assessing  authority  from treating  it  as trading receipt.  We may  in  this  context refer  to the case of Punjab Distilling Industries  Ltd.  v. Commissioner of Income Tax, Simla(1).  In that case  certain amounts received by the assessee were described as  security deposits.   This  Court  found that those  amounts  were  an integral  part of the commercial transaction of the sale  of liquor and were the assessee’s trading receipt.  In  dealing with  the  contention that those amounts were entered  in  a separate  ledger  termed  "empty  bottles  return   security deposit account", this Court observed :               "So  the  amount  which  was  called  security               deposit   was   actually   a   part   of   the               consideration for the sale and therefore  part               of  the price of what was sold.  Nor  does  it               make  any  difference that the  price  of  the               bottles  was  entered in the  general  trading               account   while  the  so-called  deposit   was               entered  in  a separate ledger  termed  "empty               bottles return deposit account" for, what  was               a  consideration for the sale cannot cease  to               be  so by being written up in the books  in  a               particular manner." We, therefore, agree with the High Court in so far as it has answered  the  question referred to it in the  negative  and

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against the appellant.  The appeal consequently fails and is dismissed witH costs. S.B.W.                              Appeal dismissed. (1) [1959] 35 I.T.R. 519. 625