Hiranand Ramsook Firm vs Province of Madras (Now Andhra)

Subba Rao, C.J.—The Questions that arise in this second appeal are (i) whether the Plaintiffs are "dealers" within the meaning of Section 2(b) of the Madras General Sales Tax Act and (ii) whether they are exempted from payment of tax u/s 8 of the said Act.

The Plaintiffs'' case may be briefly stated: The Plaintiffs are commission agents carrying on business in silver and gold. The customers would give an order for purchase of silver or gold at Bombay. The Plaintiffs would send a telegram to Bombay customers and silver and gold would be received by the Plaintiffs from the Bombay merchants. On the date of the receipt of the goods a bill would be prepared and the signature of the principal customer taken and a commission of 5 annas per Rs. 100/- in the case of gold, and 6 annas per Rs. 100/- in the case of silver would be given to the Plaintiffs. To put it shortly, their case is that they purchased silver and gold from the Bombay merchants for and on behalf of their customers and that they received nothing more than the commission to which they were entitled.

The Defendant contended in the written statement that the Plaintiffs were not commission agents for the purchase of gold and silver and that they carried on the said business in the year of assessment, not as agents of known principals, but as regular dealers on their own account. The Defendant further pleaded that the Plaintiffs did not comply with the conditions of the licence, and that, therefore, they forfeited their right to exemption under the provisions of the Madras General Sale Tax Act. The learned Subordinate Judge, and on appeal the learned District Judge, held that the Plaintiffs were not commission agents, but carried on business on their own account, and that, therefore, they were liable to sales tax. They further held that the Plaintiffs did not comply with the conditions of the licence, and that, therefore, they were not exempted from the payment of tax. The Plaintiffs preferred the above appeal.

The facts, either found by the Courts below, or in regard to which there is no dispute may be stated. The customers of the Plaintiffs did not place any order with the Plaintiffs. Exhibits A-1 to A-6 letters alleged to have been written to the Plaintiffs by the customers Viswanadham and others, were held to be not genuine by both the Courts. Exhibit A-7 the order book alleged to have been maintained by the Plaintiffs showing the various orders placed with them has been held not to be genuine by the Subordinate Judge. The learned District Judge did not give a definite finding on that question, but for the reasons mentioned by him in paragraph 13 of the judgment, I agree with him that the Ex. A-7 is highly suspicious and cannot be relied upon in support of the Plaintiffs'' case.

The expenditure incurred in connection with the telegrams alleged to have been sent by the Plaintiffs to the Bombay merchants was not debited to the Plaintiffs'' accounts. Nor do the accounts maintained by the customers disclose that any amount was spent by them for sending the said telegrams. The accounts maintained by the Bombay merchants have not been produced. The correspondence that must have passed between the Plaintiffs and the Bombay merchants has not been produced. But the accounts of the Plaintiffs show that, in respect of the suit transactions, the Plaintiffs had only taken commission. The bills establish that the Plaintiffs passed on the goods received by them from the Bombay merchants to their customers and the price charged was only the amount for which the goods were sent by the Bombay merchants plus the commission to which the Plaintiffs were entitled. It is not disputed that the accounts in Bombay were settled or adjusted on the basis that the Plaintiffs were only responsible for the purchase.

On these facts, only one conclusion is possible. The Plaintiffs placed orders with the Bombay principals or commission agents on their own account and on their own responsibility, though they expected to pass them off to their customers and though in fact they did so and were satisfied with the commission earned as profit. It is not possible to hold on the facts found that particular customers of the Plaintiffs placed specific orders with the Plaintiffs and that the Plaintiffs purchased the goods from the Bombay merchants as the agents of their customers. On the other hand, the suppression of all the correspondence between the Plaintiffs and the Bombay merchants and the bringing into existence of an order book to bolster up the Plaintiffs'' case leave no doubt in mind that the Plaintiffs purchased the goods from the Bombay merchants at their own risk with the hope or with the confidence of passing them off to various customers and that after the receipt of the goods, they gave them to their customers, taking for themselves only the commission as profits.

A Pull Bench decision of the Madras High Court in - Kandula Radhakrishna Rao and Others Vs. The Province of Madras and Another, had to consider the scope of Section 2(b), Madras General Sales Tax Act. The learned Judges held that the definition of "dealer" in Section 2(b) would cover also cases of persons mentioned in Section 8, who would but for that section, be liable to taxation u/s 3. The learned Chief Justice laid down that under certain circumstances a commission agent doing business would fall within the definition of "dealer" and that neither the definition of "dealer" nor of "sale" contemplate as a necessary condition that the goods sold should belong to the person selling or buying and that there can be a sale or purchase on behalf of another. In this case, on the facts found, the Plaintiffs were dealing on their own behalf. They did not purport to purchase the goods for the principals. It is, therefore, a clear case coming under the definition of "dealer". Assuming that the Plaintiffs acted as commission agents, the next question that falls to be considered is whether they are entitled to exemption from payment of tax by reason of any of the provisions of the Madras General Sales Tax Act.

The relevant section is Section 8 which reads:

The State Government may, on application and on payment of such fee as may be prescribed in that behalf, license any person under this section, who for an agreed commission or brokerage, buys or sells on behalf of known principals specified in his accounts in respect of each transaction and may exempt from the tax or taxes payable u/s 3, such of his transactions as are carried out in accordance with the terms and conditions of that licence.

Even if the Plaintiffs are persons, who bought the goods for an agreed commission, on behalf of known principals, they would be exempted under the Act if they got a licence from the State Government. It is also not questioned that one of the conditions of that licence was that they should maintain separate accounts in respect of each class of articles specified in the Act (See Rule 12 of the Madras General Sales Tax Rules). It is also not disputed that the Plaintiffs did not maintain separate accounts in respect of each class of articles specified in the section.

But it is contended by Mr. Somasundaram that though his client had not complied with one of the conditions of the licence, the condition which was not complied with was not a very material condition, and, therefore, it could be ignored. I do not see any justification for that distinction between material and non-material conditions in the provisions of Section 8 of the Act. Once it is conceded that the condition laid in Rule 12 is a condition subject to which the licence is issued, it follows that non-compliance with such condition disentitles to exemption u/s 8 of the Act. I would, therefore, hold that even if the Plaintiffs are commission agents within the meaning of Section 8 of the Act, they not having complied with the condition of the licence are not exempted from payment of the tax. The judgment of the lower Court is, therefore, correct.

The appeal fails and is dismissed with costs. No leave.