Immidi Satyanarayana vs State of Madras (now Andhra)

Chandra Reddy, J.

1.These two appeals arise out of a suit instituted by one Imnu''di Satyanarayana, who is the Appellant in S. A. No. 2100/1950 and Respondent in S. A. No. 2248/50 against the State of Madras for a refund of Sales Tax of Rs. 366-10-4 wrongfully collected from him for the year 1946-47, for. a declaration that the demand of compensation fee of Rs. 347 and Rs. 470 for 1944-45 and''. 1.945-46 respectively was illegal and ultra virus, and for a further declaration that the Plaintiff was not a dealer liable to be taxed under the Madras General Sales Tax Act (hereinafter called the Act). The suit was filed in the following circumstances.

The Plaintiff is a manufacturer of a tonic called Gripe Tonic and also an importer of Eucalyptus the does not sell these articles directly to customers, but has constituted Messrs. V. S. Narayana & Sons as his agents for the sale of the Gripe Tonic and the Eucalyptus Oil on commission basis. The Commercial Tax Department assessed the Plaintiff on the turnover of the commission agents in respect of these goods on the basis that the agents became liable to be taxed for the reason that they failed to take out a license u/s 8 of the Act, and that did not exonerate the Plaintiff, who was the principal from payment of tax in respect of those sales. The Plaintiff was also required to pay a compounding fee of Rs. 347 and Rs. 470 for the years 1044-45" and 1945-46 respectively, for failure to submit the returns as required by Section 9 of the Act, an offence punishable u/s 15 with a fine which may extend to Rs. 1,000, but which could be compounded u/s 10 of the Act.

The Plaintiff denied the liability to pay the tax-on the ground that he was not a dealer within the meaning of the Act, and that secondly the sales were already taxed and the taxes could not be collected twice over. For the same reasons it was contended, by him that he was not liable to submit returns and therefore he could not be called upon to pay Compounding fees u/s 16 of the Act. He paid the tax under protest; so far as the compounding fee was concerned, he said that he would pay wiihout pro Judice to his rights to have this liability determined in proper forum.

The suit was resisted by the State Govern-rit inter alia on the grounds that the Plaintiff was dealer within the meaning of the Act, and as such liable to pay the tax and that he could not claim exemption from taxation by reason of the taxes have been collected from the agent who failed to obtain licence u/s 8 of the Act. As regards the impounding fees, the plea was that he being a deal, it was obligatory on his part to submit the returns virtue of Section 9 of the Act.

The trial Court decreed the suit in part, i.e., regard to the refund of the tax paid by the Plaintiff as in its opinion, the tax having already been collected from the agents who were not dealers within the meaning of the Act, it could not be collected once again in respect of those very transactions from the Plaintiff. He dismissed the suit as regards the compounding fee having come to the conclusion that the Plaintiff was a dealer and as such bound to submit the returns of tire turnover and having failed to do so, he incurred the liability u/s 16 of the Act. On appeals filed by the aggrieved parties, i.e., one by the Plaintiff and the other by the State Government against this judgment to the extent each was aggrieved thereby, the judgment, of the trial Court was confirmed by the Subordinate Judge who concurred in the opinion of the trial Court on both the aspects of the matter.

The Plaintiff has preferred Second Appeal No. 2100 of, 1950 against die judgment of the Subordinate Judge in so far as his suit was dismissed for the declaration relating to compounding fees, while the Provincial Government has filed Second Appeal No. 2248 of 1950 to the extent that the tax paid was directed to be refunded.

It will be convenient to dispose of Second Appeal No. 2248 of 1950 first. It is argued for the Government that the view of the Courts below that the agent was not a dealer within the meaning of S. 2 (b) of the Act, and the tax having been collected from him, the Commercial Taxes Department could not levy tax in respect of the same transactions for the second time is erroneous in view of the Full Bench decision of the Madras High Court in Kandula Radhakrishna Rao and Others Vs. The Province of Madras and Another, , which declared a commission agent to be a dealer within the meaning of the Act, and it was only when a license was obtained by'' him u/s 8 of the Act, he could claim exemption from payment of tax.

There is force in this contention. The lower appellate Court relied on Provincial Govt, of Madras v. Voerabadbrappa, 1950 1 Mad LJ 504: (AIR 1950 Mad 521) (13), for the position that a commission agent is not a dealer within the ambit of the Act. In Kandula Radhakrishna Rao and Others Vs. The Province of Madras and Another, (A),it was remarked that the actual decision in The Provincial Government of Madras Vs. Neeli Veerabhadrappa and Others, could be upheld on the facts of the case as it was found that the persons sought to be taxed were merely brokers and not commission agents, but the proposition slated by the learned Judges in broad terms that commission agents were not dealers could not be accepted. In view of that ruling, it must be found that a commission agent is a dealer, and if the tax was collected from him it was properly done. There could, be no question of the tax being paid twice over if the Plaintiff could be regarded as a dealer.

The real question is whether he could be described as a dealer. Section 2 (b) defines a dealer as any person who carries on the business of buying or selling goods. So in order to bring a person within that definition, it is essential that either he should buy or sell goods. It is nobody''s case that he was buying goods. Could it beo said that ho was selling the Gripe Tonic and Eucalyptus Oil It is the case for the Department that the goods were entrusted to Messrs. Narayana & Sons for sale on commission.

Sale is denned in Section 2 (h) as every transfer of the property in goods by one person to Anr. in the course of trade or business for cash or for deferred payment or other valuable consideration, and includes also a transfer of property in goods involved in the execution of a works contract, but does not include a mortgage, hypothecation, charge or pledge. It is difficult to construe the sale of goods by V. S. Narayana and Sons as that effected by the Plaintiff, unless the handing over of the goods So the agents for sale constitutes a sale within the meaning of Section 2 (h). It looks to me that such a transaction is not susceptible of the meaning of a .sale. It is no doubt true that the commission agent makes the sale on behalf of the principal, but he is audiorised to transfer the property in goods so as to vest title thereto in the purchaser. This does not create the relationship of a vendor and vendee between the principal and the agent. Up to the point of sale the commission agent acts as the agent of the principal and subsequently the relationship between them is one of debtor and creditor.

If authority is wanted for this position, it is furnished by Kalyanji v. Tirkaram AIR 1938 Nag 254(C), where the position of a commission agent Ls discussed in full by Vivian Rose, J., (as he tiien was).

The following observations are very apposite in this connection:

Commission agents are of course agents up to a point and to that extent they stand in a position of active confidence towards their principals, but beyond that they are not agents in the real sense of the term and the relationship between tlie parties from then on is one of debtor and creditor.

The test to my mind is thus: docs the commission agent when ho sells have authority to sell in his own name? Has he authority in his own right to pass a valid title? If he has, then he is acting as a principal vis-a-vis tlie purchasers and not merely as an agent and therefore from that: point on ho is a debtor of his erstwhile principal and not merely an agent.

These remarks Jnako it abundantly clear that the commission agent sells the goods in his own right, and he is only responsible to the principal for the sale proceeds. The sale cannot therefore be said to be by the principal. Nor can the delivery of the goods to the agents for ymioses ofsale be treated as one of purchase and sale between them. If the Plaintiff does not sell the goods, he could not be regarded as a dealer within tlie meaning of Section 2 (b) of the Act.

This view of mine gains support from a decision of tlie Bench of the Madras High Court in State of Madras and Others Vs. Pothuri Srinivasulu Shreshty Son, Merchants and Commission Agents, Ongole Guntur Dist. and Others, , where this very question fell to be considered. Satyanarayana Rao and Rajagopalan, JJ., held in similar circumstances that there being only one sale effected by the commission agent, the price for such sale could not be treated as the turnover of the principal also, and the latter could not be required to pay tax for the second time in respect of the goods sold by the commission agent. I express my respectful accord with the doctrine of that case. Therefore, the Plaintiff is not liable to be taxed on the goods sold by the commission agents who as already stated have paid tax on the sales made by them. It follows that the tax collected from the Plaintiff was illegal and has to be refunded. Consequently, the decree under appeal has to be confirmed, though for different reasons. Second Appeal No. 2248 of 1950 is therefore dismissed without costs.

Now coming to S. A. No. 2100 of 1950, this appeal must be allowed applying the principle stated above. As mentioned supra, the reason for demanding the compounding is that he failed to submit a return of his turnover as required u/s 9 of die Act. Section 9 (1) enacts:

livery dealer whoso turnover is ten thousand rupees or more in a year shall submit such return or returns relating to his turnover in such manner and within such periods as may be prescribed.

Failure to comply with the terms involves a dealer in .prosecution under Section15, which creates an offence or payment of a fee by way of compounding under Section16 for an offence created under Section15. It is seen from Section 9 it is only the dealer whose turnover is Rs. 10,000 or more that is obliged to submit a return. If a person is not a dealer, he could not be required to do it. I have already stated that a persons in the position of the Plaintiff is not a dealer and also that the sales effected by the commission agent could not be regarded as the turnover of the Plaintiff. If so, no duty is cast on him to submit the returns. If a person is not a dealer, failure to comply with the requirements of Section 9 does not attract the penal consequences contemplated by Section 15 or 10 of the Act. Hence he could not be called upon to pay a fee by way of composition of the offence. In, this situation, the demand by the Respondent of a compounding fee from the Appellant is unauthorized and die latter is justified in refusing to pay it.

Consequently, the declaration asked for should be granted and the judgment and decree under appeal should be set aside.

In the result, the appeal is allowed with costs throughout.