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Judgment
Ramachandra Iyer, J.—The plaintiff, Messrs India Coffee, and Tea Distributing Company, Ltd., has filed these appeals against the judgment
of Ramaswami, J., in two suits, C.S. Nos. 51 and 163 of 1951. The appellant is a company registered under the Indian Companies Act with its
head office at Bombay carrying on business at Madras. The main business of the company is stated to consist of the sale of tea and rubber in India
and outside on behalf of resident and non-resident principals. In respect of tea and rubber sold by the company during 1947-48 as commission
agents the Deputy Commercial Tax Officer, Mannady, Madras, assessed the turnover at Rs. 43,03,171-15-6. Rs. 22,14,764-11-8 of the
turnover represented the price of the goods sold on behalf of the resident principals and the balance Rs. 20,88,407-3-10 represented sales on
behalf of foreign principals. Out of this Rs. 19,68,064-11-7 represented the price of goods exported outside India. The Deputy Commercial Tax
Officer assessed the plaintiff to sales tax on the entire sum of Rs. 43,03,171-15-6. The company preferred an appeal against this order of
assessment to the Commercial Tax Officer, North Madras. The appellate authority validated the licence in favour of the plaintiffs as agent of
known principals and in consequence exempted that portion of the turnover which represented the value of the goods sold on behalf of the resident
principals, confirmed the original assessment in regard to the balance of Rs. 20,88,407-3-10 and levied a tax of Rs. 21,207-6-2. The company
contested the correctness of this order in a revision petition to the Board of Revenue but the attempt was not successful. C.S. No. 51 of 1951 out
of which O.S.A. No. 29 of 1955 arises was filed by the appellant against the State of Madras represented by the Collector of Madras for a
declaration that the assessment made by the Commercial Tax Officer was illegal and void. For the year 1948-49 the Deputy Commercial Tax
Officer, Mannady Division, Madras, assessed the appellant to sales tax on a turnover of Rs. 36,69,741-3-3. The plaintiff preferred an appeal to
the Commercial Tax Officer, North Madras, against this order of assessment. The appellate authority reduced the tax by Rs. 700 but otherwise
confirmed the order of assessment. In an application for a revision of the order the Board of Revenue exempted the sales effected on behalf of the
resident principals by validating the licence retrospectively on payment of penalty, and the assessment in pursuance of the order of the Board of
Revenue was ultimately made by the Deputy Commercial Tax Officer on a turnover of Rs. 21,40,743-0-0 at Rs. 33,449-1-9. For the year 1949-
50 the Deputy Commercial Tax Officer determined the turnover of the plaintiff at Rs. 2,96,750-15-6. On appeal to the Commercial Tax Officer
the sales on behalf of the resident principals were exempted by validating the licence retrospectively on payment of the penalty and the turnover
was reduced to Rs. 25,470-12-0 and a tax of Rs. 397-15-6 was levied. The assessment was also confirmed by the Board of Revenue. The
company filed C.S. No. 163 of 1951 out of which O.S.A. No. 30 of 1955 arises for a declaration that the assessments for the years 1948-49 and
1949-50 were illegal and void. The case of the plaintiff was that they were only acting as commission agents for certain principals and they could
not be deemed to be and assessed as dealers, that the sales did not take place within the State of Madras, and that the turnover in respect of tea
and rubber could not be assessed as they were agricultural produce and further as the tea that was exported was grown by their principals in their
estates they were exempt from taxation. The State of Madras filed written statements in the two suits contesting the plaintiff''s claim and pleading
that the appellant was a dealer within the meaning of Section 2(b) of the Madras General Sales Tax Act, 1939, that the sales took place at Madras
and that the company were not entitled to the exclusion of sales of tea and rubber as agricultural produce or to an exemption in regard to sales of
tea to foreign buyers as those commodities were grown in the estates of non-resident foreign principals. Issues were settled on the pleadings
between the parties but no evidence was let in beyond filing the relevant assessment orders and notices that passed between the parties.
Ramaswami, J., held that the plaintiffs were dealers within the meaning of the Act though they were only commission agents, that the sales to
foreign buyers took place at Madras, that though tea and rubber were agricultural produce the plaintiffs would not be entitled to the exclusion of
their sales from the computation of the turnover as the principal for whom the appellant was acting was non-resident foreigner. The learned Judge
also held that tea and rubber were produced outside the State of Madras. On those findings the two suits were dismissed with costs. The plaintiffs
have filed the appeals against the judgments.
Mr. G. R. Jagadesan appearing for the appellant did not contest the assessment for the year 1949-50 but confined his arguments only in regard
to assessments for the years 1947-48 and 1948-49. Substantially the contention on behalf of the appellant centred on two grounds of exemption,
viz., (1) u/s 2(i) which exempts sale of agricultural produce, and (2) u/s 5(v) which exempts sale of tea intended for and delivered outside the State
of Madras. On behalf of the State both these claims were contested on the ground that both tea and rubber were not grown by the assessee but
only by his non-resident foreign principal.
u/s 3(1) of the Madras General Sales Tax Act, 1939, every dealer is to pay a tax for each year on his total turnover. Section 2(i) defines
turnover as the aggregate amount for which goods are bought or sold provided that the proceeds of sale by a person of agricultural or horticultural
produce grown by himself or grown on any land in which he has an interest shall be excluded from his turnover. The learned Judge after
considering the several authorities on the subject held that tea and rubber would be agricultural produce. But by reason of an amendment to the
Act by Act XXV of 1947, tea was excluded from the definition of agricultural produce in Section 2(a). This amendment came into force on 1st
January, 1948. The learned Government Pleader conceded that rubber would be an agricultural produce. But the right to have the sales of rubber
and of tea prior to 1st January, 1948, exempted is contested on behalf of the Government on the ground that the appellant was assessed as a
dealer, that rubber and tea were grown not in its estate but in the estate of its non-resident principal and that therefore the appellant would not be
entitled to the exclusion of the sales in the assessment of the turnover. The same objection is taken in regard to the claim for exemption from
assessment made by the appellant u/s 5(v) of the Act. Section 5(v) of the Act was repealed by Act I of 1957, but it was in force during all the
years of assessments concerned in the two appeals. The provision of that subsection was as follows:
The sale of tea grown by the seller or grown on any land in which he has an interest, whether as owner, usufructuary mortgagee, tenant or
otherwise, shall be exempt from taxation u/s 3, subsection (1), if the sale is for delivery outside the State and delivery is actually so made.
The case for the appellant is that as the sales of tea were for export outside the State it would be entitled to the exemption granted by Section
5(v) even though the tea was grown by and on the estates of its non-resident principal. To enable the appellant to get the benefit of the exemption
two conditions must be satisfied : (1) that the tea should have been grown by and on the land in which the seller had one of the interests specified in
the Sub-section (2) the sale should be intended for delivery outside the State and delivery should actually be so made. The former condition is
practically the same as the one relevant u/s 2(i). Two questions therefore arise for determination in the appeal, viz., whether the appellant as
commission agent would be entitled to the exemption contemplated by Section 2(i) and Section 5(v) of the Madras General Sales Tax Act in
respect of the sales of goods which were grown in the estate of its non-resident principal ; (2) whether the sales sought to be assessed were for
delivery outside the State and delivery was actually so made.
Before considering the two questions set out above it is necessary to refer to one matter which the learned Judge decided against the appellants.
The learned Judge held that the land on which tea was grown was outside the State. We are not able to ascertain from the record as to how this
question arose. The claim of the appellant was not resisted by the respondent on this basis. There was no plea, issue or even evidence that the
lands on which tea was grown were outside the State of Madras. In all the assessment proceedings it was assumed that the lands were within the
State. We should therefore proceed on the basis that for the purpose of these appeals the tea and rubber were grown on lands situated in the
Madras State.
Taking up the first question, the contention on behalf of the State was that a commission agent was a dealer and to enable him to obtain the
exemptions u/s 2(i) and Section 5(v) the land on- which the rubber and tea were grown should belong to him and that it would not be sufficient if
they were grown on the lands of his principal. The learned Judge held that the exemptions could be claimed only by resident estate owners and that
even if such exemption could be claimed by the non-resident principal it could not be claimed by his commission agent. For a due appreciation of
the controversy it is necessary to determine the position of a commission agent in the scheme of the Act. He would be a dealer within the definition
of Section 2(b) and would be liable to assessment by virtue of Section 3(1). Section 8 provides that if a commission agent obtains a licence under
the section, he could exclude from his turnover all sales specified in his accounts on behalf of known principals that are carried out in accordance
with the terms of his licence. This however was subject to certain provisions one of them being that the amounts of sales in respect of such
transactions should be included in the turnover of the principals except when-they are covered by exemptions granted under the Act. In the case of
a foreign principal referred to in the Act as a non-resident, these provisions are modified to a certain extent by Section 14-A of the Act, which runs
as follows:
In the case of any person carrying on the business of buying or selling goods in the State but residing outside it (hereinafter in this section referred
to as a ''non-resident''), the provisions of this Act shall apply subject to the following modifications and additions, namely :
(i) In respect of the business of the non-resident, his agent residing in the State shall be deemed to be the dealer.
(ii) The agent of a non-resident shall be assessed to tax or taxes under this Act at the rate or rates leviable thereunder in respect of the business of
such non-resident in which the agent is concerned, irrespective of the amount of the turnover of such business being less than the minimum specified
in Section 3, Sub-section (3).
(iii) Without prejudice to his other rights, any agent of a nonresident who is assessed under this Act in respect of the business of such non-resident
may retain out of any moneys payable to the non-resident by the agent, a sum equal to the amount of the tax or taxes assessed on or paid by the
agent.
(iv) Where no tax would have been payable by the non-resident in respect of his business in the State by reason of the turnover thereof being less
than the minimum specified in Section 3, Sub-section (3), he shall be entitled to have the amount of the tax or taxes paid by his agent, refunded to
him on application made to the assessing authority concerned, or where more than one such authority is concerned, to such one of the authorities
as may be authorised in this behalf by the State Government by general or special order.
(v) such application shall be made within twelve months from the end of the year in which payment was made by or on behalf the nonresident of
the tax or taxes or any part thereof.
It is clear from the provisions of this section that it is really the non-resident principal that is assessed to tax and the agent is deemed to be a
dealer in respect of his business as a convenient representative for assessment, levy and collection of the tax. The assessment is with reference to
the sales on the principal''s account and the rates of tax are those applicable to him. The agent is given a statutory right to retain moneys of the
principal in his hands a sum equal to the tax assessed or paid. u/s 14-A (ii) the agent is made liable to pay the tax irrespective of the fact whether
the amount of turnover of the business was less than the minimum specified in Section 3 (3) or not. In case the turnover happens to be less than the
minimum specified in Section 3 (3) the principal is given a right to obtain a refund u/s 14-A (iv). The reason for (the rule) excluding the provisions
of exemption u/s 3 (3) while assessing the agent appears to be that it might happen that the non-resident principal would be employing more than
one agent and if the agents were allowed to take advantage of the provision as to minimum turnover in Section 3 (3) the principal would be able to
evade taxation by entrusting his sales to several agents each to the limit of a minimum turnover. This aspect of the matter is referred to in an
unreported judgment of this Court in T. R. C. Nos. 38 to 40 of 1955 which held that Sub-section (ii) of Section 14-A has been designed to
counteract this possibility. This is consistent only with the principal and not the agent being liable to pay the tax. In the case of a resident known
principal Section 8 provides conditions for directly assessing him; in the case of a non-resident principal doing business in the State, a machinery
within the State is necessary for assessment and the agent is deemed to be the dealer. But the tax is levied on the principal''s business. The
assessment and the levy of tax being thus on the principal it is clear on principle he should be enabled to obtain all those exemptions that he would
be entitled to obtain had he been resident in the State. Ramaswami, J., was inclined to take the view that Section 14-A (iv) should be read so as to
enable the principal to obtain a refund even in cases not covered by Section 14-A (ii) and there being thus a provision for refund Section 14-A by
implication disentitled the agent from getting any exemption, it being left to the principal to obtain a refund of the tax paid. We regret we are unable
to agree. Section 14-A (ii) deals only with the case of assessment of the agent without regard to the minimum turnover provided for in Section 3
(3) and Section 14-A (iv) enables the principal to apply for and obtain refund only in such a case.
The matters dealt with u/s 2 (i) and Section 5 (v) relate to other exemptions from taxation and in the absence of a provision like Section 14-A
(ii) in regard to such exemptions there is no scope for assessment in respect of agricultural produce or tea intended for and exported to another
State. There is nothing in Section 14-A or in any other provisions of the Act to tax the exempted goods in the hands of the agent leaving it to the
principal to obtain refund. In the decision in T. R. C. Nos. 38 to 40 of 1955, to which reference has been made already, the learned Judges held
that there is no provision anywhere in the Act or in the rules by which the non-resident principal might be entitled to obtain a refund of the amounts
covered by the exemption under the definition of ""turnover"" in Section 2 (i) but collected from the agent. In that case the question arose whether a
commission agent who acted for a non-resident principal could claim on behalf of his principal exemption from paying tax on business in respect of
an agricultural produce sold by the agent but which was grown by the principal on his land, and the learned Judges held that he could. Referring to
Section 14-A the learned Judges observed :
In our opinion this is a clear indication that though for the purpose of the machinery of collection the resident agent is treated as an assessee the
person whose tax liability is really sought to be reached is the non-resident principal and that is the entire ratio of the right to refund granted by
Sub-section (iv). This aspect is emphasised by the provision in Sub-section (iii) by which the resident agent is entitled statutorily to retain out of the
moneys of his principal the amount which he paid by way of tax. These features, in our opinion, ought to be taken into account in construing the
scope of the fiction created by Sub-section (i) by which the resident agent is treated as a dealer. If it is really a vicarious liability that is fastened on
the resident agent the person who really and ultimately has to pay the tax being the non-resident principal it would be clear that the turnover in the
hands of the agent who is by statutory fiction deemed to be the dealer, cannot be held to include what is statutorily exempted from the computation
of that turnover. The turnover of the agent dealer is the aggregate of the prices realised by the sales of the commodities belonging to the principal.
This agent might be acting for several principals. He is deemed to be ''as many dealers'' as there are ''non-resident principals'' for whom he is
dealing. If, therefore, there is an exemption attaching to the goods of one or more of these principals whose sale is included in that turnover it
stands to reason that that exemption would be attracted to the sale of such goods by this agent for really it is the principal''s goods that he sells and
it is the sale of those goods that occasions the tax liability.
The learned Judges held that the absence of any provision like section I4-A(iv) in regard to the assessment of the turnover of an agent is
indicative that the exclusion was intended to be operative even in the first instance while the tax liability of the agent was being ascertained. We
entirely agree with the reasoning and conclusion of the learned Judges. Section 14-A not having provided for a refund in cases other than that dealt
with under Sub-section (iv) of the section cannot be used to imply a right in the taxing authority to tax the whole of the sales regardless of the
exemptions. We, therefore, hold that the appellant would be entitled to the exemptions u/s 2 (i) in regard to the sale of rubber during the period of
assessment and of tea till 1st January, 1948.
The second question relates only to the exemption claimed u/s 5 (v). In that case the appellant should prove further that the sale of tea was for
delivery outside the State and that the delivery was actually made outside the State. Although the appellant pleaded that he was entitled to the
exemption u/s 5 (v) no evidence was let in in regard to the place of delivery. The learned Judge found, a finding which is not challenged by the
learned advocate for the appellant, chat the property in the goods passed to the buyer at Madras. The place where property in the goods passed
to the buyer need not necessarily be the place of delivery. The place of delivery is regulated by agreement between the parties. Benjamin in his
book on Sale stated at page 685 :
There is no branch of law of sale more confusing than that of delivery. The word is unfortunately used in very different senses and these should be
borne in mind. The word delivery is sometimes used with reference to the passing of the property in the chattel; sometimes to the change of its
possession. In a word it is used in turn to denote transfer of title or transfer of possession.
The learned author then proceeds to point out how even in regard to possession it is employed at the stage of the formation of the contract and
at the time of performance and how that possession during performance of the contract may be constructive or actual. One of the points for
determination in this connection is as to what is meant by actual delivery in Section 5 (v). One view is that actual delivery is physical or manual
delivery of the goods. The other view which is contended for by the respondent is that the words ""actual delivery"" in Section 5 (v) are used as
contra-distinguished from the intention to deliver and should include symbolical delivery. The learned Government Pleader, therefore, argued that
on the finding of the learned Judge, there was a transfer of the bill of lading at Madras which should be deemed to be transfer of the goods at
Madras. He relied in this connection upon a decision in Wrighton v. McArthur and Hutchinsons Ltd. [1921] K.B. 807 In that case the defendant
company, in order to secure the plaintiff against loss set aside certain specified goods in two rooms in the defendant''s premises which were locked
up and the keys were handed over to the plaintiff, no other goods being in those rooms. It was held that possession of the goods passed to the
plaintiff by the delivery of the keys of the rooms in which they were locked up, notwithstanding that those two rooms were on the defendant''s
premises. That case merely held that possession could be given symbolically and is of no assistance to show that when a statute expressly requires
delivery of actual possession symbolical possession would be sufficient. The decision reported in A.M. Mohammed Ishok Vs. The State of
Madras, was next relied on. That case was concerned with the interpretation of Article 286 of the Constitution under which a sale shall be deemed
to have taken place in the State in which the goods were actually delivered as a result of such sale for purposes of consumption in that State
notwithstanding the general law relating to the passing of property in the goods. There was a contract for the sale of oil which was to be filled in
drums supplied by the foreign buyer. The goods were delivered to the carrier within the State of Madras with railway receipts in the name of the
buyers as consignees. Though ultimately the goods were sent to Cochin State the passing of the property in the goods was complete within the
State of Madras. The learned Judges held that actual delivery of the goods to the buyer was within the State of Madras and the consumption in the
Cochin State cannot imply a second delivery there and that therefore the sales were liable to tax. In this case the goods were actually delivered
within the State of Madras and we are not able to appreciate how it can advance the case of the respondent. It has been said that a c.i.f. contract
is an agreement for the sale of goods to be performed by the delivery of documents and not a mere sale of documents. The law as to passing of
property in the goods by indorsement of a bill of lading has been stated in Sanders v. Maclean (1883) 2 Q.B. 327 by Bowen, L.J., as follows:
A cargo at sea while in the hands of the carrier is necessarily incapable of physical delivery. During this period of transit and voyage the bill of
lading by the law merchant is universally recognised as its symbol and the indorsement and delivery of the bill of lading operates as symbolical
delivery of the cargo. Property in the goods passes by such indorsement and delivery of the bill of lading whenever it is the intention of the parties
that the property should pass just as under similar circumstances the property would pass by an actual delivery of the goods. And for the purpose
of passing such property in the goods and completing the title of the indorsee to full possession thereof the bill of lading until complete delivery of
the cargo has been made on shore to someone rightfully claiming under it remains in force as a symbol and carries with it not only the full ownership
of the goods but also all rights created by the contract of carriage between the shipper and the ship owner. It is a key in the hands of rightful owner
intended to unlock the door of the warehouse floating or fixed in which the goods may chance to be.
These observations merely indicate how delivery can be effected in a c.i.f. contract. Whether all the contracts were c.i.f. contracts and what
kind of delivery was intended or given would depend on the evidence in regard to the transactions. The question may have also to be decided after
taking evidence whether in the interpretation of Section 5 (v) in relation to a c.i.f. or f.o.b. contract actual delivery means actual delivery of the bill
of lading. The distinction between constructive and actual delivery has been adverted to in the dissenting judgment of Venkatarama Aiyar, J., in
Bengal Immunity Co. v. State of Bihar (1955) 2 M.L.J. 168, who observed at page 285 as follows :
The fact is that while for some purposes delivery to the common carrier is treated as delivery to the purchaser, there is delivery in fact and in its
popular sense only when the purchaser obtains possession of the goods and it is this that is connoted by the words ''actual delivery''. When Section
51(1) (Sale of Goods Act) refers to delivery to the buyer or his agent, it refers to actual delivery, and delivery to common carrier is regarded as
constructive, having regard to Section 39(1). The section, it will be noticed, proceeds on the footing that a common carrier is not the agent of the
buyer with reference to actual delivery. He is the agent of the purchaser for transmission of the goods to him....It must accordingly be held that
expression ''actual delivery'' in the explanation to Article 286(1)(a) means delivery of the goods to the purchaser or his agent, and delivery to the
common carrier is not actual delivery.
The importance of this question does not appear to have been realised when the case was presented at trial. The contracts have not been
produced and no evidence was tendered as to in whose name was the bill of lading taken and as to whether the banker at Madras was the agent
of the buyer or seller. The learned Judge has stated in his judgment that goods ""were shipped f.o.b. Cochin and c.i.f. foreign ports"" and that the
goods were deliverable in foreign countries. Having regard to the large number of transactions all of which may not be of the same pattern,
evidence of a more specific kind with particular reference to the place where the goods were delivered would be necessary before the claim for
exemption can be satisfactorily adjudicated. Two questions may arise: (1) What was the kind of delivery contemplated and effected by the parties
and this will depend to a large extent on the nature of the contract between the parties. (2) In view of the fact that Section 5 (v) contemplates
actual delivery, questions may arise whether in f.o.b. and c.i.f. contracts a delivery of the bill of lading would amount to actual delivery and where in
point of fact was the delivery intended. In the absence of further evidence it is not possible to decide as to where delivery was intended and where
it was actually made and what exactly was the kind of delivery that was bargained for. None of the parties appear to have realised at the time of
trial the necessity for the evidence on these matters. The burden of proof is no doubt on the appellant and but for the fact that the entire case
proceeded on the footing that the only relevant consideration was the place of passing of property, we would have been reluctant to give a further
opportunity to the appellant to let in evidence on the question of delivery. In the circumstances of this case we consider that in the interests of
justice an opportunity should be given to the parties to let in evidence on the question as to whether the appellant has made out a case for
exemption u/s 5 (v) of the Madras General Sales Tax Act. The appellant''s right to exemption in regard to sales of tea prior to 1st January, 1948,
and of rubber during 1947-48 and 1948-49 is declared and his claim in respect of the assessment for the year 1950-51 is dismissed. The suits will
be remanded to the Original Side for fresh disposal in the light of the above observations. There will be no order as to costs.