- Bookmark
- Share
- CaseIQ
Girdharilal Jivanlal Maheswari v. The Assistant Commissioner Of Sales Tax, Nagpur
Legal Opinion Summary — Kotval, J.
Factual and Procedural Background
Three assessment proceedings were initiated against the petitioner for three different periods: (1) 22 October 1949 to 9 November 1950; (2) 10 November 1950 to 30 October 1951; and (3) the year 1951–1952. The petitions (including Miscellaneous Petitions Nos. 130, 131 and 132 of 1956) challenged orders of the Sales Tax Officer, Akola, and the Assistant Commissioner of Sales Tax, Nagpur, which had included the petitioner's receipts from sale of agricultural produce within his taxable turnover.
The petitioner owned and cultivated 542 acres and 32 gunthas across eight villages in Akot tahsil, Akola district; about 440.77 acres were sown with cotton, groundnuts and grain. After meeting personal consumption needs, the petitioner sold the surplus produce. The amounts realised from these sales (specified in the opinion for each assessment period) were recorded in the petitioner's accounts and were included by the Sales Tax Officer in computing total turnover for sales-tax assessments.
Separately, the petitioner carried on a registered business as a sole proprietor under the name "Messrs Ramsukhdas Girdharilal" dealing in coal, machinery, cotton, cotton-seed, groundnut and cotton bales; he held a dealer registration certificate under the Central Provinces and Berar Sales Tax Act, 1947.
The petitioner objected to the inclusion of receipts from his agricultural accounts in taxable turnover. His objections were rejected by the Sales Tax Officer and, on appeal, by the Assistant Commissioner of Sales Tax. The present petitions challenged those adverse decisions.
Legal Issues Presented
- Whether the sale of agricultural produce by an agriculturist (the petitioner) amounts to "carrying on the business of selling or supplying goods" within the meaning of the definition of "dealer" in s. 2(c) of the Central Provinces and Berar Sales Tax Act, 1947, thereby making such sales subject to the Act.
- Whether amounts realised by the petitioner from sales of his agricultural produce (as recorded in specific agricultural accounts) could properly be included in his taxable turnover for sales-tax assessment, given that he was registered as a dealer for an unrelated business.
- Who bears the burden of proof to show that a person engages in the business of selling or supplying goods (i.e., whether the taxing authority must prove the intention to carry on such a business).
Arguments of the Parties
Petitioner's Arguments
- The petitioner was principally an agriculturist who cultivated land and sold surplus produce to meet his requirements and earn income from the land; such activity did not necessarily constitute carrying on a business of selling or supplying agricultural produce.
- The petitioner maintained separate accounts for his agricultural activities ("Belgaon Kheti account" and "Cotton and grain account from the Kheti") and for his other commercial business; the income from agriculture could be clearly separated from his business income.
- There was nothing to show that the lands were acquired or cultivated with the primary intention of carrying on a business of selling or supplying agricultural produce.
- The taxing authorities bore the burden of proving the essential ingredient — namely, the petitioner's intention to carry on a business of selling or supplying agricultural produce — and they had failed to discharge that burden.
Respondents' Arguments
- The Sales Tax Officer's expressed view was that a person who carries on the business of selling or supplying goods is a dealer and is liable to pay sales tax even if, in the course of such business, he sells agricultural produce of his own fields; what matters is that the person meets the statutory definition of "dealer" in section 2(c).
- The Assistant Commissioner of Sales Tax took the view (referring to rule 7(2)(i) of the Sales Tax Rules) that "even agriculture can be a business", and treated the petitioner (who was already registered as a dealer for other trade activities) as liable to assessment in respect of sales of agricultural produce.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Smith v. Anderson, (1880) 15 Ch. D. 247 (Jessel M.R.) | Discussion of the meaning of the word "business" and the distinction between occasional transactions and carrying on a business (continuity and primary intention to make it a business). | The Court cited Jessel M.R.'s observations to support the proposition that merely owning property and making occasional sales does not necessarily amount to carrying on a business of selling; continuity and primary intention are relevant. |
| Bombay State v. Ahmedabad Education Society, (1956) 58 Bom. L.R. 572 (Division Bench) | Construction of the definition of "dealer" in s. 2(c) of the Bombay Sales Tax Act — emphasising that the activity must be "carrying on the business of selling or supplying goods", not merely occasional selling. | The Court expressly agreed with the reasoning in that decision and relied on it to hold that sale alone does not make a person a "dealer"; the activity must amount to carrying on a business of selling or supplying goods. |
| Raja Visheshwar v. Province of Bihar, [1951] 2 S.T.C. 129 | Observation that an owner of agricultural land who cultivates and sells excess produce does not, by mere sale of excess, necessarily carry on the business of selling produce. | The Court cited Manohar Lall J.'s observations to illustrate that selling surplus agricultural produce does not make an agriculturist a dealer; the decision was treated as directly pertinent to the facts before the Court. |
| Commr. of Inc. Tax, Burma v. Kokine Dairy, Rangoon, (1938) 6 I.T.R. 502 | Authority referred to in Raja Visheshwar concerning a dairy business operated by an assessee owning agricultural lands. | The Court noted this earlier authority as cited in Raja Visheshwar to support the position that owning and cultivating land and selling produce does not automatically amount to carrying on a business of selling produce. |
Court's Reasoning and Analysis
The Court began by identifying the statutory definitions that govern the matter: the incidence of taxation under s. 4(1)(a) of the Act, the definition of "sale" in clause (g) of s. 2, the definition of "goods" in clause (d) of s. 2, and the definition of "dealer" in clause (c) of s. 2. It was accepted that the petitioner's agricultural produce were "goods" and that he sold them; the crucial legal question was whether those sales rendered him a "dealer" under the Act.
The Court analysed the statutory definition of "dealer" and emphasised that it requires more than the mere act of selling: the person must be carrying on the business of selling or supplying goods. Thus the inquiry is whether the seller engages in the activity of selling or supplying the particular goods as a business.
In construing "carrying on the business", the Court relied on authoritative decisions. It cited Jessel M.R.'s observations in Smith v. Anderson to show that sporadic or incidental sales do not necessarily make a person a dealer unless there is continuity and an intention to make it a business. The Court also referred with approval to the Division Bench decision in Bombay State v. Ahmedabad Education Society, which held that a person must "carry on the business" of selling or supplying goods for the definition of dealer to apply.
Applying these principles to the facts, the Court noted: - The petitioner owned and cultivated substantial lands and sold surplus produce; these activities constituted agriculture and produced income. - The petitioner also carried on a distinct registered commercial business; the agricultural accounts were maintained separately from his business accounts, a fact admitted by the Assistant Commissioner. - There was no evidence that the petitioner acquired or cultivated the lands with the primary intention of carrying on a business of selling or supplying agricultural produce.
The Court emphasised the allocation of burden in taxation matters: the taxing authority must prove the necessary juridical facts that justify taxation. In this case, the essential ingredient missing from the taxing authorities' case was proof of the petitioner's intention to carry on a business of selling or supplying agricultural produce. Without such proof, the petitioner could not be classed as a "dealer" for the agricultural turnover.
The Court also considered the practical consequences of the Assistant Commissioner's approach, observing that treating mere agriculture as necessarily amounting to a business of selling could lead to taxation of every agriculturist, which the Court was convinced was not Parliament's intention under the Act.
Holding and Implications
Holding: The Court allowed the petitions and quashed the orders of the Sales Tax authorities in all three cases. It held that the income derived from the two agricultural accounts ("Belgaon Kheti account" and "Cotton and grain account-from kheti") could not be included in the petitioner's taxable turnover because the petitioner was not a "dealer" within s. 2(c) of the Sales Tax Act in respect of those agricultural sales.
Direct consequences ordered by the Court (as stated in the opinion): - The respondents were ordered to bear the petitioner's costs. - Counsel's fee awarded: Rs. 50. - The petitioner was entitled to a refund of the outstanding amounts of his securities.
Implications: The opinion limits the scope of sales-tax liability by affirming that the sale of agricultural produce by an agriculturist does not automatically make that person a "dealer" for sales-tax purposes; inclusion of such receipts in taxable turnover requires proof that the seller engaged in the sale as a business. The opinion contains no assertion that it establishes a new statutory principle beyond applying existing definitions and precedents; its direct effect is to relieve the petitioner of tax liability on the specified agricultural receipts and to order costs and refunds as above.
Kotval, J.:— The order in this petition shall also govern the decision of Miscellaneous Petitions Nos. 130 and 131 of 1956, all by the same petitioner. They are directed against the orders of the respondents, the Sales Tax Officer, Akola, and the Assistant Commissioner of Sales Tax, Nagpur.
2. Three cases for three different periods, viz. from October 22, 1949 to November 9, 1950, from November 10, 1950 to October 30, 1951, and for 1951–1952, were commenced against the petitioner in order to assess him to sales tax. The three cases were disposed of by respondent No. 1 (the Assistant Commissioner of Sales Tax) by a common order passed in Sales Tax Appeal No. 5060/1-A-6, impugned in Miscellaneous Petition No. 131 of 1956. The facts are not in dispute. The petitioner was an occupant of 542 acres and 32 gunthas of land in eight villages in Akot tahsil of Akola district. In 440.77 acres of land he had sown and raised crops of cotton, groundnuts and grain. After meeting his personal requirements, the balance of the crops were sold by the petitioner, during the three periods under assessment,
For Rs. 69,442-11-3 (subject-matter of M.P No. 130 of 1956) For Rs. 29,423-12-6 (subject-matter of M.P No. 131 of 1956) For Rs. 88,602-1-3 (subject-matter of M.P No. 132 of 1956)
3. The petitioner was also carrying on a business as a sole proprietor under the name and style of “Messrs Ramsukhdas Girdharilal” in coal, machinery, cotton, cotton-seed, groundnut and cotton bales. In respect of this business, he was registered as a dealer under the provisions of the Central Provinces and Berar Sales Tax Act, 1947, and his certificate of registration (No. 682.AKT), dated October 22, 1947, has been exhibited in each case.
4. In the assessment proceedings the Sales Tax Officer, in computing the total turnover of the petitioner, took into account not merely the turnover of the business referred to above, but also the amounts realized by the sale of his agricultural produce i.e amounts mentioned in paragraph 3 above. These amounts in each case were culled from two accounts, among others, maintained by the petitioner, namely. (1) the “Belgaon Kheti account” and (2) the “Cotton and grain account from the Kheti,”
5. There is no dispute, as to the amounts involved or the sources of those amounts. It is accepted by both parties that the turnover from the two accounts mentioned above was in respect of the sale of produce of agricultural lands cultivated by the petitioner. The petitioner objected to the inclusion of the amounts received by him from sale of his agricultural produce and his objection was concurrently overruled by the Sales Tax authorities.
6. The view of the matter which the Sales Tax Officer (respondent No. 2) took is best expressed in his own words as follows:—
“A person carrying on business of selling or supplying goods is a dealer and is liable to pay sales tax oven if in the course of such business of selling or supplying such goods, he sells the agricultural produce of his own fields. What is important is that he must be a dealer as defined in section 2(c) of the Sales Tax Act.”
7. Since the petitioner was already registered as a dealer, upon this view, the Sales Tax Officer had no difficulty in assessing the petitioner to sales tax in respect of the agricultural produce of his fields.
8. In appeal the Assistant Commissioner of Sales Tax (respondent No. 1) in his order in Sales Tax Appeal No. 5060.I-A-6 of 1954 referred to r. 7(2)(i) of the Sales Tax Rules and came to the conclusion that “even agriculture can be a business.”
9. Turning to the provisions of the Act, the incidence of taxation is defined in s. 4(1)(a) as follows:—
“In Madhya Prndesh excluding the merged territories every dealer whose turnover during the year preceding the commencement of this Act exceeded the limits specified in sub-section (5) shall be liable to pay tax in accordance with the provisions of this Act on all sales effected after the commencement of this Act.”
10. By virtue of cl. (g) of s. 2, the word “sale” means transfer of property in goods, and the expression “goods” has been defined in cl. (d) of that section as follows:—
“‘goods’ means all kinds of movable property other than actionable claims, stocks, shares, securities or Government stamps and includes all materials, articles and commodities, whether or not to be used in the construction, fitting out, improvement or repair of immovable property.”
11. In cl. (c) the word “dealer” has been defined as follows:—
“‘dealer’ means any person who, whether as principal or agent, carries on in Madhya Pradesh the business of selling or supplying goods, whether for commission, remuneration or otherwise and includes a firm, a partnership, a Hindu undivided family and the Central or a State Government or any of their departments and includes also a society, club or association soiling or supplying goods to its members.”
12. The explanation to this clause need not detain us here.
13. There can be no dispute that the produce of the petitioners fields were goods or that he sold them as such. The question which falls to be decided is whether the petitioner was a “dealer” in respect of these goods.
14. On a reading of the provisions of the Act it appears to us that the intention of the Act was in all cases to tax the sale or purchase of goods in Madhya Pradesh which are transferred in the course of “the business of selling or supplying goods.” This is clear from a reading of the definition of a “dealer” in cl. (c) of s. 2, and therefore, the further question that arises is whether in the circumstances of the present case the sale of the agricultural produce of his fields by the petitioner could amount to the carrying on of a business of selling or supplying those goods. If it does the petitioner would be a dealer and liable to tax; if not; he cannot be held to be a dealer and would be exempt from tax.
15. Bearing in mind the definition of “dealer” set out in the Act what has to be established then is not merely that a person sells or supplies any goods but that he engages himself in the business of selling and supplying the particular goods. In other words, it must be shown that he carries on the activity of selling or supplying goods and that he does so as a business. Can it be said that an agriculturist who owns lands., cultivates them and sells their produce must necessarily be regarded as carrying on the business of sale or supply of goods? We may refer to the decision of Jessel M.R in Smith v. Anderson . 1880 15 Ch. D. 247. in which he has discussed the meaning of the word ‘business.’ In the course of his judgment the learned Master of the Rolls observed (p. 260):
“…For instance, a man who is the owner of offices, that is, of a house divided into several floors and used for commercial purposes, would not be said to carry on a business because he let the offices as such; but suppose a company was formed for the purpose of buying a building, or leasing a house, to be divided into offices, and to be let out, should not we say, if that was the object of the company, that the company was carrying on business for the purpose of letting offices, or was an office-letting company, trying it by the use of ordinary colloquial language? The same observation may be made as regards a single individual buying or selling land, with this addition, that he may make it a business, and then it is a question of continuity. A man occasionally buys and sells lands, as many land owners do, and nobody would say he was a land-jobber or dealer in land, but if a man made it his particular business to buy and sell land to obtain profit, he would be designated as a land-jobber or dealer in land.”
16. Though the judgment of Jessel M.R was not accepted in the Court of Appeal, it was not reversed on this part of his observations but on a different aspect of the case. The observations which we have quoted above would thus lend support to what we have said above.
17. In a recent case decided by a Division Bench of this Court—Bombay State v. Ahmedahad Education Soc. . 1956 58 Bom. L.R 572.—the Court was called upon to construe the definition of ‘dealer’ in s. 2(c) of the Bombay Sales Tax Act, which for the purposes of the matter before us is identical in terms with that contained in cl. (c) of s. 2 of the Central Provinces and Berar Sales Tax Act, 1947. The judgment of the Court was delivered by the learned Chief Justice who observed (p. 575):
“It is clear from the definition of a dealer that it is not merely the act of selling as defined in the Act which constitutes a person a dealer. The activity which the person must indulge in is not merely the activity of selling in the sense of transferring property in goods, but it must be the activity of carrying on the business of selling or supplying goods. What the Legislature has emphasised is not the act or activity of selling but the act or activity of carrying on the business.”
18. We are in respectful agreement with the view of the learned Chief Justice. It will thus be seen that a person does not necessarily fall within the definition of a “dealer” contained in the Act merely because he sells or supplies commodities, and in order to bring him within the definition it is additionally necessary to show that he carries on those activities as his business.
19. There is one more decision to which one may usefully refer and that is Raja Visheshwar v. Province of Bihar . [1951] 2 S.T.C 129, 139, 140.. In the course of his judgment Manohar Lall J. observed (p. 139):
“In the present case before me all that I find is that the plaintiff owns agricultural zirat lands which he cultivates and from which he produces the goods. This is one operation. Now, he cannot consume all the goods and he must sell the excess if he does not require all for his own consumption. How can the mere fact of selling the excess make the plaintiff carry on the business of selling the produce? See the case of Comr. of Inc. Tax, Burma v. Kokine Dairy, Rangoon . 1938 6 I.T.R 502. where a dairy business was being carried on by an assesses owning agricultural lands.”
20. Like the case before Manohar Lall J., the present case also relates to the sale by an agriculturist of the produce from his lands and therefore the observations of the learned Judge which are quoted above are very pertinent.
21. We may also point out that while an agriculturist who cultivates his lands no doubt engages himself in the business of agriculture, that is not the same thing as engaging in the business of sale or supply of agricultural produce. Again, an agriculturist may sell the produce from his lands but this activity cannot by itself be regarded as a business of sale or supply of agricultural produce; nor again would the two sets of activities taken together be said to constitute such a business, unless of course his primary intention in engaging himself in such activities was to carry on the business of sale or supply of agricultural produce. As would appear from the observations of Jessel M.R an owner of property is entitled to earn an income therefrom, and merely because he has engaged himself in certain activities which enable him to earn that income, it cannot be said that he has engaged himself in a particular business. Thus, where an agriculturist carries on certain activities for the purpose of earning an income from his lands, he does not necessarily become a dealer under the definition in s. 2(c) of the Sales Tax Act.
22. The petitioner in the instant case owns considerable lands which he cultivates and gets agricultural produce from them. He has also a business. The accounts of the two are separately maintained (which fact the Assistant Commissioner admits in his order in appeal No. 5060.I-A-6 of 1954) and the income from agriculture can be clearly separated from the income of his other business. There is nothing to show that the petitioner acquired these lands with a view to doing “the business of selling or supplying” agricultural produce. According to him, he is principally an agriculturist who also deals in cotton, coal, oil-seeds and groundnuts. No doubt, he was carrying on agricultural business, but prima facie that was for the purpose of earning income from his fields. There is nothing in the orders of the Sales Tax authorities to show that the lands were acquired with the primary intention of doing business of selling or supplying agricultural produce. Unless it is established that a person engages himself in the business of selling or supplying goods, he would not fall within the definition of “dealer” contained in s. 2(c) of the Act, We do not say that in a given case the cultivation of land may not be undertaken with the object or purpose of carrying on a business of selling or supplying agricultural produce, but, as stated, in the instant case there is nothing from which we can so conclude. In all cases of taxation the burden of proving the necessary ingredients laid down by law to justify taxation, is upon the taxing authority, and in the instant case they have failed to prove the essential ingredient, viz. the intention of the petitioner to carry on a business of selling or supplying agricultural produce.
23. Were we to hold, as the Assistant Commissioner has held, that the mere carrying on of agriculture is itself a business of selling or supplying agricultural produce, we should be throwing the door open for the taxation of every agriculturist to sales tax. We are convinced that was not the intention of the Act, nor do its provisions justify such an interpretation. The Act was only intended to bring within the ambit of its provisions business activities of selling and supplying goods and none other. We are unable to hold that the petitioner when he cultivated his fields and sold the produce therefrom was carrying on such business. Therefore he was not a “dealer” under the Sales Tax Act and could not become liable to pay sales tax so far as his turnover from agriculture was concerned.
24. For these reasons, we allow the petitions, quash the orders of the Sales Tax authorities in all the three cases and hold that the income derived from the two accounts entitled “the Belgaon kheti account” and “the Cotton and grain account-from kheti” cannot be included in the petitioner's taxable turnover.
25. The respondents shall bear the petitioner's costs. Counsel's fee Rs. 50/-. The petitioner is entitled to the refund of the outstanding amounts of his securities.
26. Petitions allowed.
Alert