1. This is a revision case filed by the State of Madras against the order of the Sales Tax Appellate Tribunal in T.A. No. 297 of 1962. The assessee is the Tiruchengode Co-operative Marketing Society, and we are told that it has got nearly 15,000 members on its rolls. For the year 1959-60 the taxable turnover of the assessee as determined by the Commercial Tax Officer, Salem, was Rs. 12,49,000 odd. The assessee appealed to the Appellate Assistant Commissioner, Salem, claiming that a sum of Rs. 12,06,000 odd represented sales of agricultural produce of its members and that those sales were entitled to exemption from assessment under the proviso to Section 2(r) of the Madras General Sales Tax Act, 1959. The Appellate Assistant Commissioner negatived the claim for exemption. The assessee then appealed to the Sales Tax Appellate Tribunal disputing the same turnover on the ground that it was entitled to exemption under the proviso to Section 2(r). In the grounds of appeal to the Appellate Tribunal, the assessee-Society contended :

We are only acting on behalf of the agriculturist who forms part of the institution and market his produce to his best advantage through the merchants and as such we are not directly undertaking any purchases or sales. We are neither sellers nor purchasers so far as these transactions are concerned. The agriculturist is paid on the spot, while the merchant is allowed credit accommodation, for payment of sale proceeds to the Society at a later date. As we are paying in advance the agriculturist on the spot and collect his sale proceeds from the merchants at a later date, the sale turnover effected by the agriculturist member finds a place in our accounts. They will not in law amount to purchases or sales by us. Thus, the sale proceeds represent actually the amount of sales effected by the agriculturist member and not by us, since we are neither purchasers nor sellers in the above transactions.

2. The Tribunal also, in its judgment, referred to the above grounds of appeal and has given an extract from a typical transaction in which one of the agriculturist members of the Society was concerned, which is illustrative of the transactions making up the disputed turnover. There is a receipt given by the Society at the time when the agriculturist brings his produce to the Society's godown, and the receipt reads that the sale should not be effected without the consent of the member. The next day, the commodity covered by the receipt was sold to a purchaser and the agriculturist, who brought the goods to the godown of the Society on the previous day, had signed in the bid list relating to the sale of the same produce. The Appellate Tribunal, however, did not determine the nature of the transaction revealed by the documents, and in the light of the contentions put forward by the Society, namely, that there was no sale by the Society at all in the particular cases, but what the Society did, in fact, was to secure for the agriculturist member the most advantageous price for his produce and paid the agriculturist member on the spot of the sale by auction, the highest price realised by the auction, but at the same time it accommodated the merchant, who made the highest bid for the agriculturist's produce, by giving him a loan for the amount of the sale to be debited against him and recovered later on. It has yet to be determined, on a proper appraisal of the data above-mentioned together with the by-laws of the Society, whether the disputed transactions were really agency sales for the agriculturist effected by the Society, or whether they were only transactions where the Society helped the agriculturist to get the most advantageous price for his goods and brought him into contact with the buyer who offered the most advantageous price and further paid at the time of the sale full cash payment to the agriculturist, while treating the amount as a loan to the buyer merchant.

3. The Sales Tax Appellate Tribunal remanded the case for fresh disposal. It dealt with the meaning of the proviso to Section 2 (r) granting exemption to the proceeds of the sale of agricultural produce, and gave certain directions on this point of law, to be borne in mind by the Appellate Assistant Commissioner, in the disposal of the case afresh after remand. The State of Madras, who have filed this revision before us, challenge the interpretation given by the Tribunal to the proviso and their contention that this Court should give a proper lead to the assessing authorities in the matter of making assessment in these cases after granting exemption under the proviso to Section 2 (r).

4. Section 2 (r) reads:

'Turnover' means the aggregate amount for which goods are bought or sold, or supplied or distributed, by a dealer, either directly or through another, on his own account or on account of others whether for cash or for deferred payment or other valuable consideration, provided that the proceeds of the sale by a person of agricultural or horticultural produce, other than tea, grown within the State by himself or on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover.

5. Prima facie, the language of the proviso implies that the person who is entitled to get exemption should be a dealer selling the concerned agricultural produce and that the agricultural produce in question should have been grown within the State by the aforesaid dealer or grown on any land in which the aforesaid dealer has an interest, whether as owner, etc. This aspect of the proviso has been stressed in the Bench decision of this Court in Kanyakaparameswari etc. Oil Mill v. State of Madras [1955] 6 S.T.C. 38, which dealt with Section 2 (i) of the Madras General Sales Tax Act, 1939, which is in similar terms to Section 2 (r) of the 1959 Act. At page 40 of the report, the Bench observed :

The pronouns 'himself, 'he' and 'his' in the proviso to Section 2 (I) obviously all refer to a 'person' as mentioned in the proviso to Section 2(i), i.e., the person who sells the produce grown by himself or grown on any land in which he has an interest. We have already pointed out that the pronoun 'his' in the expression 'his turnover' can refer only to the dealer. That by itself should be sufficient to hold that all the three pronouns 'himself, 'he' and 'his' in the proviso to Section 2 (I) also refer to the dealer mentioned earlier in Section 2 (I).

6. The Bench, therefore, held that sales by a producer, that is, by a person who grows agricultural or horticultural produce on his own land or any land in which he has an interest, will not fall within the scope of Section 2 (I), unless the producer is also a dealer.

7. In Konduri Buchirajalingam v. State of Hyderabad [1958] 9 S.T.C. 397, the Supreme Court dealing with an analogous 'provision, namely, Section 2 (m) of the Hyderabad General Sales Tax Act, 1950, at page 402, observed :

The main portion of the definition (of dealer) however, shows that 'turnover' only refers to the turnover of a dealer and not of an agriculturist. Therefore, the proviso deals with a person who is both an agriculturist and a dealer and it excludes the proceeds of the sale by him of his own agricultural produce from his turnover as a dealer in goods.

8. Again, in K. Satyanarayana & Co. v. Sales Tax Officer [1958] 9 S.T.C. 591, the Andhra Pradesh High Court dealing with Section 2 (m) of the Hyderbad Sales Tax Act, 1950, observed at page 592, that the proviso to Section 2 (m) implies that the agricultural produce must be grown by the dealer himself or must be grown on land in which he has an interest, whether as owner etc.

9. In Nagarajan v. State of Madras [1959] 10 S.T.C. 605 at p. 610, where exemption under section 2 (i) of the 1939 act was sought by a person who sold sugar-cane to the Nellikuppam Factory, this Court observed :

Obviously the exemption for which the proviso to Section 2 (I) provides comes into play only if the sales are otherwise taxable. The taxability of the sales depends on the question, whether the sales were by a dealer as defined by the Act. A sale even of agricultural or horticultural produce but with nothing more is not enough to establish that the seller is a 'dealer'.

10. This decision, no doubt, lays down a further test to the application of the proviso that the sale by a person of agricultural or horticultural produce would be exempt only if the sale was by a dealer; not every sale by an agriculturist of his produce would be a sale by a dealer. Such a sale must be, for the purpose of the Sales Tax Act, a sale in the course of business, and where an agriculturist is merely selling produce surplus to his personal requirement that transaction by itself would not be a sale in the course of business. This additional point was stressed by this Court in the above decision.

11. The learned Government Pleader, appearing for the State, points out that under the definition in Section 2 (g) (iii) of the 1959 Act, a commission agent, a broker or a del credere agent, or an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of any principal, will be a dealer. But we had occasion to point out in a recent judgment in T. C. No. 86 of 1963 Since reported as Zaokria Sons Private Ltd. v. State of Madras [1965] 16 S.T.C. 136., that the terms used in this Section to define a dealer should be applied only after finding out whether in a given case the assessee entered into a bargain with the buyer (or the seller as the case may be) amounting to a sale within the definition of sale, in the Act, and that this requirement has to be satisfied before a person, who may be described in any of the ways mentioned in Section 2(g)(iii) extracted above, can be assessed to sales tax. Even on the assumption that the Society in the instant case did transfer property in the goods to the purchaser and for this purpose functioned as an agent of the agriculturist principal, the further question is whether the Society is entitled to get the benefit of the proviso to Section 2 (r), notwithstanding the fact that it was the principal who raised the agricultural produce and not the Society. If the Society did in fact function as the agent of the agriculturist grower and in such capacity sold the produce to the buyer, the Society is certainly liable to be assessed to sales tax as dealer in accordance with the extended definition of "dealer" in Section 2 (g) (iii) of the Act. The turnover of the Society, in such circumstances, will be clearly its own turnover and it is not the turnover of the principal. This foundation of fact regarding the nature of the Society's dealings is implicit in the wider definition of "dealer" given in the 1959 Act, and it must be found to exist before resort can be had to certain decisions referred to by the Tribunal and which were also referred to before us by the learned Counsel for the respondent. We will now refer to these decisions briefly :

India Coffee and Tea Distributing Co., Ltd., Madras v. State of Madras [1958] 9 S.T.C. 769 dealt with an assessment on the sale of tea. Section 5(v) of the General Sales Tax Act, 1939, had a provision for grant of exemption in the case of sales of tea, which was analogous to Section 2(1) of the 1939 Act and Section 2(r) of the 1959 Act. That provision stated that the tea sold should have been grown on land in which the seller had one of the interests as owner etc. specified in that Section. Some of the sales of the assessee in that case were of tea grown on the estates of a non-resident principal for whom the assessee acted as agent. In respect of the sales of tea grown by the non-resident principal, the assessee was assessed under section 14-a of 1939 act. section 14-a read thus :

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 mpdifications 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 nonresident 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 nonresident 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 of the non-resident of the tax or taxes or any part thereof.

12. The learned Judges found, on a strict application of the terms of Section 14-A, that in a case where the agent of a non-resident principal resident in the State was assessed to tax under Section 14-A, it was really the non-resident principal who was assessed and that the agent was deemed to be a dealer in respect of his business, only as representative for assessment, levy and collection of tax. The very language of Section 14-A gave support to this conclusion of the learned Judge. Thus, section 14-a, sub-clause (I), states that the agent by fiction was to be deemed to be a dealer in respect of the business of the non-resident. Sub-clause (ii) of Section 14-A again referred to the business of the non-resident in which the agent was concerned, in regard to the levy of tax. Under sub-clause (ii) unlike other dealers, the agent of a non-resident will not be entitled to the exemption on turnover less than Rs. 10,000 under sub-Section (3) of Section 3. Sub-clause (iv) to Section 14-A provides that if the agent had been assessed, the non-resident principal will be entitled to get exemption for a turnover less than the minimum specified in sub-section (3) of section 3 by an application made for the purpose. These special provisions in section 14-a led the Bench of this Court to hold that in the assessment of an agent under Section 14-A, it was the principal's business that was really being brought to levy of tax and that therefore, in such circumstances, the exemption in regard to the sale by a dealer of tea grown on his own land, would be available for the sales of the non-resident principal. The Court followed an earlier un-reported decision in T.R.C. Nos. 38 to 40 of 1955, which again referred to the significant points for distinguishing agency transactions under Section 14-A from other agencies, and observed :

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.

13. The Tribunal in the instant case was of the opinion that these observations in T.R.C. Nos. 38 to 40 of 1955 would also apply to the present case, even though it did not deal with the agent of a nonresident principal selling the principal's goods and which sales are brought to assessment under the special provisions of section 14a. In fact the present case falls under the 1959 Act, which does not reproduce Section 14A at all. On the other hand, it has amplified the definition of "dealer" in the manner already referred to. Therefore, an agent with dominion over the goods of the principal and with authority to transfer the property in such goods and consequently effect sales and acquire a turnover in respect of such transactions, cannot be treated on the same footing as the agent of a nonresident principal assessed under Section 14A. The turnover acquired by the agent in the circumstances mentioned above is in law as well as in fact his own turnover for the purposes of sales tax assessment, and it cannot be considered as the principal's turnover. Where the turnover is that of the agent himself under the statutory definition of "dealer" given in the 1959 Act, the exemption under the proviso to Section 2(r) can be granted only if the produce in question is grown by the agent himself or grown on a land in which he has an interest, whether as owner etc. As long as the produce does not satisfy this condition, the benefit of the proviso will not be available to the agent. There is also the further point mentioned by a Bench of this Court in Nagarajan v. State of Madras [1959] 10 S.T.C. 605, that where the principal himself is only agriculturist selling the surplus produce and is therefore not a dealer engaged in the business of selling goods the proviso to Section 2(r) will not apply in any event to the transactions of the agent on behalf of such principals.

14. Reference was made in the course of the arguments by the learned Counsel for the respondent to section 8 of the 1939 act. The first proviso to Section 8 states that in the case of a transaction of sale by a grower of produce grown by him or on his land, the exemption under Section 8 shall not be given unless the amount for which the goods concerned in such transactions were sold, were included in the turnover of the principal, or would have been so included but for an exemption provided under the Act. Under Section 8, licensed dealers would be exempt from assessment to sales tax in respect of transactions effected by them on behalf of their principals in accordance with the terms and conditions of the licence. The proviso implies that they would get the benefit of exemption in regard to sales of agricultural produce only if those sales are included in the turnover of the principals. But here again, there will be a difficulty in cases where the principals are agriculturists and not dealers and consequently in whose turnover the sales of agricultural produce by the agents could not be included. This apart, Section 8 does not find a place in the 1959 Act, and we are not called upon, therefore, to consider the meaning or effect of Section 8 in the present case.

15. We have already referred to the fact that neither the Sales Tax Appellate Tribunal nor the lower assessing authorities have considered the real nature of the transactions between the members of the Society and the Society and whether the Society has functioned in the present case actually as a dealer of the goods of the constituent members, or whether the Society has only played the part of an intermediary bringing the agriculturist and the prospective buyer together at an auction which is held in the presence of the agriculturist and who approves the sale effected to the buyer. The Society in its grounds of appeal has strenuously contended that its part is not that of a selling agent but only of an intermediary between the grower and the buyer merchant. This question has to be decided after a careful analysis is made of the bargain between the members of the Society on the one hand and the Society on the other in regard to the disputed turnover. The relevant by-laws of the Society also may have to be looked into for a correct appreciation of the position.

16. Therefore, while maintaining the order of remand by the Sales Tax Appellate Tribunal to the Appellate Assistant Commissioner for a more detailed examination of the case and fresh disposal, we set aside the observations of the Tribunal in regard to the scope of the proviso to Section 2(r) and the manner in which the benefit of the exemption under that proviso can be availed of by a dealer including an agent, who is a dealer as provided in the definition in Section 2(g)(iii) of the General Sales Tax Act, 1959. The Appellate Assistant Commissioner will dispose of the case in the light of the remarks we have set down above.

17. The appeal is ordered in the above terms but, in the circumstances, there will be no order as to costs.