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Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

The dispute concerns whether a photographer (the respondent, proprietor of Kame Photo Studio) is liable to pay sales tax under the Madhya Pradesh General Sales Tax Act (Act 2 of 1959) when he takes photographs or performs other photographic work and thereafter supplies photographic prints to his clients. The respondent operated a main shop and two branches and engaged in buying and selling photographic goods. After acquiring photographic materials he either sold these goods or used them by (1) taking photographs and supplying prints, (2) making enlargements from clients' negatives, or (3) preparing positive prints from negatives brought by clients. The respondent charged consolidated amounts depending on the work, size and number of prints.

Sales tax authorities assessed the respondent for various periods from 1 April 1964 to 31 March 1969 on a best-judgment basis because full accounts had not been kept. For 1964–65, total turnover was assessed at Rs. 41,500, with a deduction of Rs. 6,500 for developing and enlargement (considered not chargeable). Of the remaining Rs. 35,000, Rs. 12,000 was treated as sale of materials and Rs. 23,000 as receipts for supplying photoprints to studio clients; tax was levied on the latter.

The respondent challenged the levy by filing a writ petition. The Madhya Pradesh High Court held in favour of the respondent, concluding that the activity of taking photographs, preparing negatives and supplying final prints is a contract of work and labour (a service) and not a sale; consequently the High Court ruled the respondent was not liable to pay sales tax on that item. The High Court expressly did not decide whether the materials used in preparing a photograph, regarded separately, were taxable, noting the petitioner had alleged having paid tax on material value and that the respondents had neither denied nor claimed tax on such material.

The revenue (appellant) appealed against the High Court judgment by certificate to the court that produced the present opinion. The appeal was argued and decided by the court in the opinion provided.

Legal Issues Presented

Whether sales tax is payable by a photographer under the Madhya Pradesh General Sales Tax Act when the photographer takes photographs or performs photographic work and thereafter supplies the photographic prints to his client or customer — i.e., whether such transactions are sales of goods or contracts of work and labour (services) not chargeable to sales tax.

Arguments of the Parties

Respondent's Arguments

The respondent contended that taking a photograph, preparing the negative and thereafter the final positive print constituted a contract of work and labour (a service) rather than a sale transaction.
He argued that the prepared positive print was not a marketable commodity in the ordinary sense because a photograph of one person could not be sold to another without the first person's consent.

Appellant's (Revenue's) Arguments

The appellants asserted that the respondent was carrying on a commercial activity in the nature of trade and business, and that the finished photographs supplied to customers were commodities, attracting sales tax.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Masandas case, (1957) 8 STC 370	Whether material used alone in preparing a photograph could be taxed.	The High Court had noted this case but expressly declined to consider it in the present proceedings; the court did not rely on it in deciding the appeal.
Camera House Case, 1970 25 STC 354 (Bombay High Court)	Observations about severability of a composite contract into service and supply of material.	The High Court mentioned the Bombay High Court's observations but the present court considered it unnecessary to deal with that decision in reaching its conclusion.
State of Himachal Pradesh & Ors. vs. Associated Hotels of India Ltd.	Determination of the nature of a transaction (service vs. sale); principle that a transaction may be essentially one indivisible service even if goods are incidentally supplied (example: meals served by a hotel within an all-inclusive charge).	The court relied on this decision to illustrate the test of identifying the primary object of the transaction and to support the proposition that merely because property in articles passes incidentally, the transaction is not necessarily a sale; used to reason by analogy that photographic services may be an indivisible service where the primary object is the work/labour.
State of Madras vs. Gannon Dunkerley & Co. (Madras) Ltd.	In building contracts, property in materials used does not pass to the other party as movable property unless there is an agreement; materials may become property only on the theory of accretion.	Relied upon for the proposition that ownership of materials is not conclusive; the court cited it to show that materials passing in the course of work do not automatically convert a contract of work into a contract of sale.
P. S. Atiyah, "Sale of Goods" (4th Edn.)	Discussion of the distinction between contracts of sale and contracts for skill and labour; reference to legal history and leading authorities (including Robinson v. Graves).	The court cited Atiyah's treatment to support the analytical framework distinguishing sale from skill-and-labour contracts, and to introduce the Robinson v. Graves authority.
Robinson vs. Graves (1935) 1 K.B. 579	Held that a contract to paint a portrait was a contract for skill and labour and not a contract for the sale of goods, even though the property in the completed portrait would transfer.	Used as a direct authority showing that where the substance of a contract is the exercise of skill and labour, the mere transfer of property in the finished article does not convert the transaction into a sale; applied to support the conclusion that photographic work is of that character.
Lee vs. Griffin (1861) 1 B. as. 272	Earlier view (described in the opinion) that if a contract would result in the transfer of property in goods it must be a contract of sale — a view later qualified by Robinson v. Graves.	The court cited this earlier authority as part of the historical discussion of the legal distinction, noting that the earlier view was reviewed and that modern authorities indicate transfer of property is not conclusive.

Court's Reasoning and Analysis

The court's analysis proceeded from the general legal distinction between a contract of sale and a contract of work and labour (service). It recognized that the distinction is often fine, especially in composite contracts, and that in borderline cases the court must examine the substance and primary object of the transaction rather than be guided solely by incidental transfers of property in materials.

The court articulated the guiding test: a contract of sale is one whose main object is the transfer of property in and delivery of a chattel as a chattel to the buyer; conversely, where the principal object of the work performed is not the transfer of a chattel qua chattel, the contract is one of work and labour. The court emphasized that factors such as ownership of materials or the relative value of skill and materials are not determinative by themselves, though they may be considered in the totality of circumstances.

To develop and support this test the court relied on earlier authorities (including Associated Hotels and Gannon Dunkerley) and academic commentary (Atiyah), and highlighted Robinson v. Graves as a leading decision that a contract to produce a finished article (a portrait) can nevertheless be a contract for skill and labour despite resulting in transfer of property in the finished article.

Applying these principles to the facts, the court found that when a photographer undertakes to take photographs, develop negatives or otherwise perform photographic work and thereafter supply prints, he is performing a contract whose essential character is the exercise of skill and labour. The occupation of a photographer (except insofar as he sells goods purchased by him) is essentially one of skill and labour; a good photograph reflects the photographer's skill and artistic faculty. The court therefore concluded there was no cogent ground to disagree with the High Court's conclusion that the relevant transactions were contracts for work and labour and not sales attracting sales tax.

The court also noted it was unnecessary to deal with some High Court decisions brought to its attention and that the High Court had expressly not decided the separate question whether the material used in preparing photographs (as distinct from the service) could be taxed; that question remained outside the scope of the present decision.

Holding and Implications

Holding: The appeal is dismissed. The court upheld the High Court's decision that the transactions in question (taking photographs, preparing negatives and supplying prints to studio clients) are contracts of work and labour and not sales subject to sales tax.

Implications:

Direct effect on the parties: The respondent (photographer) was held not liable to pay sales tax on the item relating to supply of photoprints arising from his photographic work; the appeal by the revenue failed and was dismissed without costs.
Scope and limitation: The opinion does not decide whether materials used in preparing photographs, viewed separately, are taxable; the High Court had expressly refrained from expressing any view on that separate question, and the present court did not address it either.
Precedential effect: The court stated that the view taken by the High Court "substantially represents the correct position in law." The decision affirms the principle that where the primary object of the transaction is the exercise of skill and labour, incidental transfer of property in materials does not convert it into a sale. Beyond its effect on the parties, the opinion does not purport to set out additional novel legal propositions beyond these applied principles.

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The Assistant Sales Tax Officer v. B C Kame, Prop , Kame Photo

- Whether sales tax is payable by a photographer under the Madhya Pradesh General Sales Tax Act (Act 2 of 1959) when the photographer takes photographs or does other photographic work and thereafter supplies the photographic prints to his client or customer is the question which arises for determination in this appeal on certificate against the judgment of Madhya Pradesh High Court reported in 28 S.T.C. 1. The High Court answered the question in the negative in favour of the assessee respondent.

2. The respondent is the proprietor of Kame Photo Studio. He has apart from his main shop two branches. He carries on business, inter alia, of buying and selling photographic goods. After buying photographic goods he either sells them to his customers or uses them in three ways - (1) in taking photographs and supplying prints thereof, (2) in making enlargements for the clients who bring their own negatives, and (3) in preparing positive prints of the same size from the negatives brought by the clients. For doing these various types of works the assessee respondent charges consolidated amount depending upon the work involved and the size and number of prints demanded by the client.

3. The sales tax authorities assessed the respondent for different periods from April 1, 1964 to March 31, 1969 to sales tax on his turnover on best judgment basis as he had not kept full and complete accounts. It may be convenient to refer to the figures of assessment for one of the years. For the year 1964-65 the total turnover of the respondent was taken to be Rs. 41,500. Out of this amount a deduction of Rs. 6,500 was allowed as relatable to developing and enlargement which was considered to be not chargeable to tax. The balance of Rs. 35,000 was divided into two parts Rs. 12,000 being treated as relatable to sale of materials as such and the rest, Rs. 23,000, being taken to be the receipts on account of the supply of photoprints to those who got themselves photographed at the studios.

4. The respondent filed writ petition to challenge the levy of sales tax on the last item, namely, the item for the supply of photoprints. The contention of the respondent was that in taking a photograph, preparing its negative and thereafter the final positive print for supplying the same to the clients, the respondent undertakes a contract of work and labour and does not enter into a sale transaction. It was also stated on behalf of the respondent that the prepared positive print was not a marketable commodity and he could not sell the photograph of one person to any other person except with the formers consent. As against that, the case of the appellants was that the respondent was carrying on a commercial activity in the nature of trade and business and the finished photographs supplied by him to his customer was a commodity and the supply of same attracted the levy of sales tax.

5. The High Court, on consideration of the matter, came to the conclusion that the respondent only undertook the contract of work and labour and did not enter into a sale transaction. The respondent as such was held not liable to pay sales tax in respect of the item to which the writ petition related. The High Court while accepting the writ petition also observed as under :

"We may lastly make it clear that in this case we are not called upon to go into the question whether the material used in preparing the photograph is sold and is taxable. The petitioner has alleged in the petition that he has paid full tax on the value of such material and the respondents have neither denied the fact nor have claimed tax on such material. We, therefore, express no opinion on that question and need not consider either Masandas case, (1957) 8 STC 370, where the only question referred to this Court was whether such material alone could be taxed, or the observations of the Bombay High Court in Camera House Case, 1970 25 STC 354, about severability of the contract into one separately for service and supply and material."

6. In appeal before us Mr. Shroff has assailed the judgment of the High Court. As against that, Mr. Gupte on behalf of the respondent has canvassed for the correctness of the view taken by the High Court.

7. The question as to whether a contract is a contract of work and labour or a contract for sale is not one free from difficulty. The reason for that is that in border line cases the distinction between the two types of contract is very fine. This is particularly so when the contract is a composite one involving both a contract of work and labour and a contract of sale. Nevertheless, the distinction between the two rests on a clear principle. A contract of sale is one whose main object is the transfer of property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the principle object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contact is one of work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of materials, nor the value of the skill and labour as compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining, in the circumstances of a particular case, whether the contract is in substance one for work and labour or one for the sale of a chattel (See The State of Himachal Pradesh & Ors. vs. Associated Hotels of India Ltd. The respondent company in that case carried on business as hoteliers. As a part of its business as hoteliers, the company received guests in its several hotels to whom, besides furnishing lodging, it also served several other amenities, such as public and private rooms, bath with hot and cold running water, linen, meals during stated hours. The bill tendered to the guests was all inclusive one, namely, a fixed amount for the stay in the hotel for each day and did not contain different items in respect of each of the amenities. The question which arose for determination was whether the company was liable to pay sales tax under the Punjab General Sales Tax Act, 1948 in respect of meals served in the Hotel to the guests coming there for stay. It was held by the Constitution Bench of this Court that the transaction was essentially one and indivisible, namely, one of receiving a customer in the hotel to stay. It was essentially one of service by the hotelier in the performance of which, and as part of the amenities incidental to the service, the hotelier served meals at stated hours. The revenue, it was held, was not entitled to split up the transaction into two parts, one of service and the other of sale of food-stuffs. This Court accordingly came to the conclusion that there was no sale of food-stuffs and the respondent company was not liable to pay sales tax in respect of the meals served to the guests in the hotel. In arriving at this conclusion this Court observed as under :

"Thus, in considering whether a transaction falls within the purview of sales tax, it becomes necessary at the threshold to determine the nature of the contract involved in such a transaction for the purpose of ascertaining whether it constitutes a contract of sale or a contract of work or service. If it is of the latter kind it obviously would not attract the tax. From the decisions earlier cited it clearly emerges that such determination depends in each case upon its facts and circumstances. Mere passing of property in an article or commodity during the course of the performance of the transaction in question does not render it a transaction of sale. For, even in a contract purely of work or service, it is possible that articles may have to be used by the person executing the work and property in such articles or materials may pass to the other party. That would not necessarily convert the contract into one of sale of these materials. In every case the court would have to find out what was the primary object of the transaction and the intention of the parties while entering into it. It may in some cases be that even while entering into a contract or work or even service, parties might enter into separate agreements, one of work and service and the other of sale and purchase of materials to be used in the course of executing the work or performing the service. But, then in such cases the transaction would not be one and invisible, but would fall into two separate agreements, one of work or service and the other of sale."

8. Reliance in the above cited case was placed upon an earlier decision of this Court in the case of State of Madras vs. Gannon Dunkerley & Co. (Madras) Ltd. Wherein the Constitution Bench of this Court held that in a building contract the property in materials used does not pass to the other party to the contract as movable property. It would so pass if that be the agreement between the parties. But if there was no such agreement and the construct a building, then the materials used therein would, in the opinion of the Court, became the property of the other party to the contract only on the theory of accretion.

9. The distinction between a contract of sale and contract for skill and labour has been discussed at page 10 of the 4th Edn. of "Sale of Goods" by P. S. Atiyah. The following passage in that book has a material bearing so far as the present case is concerned :

"The distinction between contracts of sale and contracts for skill and labour has agitated the courts for many years, and though its importance has been greatly diminished by the repeal of Section 4 of the Act, it still cannot be ignored. It was thought for many years that Lee vs. Griffin (1861), 1 B. as. 272) laid down that, if a contract would result in the transfer of the property in goods from one party to another, then it must be a contract of sale. This review was exploded in Robinson vs. Graves (1935) 1, K.B. 579 where it was held that a contract to paint a portrait was a contract for skill and labour and not a contract for the sale of goods, despite the fact that it was object of the contract to transfer the property in the completed portrait to the defendant. Greer, L.J. stated the law as follows, (1935)1 K.B. at p. 587 :

"If the substances of the contract . . . is that skill and labour have to be exercised for the production of the articles . . . it is only ancillary to that there will pass from the artist to his client or customer some materials in addition to the skill involved in the production of the portrait, that does not make any difference to the result, because the substance of the contract is the skill and experience of the artist in producing the picture"

10. Keeping the above principle in view, we may now turn to the facts of the present case. When a photographer like the respondent undertakes to take photograph, develop the negative, or do other photographic work and thereafter supply the prints to his client, he cannot be said to enter into contract for sale of goods. The contract on the contrary is for use of skill and labour by the photographer to bring about a desired result. The occupation of a photographer, except in so far as he sells the goods purchased by him, in our opinion, is essentially one of skill and labour. A good photograph reveals not only the aesthetic sense and artistic faculty of the photographer, it is also reflects his skill and labour. A good photograph in most cases is indeed a thing of a beauty. It not only seeks to mirror and portray a scene from actual life, it also catches and preserves for the future what belongs to and is part of the fleeting moment. The ravage brought about by the passage of time, the decay and the ageing process which inevitably set in as the years roll by leave what is preserved in the photograph unaffected. It is no wonder that an old photograph revives nostalgic memories of days no more, but to which we look back through the mist of time with fondness even though such fondness has a tinge of sadness.

We, therefore, find no cogent ground to disagree with the High Court in so for as it has decided against the revenue and has held the contract to be one for work and labour. Our attention has been invited during the course of arguments to some decisions of the High Courts. It is, in our opinion, not necessary to deal with those cases because after giving the matter our consideration we are of the opinion that the view taken by the High Court in the judgment under appeal substantially represents the correct position in law. The appeal consequently fails and is dismissed, but in the circumstances without costs.

The Assistant Sales Tax Officer v. B C Kame, Prop , Kame Photo

Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Respondent's Arguments

Appellant's (Revenue's) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

The Assistant Sales Tax Officer v. B C Kame, Prop , Kame Photo

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