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Case Number

Second Appeals Nos. 2100 and 2248 of 1950

Attorney(S)

For the Appellant: G. BALAPARAMESWARI RAO, Advocate.

Judges

Chandra Reddy, J.

Acts

Madras General Sales Tax Act (hereinafter called the Act).
Section 2 (b)

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Smart Summary

Structured Summary of the Judicial Opinion

Factual and Procedural Background

The plaintiff, Immidi Satyanarayana (appellant in S.A. No. 2100 of 1950 and respondent in S.A. No. 2248 of 1950), is a manufacturer of "Gripe Tonic" and an importer of Eucalyptus Oil. He marketed these goods through Messrs. V. S. Narayana and Sons, who acted as commission agents selling the goods on a commission basis. The Commercial Tax Department assessed and collected Sales Tax of Rs. 366-10-4 from the plaintiff for 1946-47, and demanded compounding fees of Rs. 347 and Rs. 470 for the years 1944-45 and 1945-46 respectively, on the ground that the plaintiff was a dealer under the Madras General Sales Tax Act and had failed to obtain a licence and to file returns as required by the Act.

The plaintiff sued the State of Madras seeking (a) refund of the Sales Tax of Rs. 366-10-4, (b) declarations that the compounding fee demands were illegal and ultra vires, and (c) a declaration that he was not a dealer liable to tax under the Madras General Sales Tax Act. He paid the tax under protest and offered to pay the compounding fees without prejudice to his rights.

The State defended on the basis that the plaintiff was a dealer and therefore liable for tax and that the plaintiff could not claim exemption on the ground that tax was collected from his agents; as a dealer, it contended, he was also obliged to submit returns and liable to compounding fees for failure to do so.

The trial Court granted partial relief: it directed a refund of the tax paid by the plaintiff (finding that the agents who were not dealers had already paid tax and the plaintiff could not be taxed again) but dismissed the claim regarding compounding fees (finding the plaintiff to be a dealer liable to submit returns). The Subordinate Judge affirmed the trial Court's decision. Two second appeals followed: S.A. No. 2100 of 1950 (plaintiff appealing the compounding-fee dismissal) and S.A. No. 2248 of 1950 (Provincial Government appealing the refund).

Legal Issues Presented

Whether the plaintiff (manufacturer/principal) is a "dealer" within the meaning of Section 2(b) of the Madras General Sales Tax Act when sales are effected through commission agents.
Whether tax collected from the commission agents for sales they effected can be levied again on the principal (i.e., whether double taxation of the same transactions is permissible).
Whether the plaintiff was obliged to submit returns under Section 9 of the Act and, consequently, liable to prosecution under Section 15 or to pay compounding fees under Section 16 for failure to file such returns.

Arguments of the Parties

Appellant (Plaintiff — Immidi Satyanarayana)

Contended he was not a "dealer" within the meaning of the Act and therefore not liable to tax under the Act.
Argued that the sales effected by the commission agents had already been taxed and therefore tax could not be collected twice in respect of those transactions.
Maintained that for the same reasons he was not obliged to submit returns under Section 9 and thus could not be required to pay compounding fees under Section 16.

Respondent (State of Madras / Commercial Tax Department)

Asserted that the plaintiff was a dealer under Section 2(b) and therefore liable to pay the tax.
Contended that the plaintiff could not escape liability by pointing to taxes collected from agents who had failed to obtain a licence under Section 8 — i.e., the principal remained liable.
Argued that, being a dealer, the plaintiff was obliged under Section 9 to submit returns and, having failed to do so, incurred liability under Section 15 and for compounding under Section 16.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Radhakrishna v. Province of Madras, ILR (1952) Mad 571; AIR 1952 Mad 718 (Full Bench)	Held that a commission agent is a dealer within the meaning of the Act and that exemption was available only if the agent obtained a licence under Section 8.	The Government relied on this Full Bench decision to argue that tax collected from a commission agent was properly collected and that there could be no bar to levying tax on the principal if the principal was a dealer. The Court acknowledged the decision's force but ultimately resolved the appeals on other grounds, finding the plaintiff not to be a dealer in the particular circumstances.
Provincial Govt. of Madras v. Veerabadhrappa, AIR 1950 Mad 521 (1950-1 Mad LJ 564)	Earlier authority relied upon for the proposition, stated broadly by some judges, that a commission agent is not a dealer.	The Court observed that the decision in Veerabadhrappa could be upheld on its facts (where the persons were brokers, not commission agents), but the broad proposition that commission agents were not dealers could not be accepted; the Full Bench in Radhakrishna clarified that position.
Kalyanji v. Tirkaram, AIR 1938 Nag 254	Discussed the legal position of a commission agent: the agent may sell in his own right, and after sale the relationship becomes one of debtor and creditor rather than vendor and vendee between principal and agent.	The Court relied on the analysis in Kalyanji to support the view that commission agents effect sales in their own right and that the delivery of goods to agents for sale is not a sale by the principal; this reasoning underpinned the conclusion that the plaintiff was not a dealer in respect of those sales.
State of Madras v. Srinivasulu Shreshty Son, 1954-2 Mad LJ 134; AIR 1954 Mad 887	Held that where sales are effected by a commission agent, the price received on such sale cannot be treated as the turnover of the principal; the principal cannot be taxed a second time for the same sale.	The Court expressed respectful accord with this decision and applied its doctrine to hold that the plaintiff could not be required to pay tax on sales already taxed when effected by the commission agents.

Court's Reasoning and Analysis

The Court proceeded step-by-step, applying definitions and precedent from the text of the Act and the cited authorities:

Statutory definitions: The Court examined the definition of "dealer" in Section 2(b) — a person who carries on the business of buying or selling goods — and of "sale" in Section 2(h) — "every transfer of the property in goods by one person to another in the course of trade or business."
Character of the transactions: The Department's case was that goods were entrusted to Messrs. V. S. Narayana and Sons for sale on commission. The Court analyzed whether handing goods to a commission agent constituted a "sale" by the principal. It concluded that such handing over is not a sale by the principal in the statutory sense; the agent acts as agent up to the point of sale, and on sale the agent transfers property to the purchaser in his own right and becomes a debtor to the principal for the proceeds.
Precedential support for agent's sale-in-his-own-right: The Court relied on Kalyanji v. Tirkaram for the proposition that a commission agent, upon selling, may have authority to sell in his own name and pass title to the purchaser, after which the relationship with the principal is of debtor-creditor rather than vendor-vendee. The Court quoted and relied on those observations to assert that the sale cannot be treated as by the principal.
Interaction with Full Bench decision: The Court considered the Full Bench decision in Radhakrishna, which broadly held commission agents to be dealers, and noted the Government's reliance on it to argue that tax collected from an agent could properly be levied and that a principal could be separately liable. The Court acknowledged the force of that decision but analyzed the specific facts and statutory definitions, concluding that in the present case the sales effected by the commission agents could not be treated as the plaintiff's sales.
Supporting authority and application: The Court found support in State of Madras v. Srinivasulu Shreshty Son, where a Bench of the Madras High Court held that when a sale is effected by the commission agent, the price cannot be treated as the turnover of the principal and the principal cannot be taxed twice for the same goods. The Court expressed respectful accord with that doctrine and applied it here.
Consequences for returns and compounding fees: Turning to Section 9(1), the Court noted that only a dealer whose turnover is Rs. 10,000 or more in a year is obliged to submit returns. Since the Court concluded the plaintiff was not a dealer in respect of the sales effected by the agents, the obligation to submit returns did not arise. Consequently, failure to submit returns could not attract prosecution under Section 15 or compounding under Section 16.

Holding and Implications

The Court entered the following dispositive rulings:

For Second Appeal No. 2248 of 1950 (Provincial Government's appeal): the Court affirmed the trial Court's decree ordering refund of the tax collected from the plaintiff in respect of goods sold by the commission agents. The opinion states that the decree under appeal is confirmed though for different reasons, and therefore Second Appeal No. 2248 of 1950 is dismissed without costs.

For Second Appeal No. 2100 of 1950 (plaintiff's appeal): the Court allowed the appeal. It held that the plaintiff was not a dealer in respect of sales effected by the commission agents, that he was not obliged to submit returns under Section 9, and that demand of compounding fees under Sections 15/16 was unauthorised. The Court therefore granted the declaration sought, set aside the judgment and decree under appeal on that point, and ordered that the appeal be allowed with costs throughout.

Direct consequences: the plaintiff is entitled to a refund of the taxed amount previously collected in respect of the sales effected by the commission agents, and is not liable to pay the claimed compounding fees for failure to file returns in respect of those transactions. The opinion does not purport to establish a novel legal principle beyond applying existing authorities and statutory definitions; it resolves liability on the basis of the statutory definitions and the precedents expressly discussed.

Order accordingly.

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Immidi Satyanarayana v. State Of Madras (Now Andhra) .

G. Balaparameswari Rao, for Appellant (in S.A. No. 2100 of 1950 and Respondent in S. A. No. 2248 of 1950); Addl. Govt. Pleader (M. Seshachalapathi), for Respondent (in S. A. No. 2100 of 1950 and Appellant in S. A. No. 2248 of 1950).

Judgement

These two appeals arise out of a suit instituted by one Immidi Satyanarayana, who is the appellant in S. A. No. 2100/1950 and respondent in S. A. No. 2248/50 against the State of Madras for a refund of Sales Tax of Rs. 366-10-4 wrongfully collected from him for the year 1946-47, for a declaration that the demand of compensation fee of Rs. 347 and Rs. 470 for 1944-45 and 1945-46 respectively was illegal and ultra vires, and for a further declaration that the plaintiff was not a dealer liable to be taxed under the Madras General Sales Tax Act (hereinafter called the Act). The suit was filed in the following circumstances.

2. The plaintiff is a manufacturer of a tonic called Gripe Tonic and also an importer of Eucalyptus Oil. He does not sell these articles directly to customers, but has constituted Messrs. V. S. Narayana and Sons as his agents for the sale of the Gripe Tonic and the Eucalyptus Oil on commission basis. The Commercial Tax Department assessed the plaintiff on the turnover of the commission agents in respect of these goods on the basis that the agents became liable to be taxed for the reason that they failed to take out a licence under S. 8 of the Act, and that did not exonerate the plaintiff, who was the principal from payment of tax in respect of those sales. The plaintiff was also required to pay a compounding fee of Rs. 347 and Rs. 470 for the years 1944-45 and 1945-46 respectively, for failure to submit the returns as required by S. 9 of the Act, an offence punishable under S. 15 with a fine which may extend to Rs. 1,000, but which could be compounded under S. 16 of the Act.

The plaintiff denied the liability to pay the tax on the ground that he was not a dealer within the meaning of the Act, and that secondly the sales were already taxed and the taxes could not be collected twice over. For the same reasons it was contended by him that he was not liable to submit returns and therefore he could not be called upon to pay compounding fees under S. 16 of the Act. He paid the tax under protest; so far as the compounding fee was concerned, he said that he would pay it without prejudice to his rights to have this liability determined in a proper forum.

3. The suit was resisted by the State Government inter alia on the grounds that the plaintiff was a dealer within the meaning of the Act, and as such liable to pay the tax and that he could not claim exemption from taxation by reason of the taxes having been collected from the agent who failed to obtain a licence under S. 8 of the Act. As regards the compounding fees, the plea was that he being a dealer, it was obligatory on his part to submit the returns by virtue of S. 9 of the Act.

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

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

6. It will be convenient to dispose of Second Appeal No. 2248 of 1950 first. It is argued for the Government that the view of the Courts below that the agent was not a dealer within the meaning of S. 2 (b) of the Act, and the tax having been collected from him, the Commercial Taxes Department could not levy tax in respect of the same transactions for the second time is erroneous in view of the Full Bench decision of the Madras High Court in Radhakrishna v. Province of Madras, ILR (1952) Mad 571 : (AIR 1952 Mad 718) (A), which declared a commission agent to be a dealer within the meaning of the Act, and it was only when a licence was obtained by him under S. 8 of the Act, he could claim exemption from payment of tax.

7. There is force in this contention. The lower appellate Court relied on Provincial Govt. of Madras v. Veerabadhrappa, 1950-1 Mad LJ 564 : (AIR 1950 Mad 521) (B), for the position that a commission agent is not a dealer within the ambit of the Act. In AIR 1952 Mad 718 (FB) (A), it was remarked that the actual decision in AIR 1950 Mad 521 (B) could be upheld on the facts of the case as it was found that the persons sought to be taxed were merely brokers and not commission agents, but the proposition stated by the learned Judges in broad terms that commission agents were not dealers could not be accepted. In view of that ruling, it must be found that a commission agent is a dealer, and if the tax was collected from him it was properly done. There could, therefore, be no question of the tax being paid twice over if the plaintiff could be regarded as a dealer.

8. The real question is whether he could be described as a dealer. Section 2 (b) defines a dealer as any person who carries on the business of buying or selling goods. So in order to bring a person within that definition, it is essential that either he should buy or sell goods. It is nobodys case that he was buying goods. Could it be said that he was selling the Gripe Tonic and Eucalyptus Oil? It is the case for the Department that the goods were entrusted to Messrs. Narayana and Sons for sale on commission.

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

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

10. The following observations are very apposite in this connection :

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

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

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

12. This view of mine gains support from a decision of the Bench of the Madras High Court in State of Madras v. Srinivasulu Shreshty Son, 1954-2 Mad LJ 134 : (AIR 1954 Mad 887) (D), where this very question fell to be considered. Satyanarayana Rao and Rajagopalan, JJ., held in similar circumstances that there being only one sale effected by the commission agent, the price for such sale could not be treated as the turnover of the principal also, and the latter could not be required to pay tax for the second time in respect of the goods sold by the commission agent. I express my respectful accord with the doctrine of that case. Therefore, the plaintiff is not liable to be taxed on the goods sold by the commission agents who as already stated have paid tax on the sales made by them. It follows that the tax collected from the plaintiff was illegal and has to be refunded. Consequently, the decree under appeal has to be confirmed, though for different reasons. Second Appeal No. 2248 of 1950 is therefore dismissed without costs.

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

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

14. Failure to comply with the terms involves a dealer in prosecution under S. 15, which creates an offence or payment of a fee by way of compounding under S. 16 for an offence created under S. 15. It is seen from S. 9 it is only the dealer whose turnover is Rs. 10,000 or more that is obliged to submit a return. If a person is not a dealer, he could not be required to do it. I have already stated that a person in the position of the plaintiff is not a dealer and also that the sales effected by the commission agent could not be regarded as the turnover of the plaintiff. If so, no duty is cast on him to submit the returns. If a person is not a dealer, failure to comply with the requirements of S. 9 does not attract the penal consequences contemplated by S. 15 or 16 of the Act. Hence he could not be called upon to pay a fee by way of composition of the offence. In this situation, the demand by the respondent of a compounding fee from the appellant is unauthorised and the latter is justified in refusing to pay it.

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

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

Order accordingly.

Immidi Satyanarayana v. State Of Madras (Now Andhra) .

Structured Summary of the Judicial Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant (Plaintiff — Immidi Satyanarayana)

Respondent (State of Madras / Commercial Tax Department)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Immidi Satyanarayana v. State Of Madras (Now Andhra) .

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