RAMASWAMI, J.
Civil Appeals Nos. 976 and 977 of 1965 are brought against the judgment of the Mysore High Court dated the 24th January, 1962, in Civil Revision Petitions Nos. 32 and 33 of 1961. Civil Appeal No. 978 of 1965 is presented against the judgment of the Mysore High Court dated the 29th January, 1962, allowing a writ petition of the respondent, viz., Writ Petition No. 543 of 1960, filed against the order of the Commercial Tax Officer, Additional Circle, Mangalore, South Canara.
The respondents in these appeals were firms of commission agents having their place of business in Mangalore City in South Canara within the new State of Mysore. The respondents had been dealing mainly in areca. Their principals in areca trade were residents of Malabar District and Kasargod Taluk in the former State of Madras. Every year the respondents used to take out licence under section 8 of the Madras General Sales Tax Act, 1939 (Madras Act No. 9 of 1939) (hereinafter referred to as the Act). So, for the year 1956-57, the respondents took out licences in respect of their dealings as commission agents. On 1st November, 1956, the States Reorganisation Act (Act No. 37 of 1956) came into force and as a result of that Act, some of the territories comprised in the former State of Madras became a part of the present Mysore State and some parts of the old Madras State became a part of the new Kerala State. Some of the principals of the respondents were residing either at Kasargod or in places in the former District of Malabar. After the States reorganisation all those principals who were residing in Kasargod Taluk which before the reorganisation was a part of South Canara District, or in the District of Malabar became "non-resident" principals within the meaning of the expression in section 14-A of the Act.The question that arises in these appeals is : Whether the respondents are liable to be taxed under section 14-A of the Act in respect of their turnover on the transactions effected on behalf of their principals residing either in the Kasargod Taluk or in places in the former District of Malabar for the period from 1st November, 1956 to 31st March, 1957.
Section 8 of the Act as it stood on the 1st October, 1956, reads as follows :-
"The State Government may on application and on payment of such fee as may be prescribed in that behalf, licence any person under this section who for an agreed commission or brokerage buys or sells on behalf of known principals specified in this accounts in respect of each transaction and may exempt from the tax or taxes payable under section 3, such of his transactions as are carried out in accordance with the terms and conditions of the licence :
Provided that, save where the transaction consists of a sale by a grower of produce grown by him or on his land, no such exemption shall be given unless the amounts for which the goods concerned in such transactions are sold, are included in the turnover of the principals or of the dealers from whom purchases were made, or would have been so included but for an exemption provided under this Act :
Provided further that the commission or brokerage agreed upon and specified in the accounts represents the entire remuneration payable to the agent, apart from incidental charges in respect of insurance, transport, loading and unloading, godown rent, interest, correspondence, telegrams, the use of the telephone and the like, which are specified in the accounts and which the assessing authority considers legitimate :
Provided also that the burden of proving that a transaction is exempt, by virtue of this section, from the tax or taxes payable under section 3, shall be on the licensee."With effect from the 1st October, 1956, the Madras Legislature added two more provisos to section 8 of the Act. Of the two provisos the last which is material to this case states :
"Provided also that the agent of a person or firm carrying on business outside the State shall not be eligible for a licence under this section in respect of his transactions made on behalf of such person or firm."
Rule 5(1)(f) of the Madras General Sales Tax Rules, 1939, framed under the Act provides as follows :
"Every person who
(f) for an agreed commission or brokerage, buys and/or sells goods of any description on behalf of known principals shall, if he desires to avail himself of the exemption provided in sections 5 and 8 or of the concession of taxation only at a single point or of taxation at the rate specified in section 5, submit an application in Form I for a licence in respect of each of his places of business to the authority specified in sub-rule (2) so as to reach him not later than the 30th day of April of the year for which the licence is applied for :
Provided that in the case of a business which is commenced in the course of a financial year, the dealer shall submit the application for the licence to such authority so as to reach him not later than thirty days from the date of commencement of his business :
Provided further that, where the exemption or concession aforesaid was conferred for the first time by the Madras General Sales Tax (Amendment) Act, 1947, and the dealer had commenced business before the 1st January, 1948, he shall submit the application for the licence not later than the 1st March, 1948."
"Note. - The agent of a person (including a firm) outside the State is in respect of transactions on behalf of such person a dealer for all the purposes of the Act and the rules made thereunder and is not eligible for a licence under section 8 in respect of such transactions."
The licence under section 8 of the Act is issued in Form No. V set out in the Rules. Clauses 3 and 4 of Form No. V are to the following effect :
"Clause 3. - The licensee shall be exempt from the tax payable under section 3, sub-sections (1) and (2), only in respect of the transactions in which the amounts for which the goods are bought or sold are included in the turnover of the principals or of the dealers from whom the purchases were made or would have been so included but for an exemption provided for under the Act.
Clause 4. - This licence shall not apply to the transactions of the licensee otherwise than for an agreed commission or brokerage on behalf of known principals (including firms) in the State specified in his accounts in respect of each transaction or to the transactions of the licensee on behalf of non-residents."
Section 14-A of the Act reads 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 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 right, any agent of a non-resident who is assessed under this 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 the payment was made by or on behalf of the non-resident of the tax or taxes or any part thereof."
"The State" is defined in section 2(g) of the Act as to mean the State of Madras.
Clause 4 of the Mysore Adaptation of Laws Order, 1956, issued under section 120 of the States Reorganisation Act, 1956, provides as follows :-
"Whenever an expression mentioned in column 2 of the Table hereunder printed occurs (otherwise than in a title or preamble, or in a citation or description of an enactment) in an existing law in force in the area mentioned in column 1, whether mentioned in the Schedule to this Order or not, then, except where the subject or context otherwise requires and unless that expression is by this Order expressly directed to be otherwise adapted or modified, or to stand unmodified or to be omitted, there shall be substituted therefor the expression set opposite to it in column 3 of the said Table, and there shall also be made in any sentence in which the expression occurs such consequential amendments as the rules of grammar require."
It was argued on behalf of the appellant that after the 1st November, 1956, the liability of the respondents to be taxed arose under section 14-A of the Act, because the respondents undoubtedly acted as agents of the non-resident principals for the period after 1st November, 1956 up to the 31st March, 1957. It was submitted that the High Court was in error in holding that the licence issued to the respondents under section 8 of the Act before the 1st November, 1956, granted exemption to the respondents on such transactions, and the provisions of the licence continued to apply after the 1st November, 1956, when the respondents acted as commission agents for a principal residing outside the "Madras Area". In our opinion, the argument put forward on behalf of the appellant is well-founded and must be accepted as correct. According to clause 4 of Form V, the licence granted to the respondents does not apply to transactions of the licensee effected on behalf of the principals residing outside the Madras State. According to clause 4 of the Mysore Adaptation of Laws Order, wherever the words "State of Madras" or "Madras State" occur in any Act in force on 1st November, 1956, in those areas which were part of the former State of Madras, the words "Madras Area" (Territory specified in section 7(1)(d) of the States Reorganisation Act, 1956) have to be substituted unless the context otherwise requires. It is conceded for the respondents that in view of the Adaptation Order we have to read the provisions of the Act and the Rules framed thereunder as adapted. It was, however, argued that clause 4 of the Mysore Adaptation of Laws Order does not apply to the interpretation of clause 4 of Form V of the licence, and so, the word "State" mentioned in that clause cannot be construed as meaning "Madras Area". We are unable to accept the argument of the respondents as correct. We shall assume that the licence already issued to the respondents is not "law" within the meaning of clause 4 of the Mysore Adaptation of Laws Order. Even on that assumption, the word "Madras State" in clause 4 of Form V should be interpreted in the context of clause 4 of the Mysore Adaptation of Laws Order and the adapted provisions of the Act and the Rules framed thereunder. It is not disputed on behalf of the respondents that Form V is a part of the Rules framed and therefore it is "law" as contemplated in section 120 of the States Reorganisation Act, 1956, and that in clause 4 of Form V we must read the words "Madras Area" in place of the word "State". But the argument was stressed that the word "State" in the licence already issued to the respondents cannot be construed in that manner. It was said that the issuing of licences was an executive act and cannot tantamount to a "law" within the meaning of the Mysore Adaptation of Laws Order. We shall assume that this argument is correct. Even on that assumption the appellant must succeed for as a matter of principle the expression "Madras State" in clause 4 of Form V of the licence must be interpreted in the context of clause 4 of the Mysore Adaptation of Laws Order and in the context of the change of the provisions of the Act and the Rules after the 1st November, 1956. It follows, therefore, that the words "Madras State" in clause 4 of Form V of the licence should be read as meaning "Madras Area" after the 1st November, 1956, and the view expressed by the High Court on this aspect of the case must be overruled.The scheme of section 14-A of the Act is that it is really the "non-resident" principal who 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 the principal. The agent is given a statutory right to retain the moneys of the principal in his hands equivalent to the tax assessed or paid. Under section 14-A, sub-section (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 the 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 under section 14-a(iv). The reason for the rule excluding the provisions of exemption under section 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.
Section 8 of the Act deals with transactions of the commission agents. The commission agent 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, however, provides that if the 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. If section 8 is read along with clause 4 of Form V, it is plain that no licence can be granted to the commission agent with regard to dealing in goods of non-resident principal. The provisions of section 8, therefore, cannot apply in this case but the respondents are liable to be assessed under section 14-A of the Act with regard to transactions effected on behalf of the principals residing either in Kasargod Taluk or in places in the former District of Malabar for the period between 1st November, 1956, and 31st March, 1957.For these reasons, we hold that the judgment of the Mysore High Court in these appeals should be set aside and the cases of the respondents should be remanded to the Commercial Tax Officer, Additional Circle, Mangalore, for ascertaining whether the disputed turnover had been included in the turnover of the non-resident principals of the respective respondents, and thereafter to proceed to make the assessments in accordance with law. We accordingly allow these appeals with costs.
Appeals allowed.