By TIOL News Service

NEW DELHI, APRIL 25, 2015: THE issue before the Bench is - Whether when key activity of assessee is not business then any incidental transaction would amount to business only if an independent intention to carry on business is established. YES is the answer.

Facts of the case

The assessee Trust is a statutory authority constituted for rendering port services under the Major Port Trusts Act, 1963. The assessee Trust is a registered dealer under the Act and an assessee on the rolls of the Assistant Commissioner (Assessment), Commercial Taxes, Special Circle, Mattancherry. The assessee’s specific activity of dealing in scrap items was the subject matter of assessments in the instant appeal for the AYs 1990-91, 1994-95 and 1997-98. AO had raised demand notices under the Act for the sales of scrap items effected by the assessee. The assessee aggrieved by the said assessment orders had approached the Deputy Commissioner (Appeals) in first statutory appeal. The assessee had assailed the assessment orders as illegal and unauthorised on the ground that it was not engaged in any trading activity and only discharging its statutory functions under the Major Port Trust Act, 1963 and hence, it was not a "dealer" under the Act and cannot be exigible to tax thereunder. The first appellate authority had disposed of the said appeal by separate orders for each AY. The appellate authority had considered the definition of "dealer" under the Act and rejected the plea of the assessee, held that it was a "dealer" under the provisions of the Act. On further appeal before Tribunal, assessee contended that in the instant case the assessee Trust was a statutory body merely discharging its functions of rendering port activities and not engaged in any trading activity or "business". The transactions herein were merely causal and incidental sale transactions which only attract sales tax if the registered dealer was otherwise carrying on business under the Act, which was not the case herein and therefore, the assessee cannot be classified as a "dealer" u/s 2(viii). The Tribunal had rejected the aforesaid stand adopted by the assessee and held that the assessee was a "dealer" engaged in activities of sale under the Act and thus, exigible to sales tax. In case of a different AY, Tribunal held that the definition of "dealer" under the Act was wide and in light of the activities performed by the assessee, it can be placed in the ambit of "dealer" under the Act and hence be liable to pay sales tax under the Act. On further appeal, the High Court had delved into the said question and also considered whether the Madras Port Trust case decided in the context of the TN Act apply to the assessee Trust which was governed by the Act. The HC, in its conclusion, had approved the findings of the Tribunal and dismissed the tax revision(s) filed by the assessee.

Having heard the matter, the Apex court held that,

++ this Court has noticed the definition of dealer under various fiscal legislations and observed that the widest scope and ambit provided to the "dealer" under the definition clause of the Act is in consonance with the legislative intent to place the persons engaged in activities of sale and trade which would not otherwise fall in the restricted definition of "business". Since the definition of "dealer" is wide to include transactions conducted in the course of business or otherwise, to answer the question posed before us, we do not deem it necessary to examine the nature of activity carried out by the assessee Trust in as much as whether it falls under the definition of "business" under the Act or not. In the instant case, the assessee would place reliance on the decision of HC in Madras Port Trust case, draw similarity between the provisions of TN Act and the Act and therefore, submit that the observations of the Madras Port Trust would be applicable to the instant case. Therein, the question before HC was whether the Madras Port Trust is a "dealer" under the TN Act or not. The definition clauses contained in the TN Act u/s 2(g) and 2(d) have been dealt with to examine the aforesaid question. This Court in the said decision has elaborately considered various provisions of the TN Act in the context of the Major Port Trusts Act, 1963. This Court has noticed that port trusts are not established for carrying on business and thereafter, referred to the various activities of the Madras Port Trust and observed that its activities and services only indicate that the activity in question, that is, the sales of unserviceable or unclaimed goods is infinitesimal as compared to the very large range of the activities and services it is supposed to render. HC has therefore concluded that the Madras Port Trust is not involved in any activity of "carrying on business" as provided for u/s 2 (g) read with Section 2(d) of the TN Act and therefore, it is not a "dealer' within the meaning of Section 2(g) of the TN Act;

++ in our considered view, the aforesaid decision of HC would not enure to the benefit of the assessee in the instant case. The said decision was rendered on the basis of the question whether the Port Trust is carrying on "business" under the TN Act and if it is a "dealer" under the TN Act so as to be exigible to tax thereunder. The aforesaid conclusion emanates from the stark distinction of definition of "dealer" under the TN Act and the Act. The definition under the Act is a wider definition while the TN Act as it then stood, provides for a very restricted meaning of the term "dealer". A comparison of the definition clauses in the Act and the TN Act would show that the requirement of "carrying on business" by buying, selling, supplying or distributing goods directly or otherwise whether for cash or deferred payment or for commission, remuneration or other valuable consideration was a necessary ingredient of a dealer under the TN Act, but clauses like (e), (f) and (g) of Section 2(viii) were absent in the TN Act. Thus, the said definitions are not pari materia. In the Madras Port Trust case, this Court has laid emphasis on the expression "carrying on business" in the context of the TN Act, and it is in that context it has reached the conclusion that the Madras Port Trust is not engaged in any business which is a necessary prerequisite under the definition of a "dealer" under the TN Act. In the Act herein, the necessity of a person carrying on business to be placed under the definition of "dealer" is absent. The definition expressly includes the persons who whether in course of business or not engage in the sale or transfer of goods and thus, does not mandate the requirement of conducting business for a person to be exigible under the Act. The contradistinction between the definition of "dealer" under the TN Act and the Act makes it abundantly clear that the observations of this Court in Madras Port Trust case, which refer to the definition of TN Act and interprets it to reach the conclusion of the Trust not being exigible to tax, cannot be accepted in the instant case. Further, it is brought to our notice that in Madras Port Trust case the applications were preferred by the Port Trusts of Cochin, Kandla and Calcutta before this Court for intervention. However, this Court has only permitted them to support the submissions of the Madras Port Trust in the context of the Tamil Nadu statute and in paragraph 6 of the said judgment observed that the exigibility of the said Port Trusts under the respective State enactments is not examined thereunder. Therefore, this Court has only referred to the provisions of TN Act and not examined the scope of the Act vis-à-vis the assessee-Port Trust in Madras Port Trust case;

++ it is further pertinent to notice that the TN Act was amended by Act 22 of 2002 whereby explanation (3) was added to definition clause 2(g) of the TN Act. By the said amendment the Madras Port Trust has now been declared as a dealer under the TN Act. Explanation (3) states that if the port trust disposes of any goods including unclaimed or confiscated or unserviceable or scrap surplus, old or obsolete goods or discarded material or waste products whether by auction or otherwise directly or through an agent for cash or for deferred payment or for any other valuable consideration, notwithstanding anything contained in the TNGST Act, it shall be deemed to be a dealer for the purpose of the Act. Therefore, by amendment act the legislature has specifically brought in Port Trust also within the definition of "dealer" u/s 2(g) and thus, the substratum of the judgment in Madras Port Trust case has been lost. Shri Giri has relied upon the decision of this Court in CST v. Sai Publication Fund, (2002) 4 SCC 57 and submitted that where the main activity is not a business then any incidental or ancillary transaction would only amount to business if an independent intention to carry on business in the incidental or ancillary transaction is established. In the said case, the provisions of Bombay Sales Tax Act, 1959 were examined to ascertain whether the ancillary activity of publication and sale of books by Saibaba Trust amounted to "business" under the said Act, when the dominant activity of the said Trust was non-profit dissemination of message of Saibaba. Therein the Court has examined the definition of dealer u/s 2(11) of the said Act and observed that every person is not a "dealer" but only those persons "who carry on the business" by buying or selling goods are regarded as "dealers". Thus, under the said Act, from the very definition of dealer, it follows that a person would not be a dealer in respect of the goods sold or purchased by him unless he carries on the business of buying and selling such goods. In the instant case, the definition of dealer under Section 2(viii) is wide and specifically includes persons who have effected sale or transfer of goods irrespective of the said sale or transfer being in course of business or not. Therefore, the dictum of this Court in the said decision would also not be applicable in the instant case. Therefore, in light of the foregoing discussions, we are of the considered opinion that the activities of the assessee in respect of buying, selling, supplying or distributing goods, executing works contract, transferring the right to use any goods or supplying by way of or as part of any service, any goods directly or otherwise, whether for cash or for deferred payment or for commission, remuneration or other valuable consideration, whether in course of business or not, would fall within the purview of Section 2(viii). Hence, the assessee Port Trust would fall within the meaning of "dealer" u/s 2(viii) and is consequently assessable to tax under the Act. We are of the considered opinion that HC has not committed any error, whatsoever, and therefore, the civil appeal being devoid of any merit requires to be dismissed. In the result, the appeal is dismissed and the judgment and order passed by the High Court is confirmed.

(See 2015-TIOL-86-SC-CT-LB)