Calcutta High Court
Bank Of India vs Commercial Tax Officer And Ors. on 25 March, 1987
Equivalent citations: [1987]67STC199(CAL)
Author: Suhas Chandra Sen
Bench: Suhas Chandra Sen
JUDGMENT Suhas Chandra Sen, J.
1. A large number of writ petitions have been moved by a number of banks challenging the notices issued by the Commercial Tax Officer, Central Section, Calcutta under Section 14(1) of the Bengal Finance (Sales Tax) Act, 1941 hereinafter described as the Act. Identical notices dated 13th December, 1985 were sent to a number of banks alleging that the banks were "engaged in the business of letting out of movable property, viz., bank lockers on hire/lease/rentals to others for cash, deferred payment or other valuable consideration". It was alleged that such transfer of right to use the bank locker amounted to "sale" with effect from 1st April, 1984. The banks were called upon to produce documents and/or statements relating to receipts on account of rent of lockers of different branches of the banks in West Bengal from 1st April, 1984 for the purpose of levy of sales tax under the Act. The words "taxes on the sale or purchase of the goods other than newspapers" can be levied by the State Legislature by virtue of entry 64 of List II of the Seventh Schedule to the Constitution. By the Constitution (46th Amendment) Act, 1982, Article 366 which the definition clause of the Constitution was amended and the words "tax on the sale or purchase of goods" were defined to include by Clause (29A) of Article 366 :
(29A) 'tax on the sale or purchase of goods' includes-
(a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;
(b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments;
(d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valu able consideration;
(e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made.
2. In order to take advantage of this extended definition given to the words "tax on the sale or purchase of goods", the definition of the word "sale" in Section 2(g) of the Act was changed and a new definition of "sale" was inserted with effect from 1st April, 1984 as under :
'Sale' means any transfer of property in goods for cash or deferred payment or other valuable consideration, and includes-
(i) any delivery of goods on hire-purchase or any system of payment by instalments,
(ii) any transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration, or
(iii) any supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration, and such delivery, transfer or supply of any goods shall be deemed to be a sale of those goods by the person making the delivery, transfer or supply and a purchase of those goods by the person to whom such delivery, transfer or supply is made, but does not include a mortgage, hypothecation, charge or pledge.
3. In this case no transfer of property in the bank locker has taken place as a result of hiring out of the lockers to the customers. Therefore, it has to be seen whether this case comes within any of the three categories of transactions which have been treated as "sale" under the aforesaid definition. Section 2(g)(i) deals with delivery of goods on hire-purchase or other system of payment by instalment. Section 2(g)(iii) brings within the ambit of "sale" any supply of goods, being food or drink, even if such supply is made by way of or as part of any service. The provisions of Clause (i) or Clause (iii) of Section 2(g) cannot conceivably apply to a case of letting out of bank locker. It has now to be seen whether this case comes within the extended meaning of "sale" given in Clause (ii) of Section 2(g).
4. Unlike Clause (iii) of Section 2(g) which brings within the ambit of "sale" any supply of goods or drink by way of or as part of any service, Clause (ii) merely speaks of "any transfer of any right to use any goods for any purpose". It has been stated in the writ petition that the facility of utilising the safe deposit vaults to the customers is given by the bank only as part of the various banking services rendered by the bank to the customers. It will be necessary to examine the right enjoyed by the customers to decide the question whether there has been "any transfer of the right to use any goods for any purpose in this case".
5. It has been stated in the writ petition that the lockers are located in the banking premises. The lockers are installed by the bank to enable the customers to keep cash, jewellery or other valuables in safety. It is only because of the safety provided by the bank, the customers make use of the bank lockers. It has been further stated in the writ petition that safe deposit lockers are installed and maintained by the bank at places where other banking business is also carried out. The safe deposit lockers are affixed and/or attached to the walls or embedded in the floors of a strong room specially built for this purpose. In some other branches of the bank safe deposit lockers are constructed in steel cabinets which consist of several lockers. These cabinets are installed in a vault known as the strong room specially built for this purpose. The lockers cannot be removed and/or detached from the steel cabinets without damaging and/or destroying the entire structure.
6. It has further been stated in paragraph 8 of the writ petition that the customers have to execute an agreement and comply with the terms and conditions of the agreement for the purpose of the use of the lockers. The lockers can be used only during the time and on the dates specified by the bank for this purpose. The bank has the right of closing the safe deposit lockers in any extraordinary contingencies even without any previous intimation to the customers. The bank can also remove the contents of a safe deposit locker and keep the said contents in some other locker. The bank has also a right to terminate the agreement by serving one month's notice.
7. All works of maintenance of repair of the lockers have to be done exclusively by the workmen appointed by the bank. The customers have no right to assign, sublet or part with or deal with or even repair the locker in any way. The bank is responsible for the security arrangements.
8. It is also important to note that the customers are not given exclusive control of the lockers. It has been stated in the writ petition "the safe deposit locker is under dual control and until and unless your petitioner opens the lock with the custodian's key, the customer cannot operate his key". In other words, the bank retains control over the locker all throughout and a double locking system ensures that the locker cannot be opened by a customer except with the said and assistance of the bank.
9. The lockers are kept in a strong room or vault. The key to the strong room or vault is retained by the bank. No one is allowed to enter the strong room without the permission of the bank.
10. The aforesaid allegations of the fact made in the petition have not been defined in the affidavit of Pradip Mukherjee, the Commercial Tax Officer, affirmed on 4th July, 1986. In the affidavit, it has been stated that the lockers are normally kept in the security vaults of the bank and are not by themselves immovable properties. It has been stated that the lockers are like pigeon holes in almirahs placed in the vaults or strong rooms of the bank and those are generally not attached/fixed/fastened to earth or to the walls. The lockers are like compartments in an almirah with independent weights L. M. T., but there is no device in the design of such lockers for fastening or embedding. Therefore, those are obviously movable chattels and banks can remove any block of lockers to any other bank or anywhere if they so decide, at ease with no disturbance to vaults/ strong rooms. It has further been alleged in the affidavit after referring to the standard agreement between the bank and its customers, "the bank retains no right to prevent the allottee from using the locker if the allottee observes the regulations agreed upon. During the continuance of the agreement, the bank transfers all rights over the locker to the customer who uses it as his own security block. The customer may keep the locker empty or he may keep it full. He may not open it for years together or he may open it as often as he likes subject to conditions agreed upon. The bank has no right to take away the locker from him and to allot it to another. The bank cannot ask the allottee to share the locker with another. The bank cannot use allotted locker for its own purpose. Hence the rent realised by the petitioner from letting out the locker is transfer of the right to use goods for any purpose for cash, deferred payment or other valuable consideration and comes within the definition of 'sale' for the purpose of imposition of tax on the sale or purchase of goods."
11. It has further been provided that the access to the safes shall be had by the lessee or by the duly constituted agent of a lessee provided the name of the authorised person is duly recorded in the books of the safe deposit department of the bank. In case of death of a sole lessee or the death of the last surviving lessee out of joint lessees, only the executor or the administrator of the deceased person shall be recognised by the safe deposit department of the bank. This goes to illustrate the limited nature of access available by a customer to the safe. In ordinary course, a person authorised by the customer cannot open a safe unless the name of the authorised person has been previously notified and recorded in the books of the bank.
12. Clause (3) of the conditions lays down that if rent falls in arrear, the bank will have the right of refusing access to this safe. This means that the right of access to the safe is always limited. If rent is paid, the customer can have access to the vault subject to the conditions laid down. If rent is not paid the bank has reserved to it the right of refusing access to the safe.
13. Clause (6) of the conditions is important and it provided that "all properties are received and held by the safe deposit department of the bank subject to a general lien for all moneys due from the lessee with power to sell such property or part thereof for realising moneys due but not paid".
14. This goes to suggest that the customer is being granted use of the locker but the locker remains in possession and custody of the bank. The bank will have a lien over the goods stored in that locker.
15. Condition (7) lays down that all works to be done to the safe, lock or key shall be done exclusively by workmen appointed by the bank. Condition (8) provides that the lessee must neither assign or sub-let the safe or any part with it nor hold it to be used for any purpose other than the deposit of valuable and other property.
16. The bank under Clause (10) has reserved the right during extraordinary contingencies like riots, etc., to close the safe deposit vault or to make changes in the times of opening and closing of the vaults without any previous intimation to the customer.
17. It has further been provided under Clause (11) that "the connection of the bank and the renter of the safe is that of the lessor and lessee for the within mentioned safe and not that of a banker and customer."
18. It has further been provided in the conditions that the lessee will abide by such rules and regulations as the safe deposit department of the bank may from time to time adopt. The bank may require the lessee to vacate the locker on giving one month's notice and the bank will not be responsible for any damage whatsoever to the contents of lockers on failure to comply with such notice, should the bank remove the locker cabinets from the vaults to another vault of the bank or any other place.
19. In my judgment, this is not a case of any "transfer of the right to use any goods for any purpose" as envisaged in Section 2(g) of the Act. Assuming that the locker can be treated as goods, the money consideration paid by the customer is not for the transfer of the right to use the locker only. An elaborate and complex arrangement has been made by the bank for enabling the customer to keep his valuables in safety. The agreement provides that the connection of the bank and the renter of the safe is that of lessor and lessee. Yet the relationship between the bank and its customer is much more complex. It is well-settled that ownership is a bundle of rights. The right of possession or thing owner is one of the most important rights of ownership. The bank has installed a specially built cabinet and placed it in the vault and/or in the strong room of the bank. The strong room or the vault has not been let out to any customer. No one can enter the strong room except with the permission of the bank and the key to the strong room is kept by the bank and the guards to the strong room are provided by the bank. The steel cabinet has also not been let out to any particular customer. It is only the safe deposit lockers which have been individually let out to various customers who cannot use the lockers as and when they like. The lockers can be opened under the conditions laid down by the bank within the limited hours fixed by the bank. The customer cannot open the locker unless it is first unlocked by the bank with the master key or the custodian key. The customer cannot even authorise any person it chooses to open the locker. The authority granted to the authorised person has to be recorded in the books of the bank beforehand. After the death of the customer, only the executor or the administrator of the estate of the customer can open the locker. The bank has a lien on the goods stored in the locker for the rent payable by the customer.
20. All these things go to show that the bank retains the custody and control of the locker all throughout. The customer is given only a restricted use of the locker.
21. Moreover, the arrangement that is made by the bank with the customer cannot be equated to hiring out of an almirah or drawer of an almirah. The rental that is paid by the customer is not for the use or storage space in a cabinet only. It is for the security that is provided by the bank that the lockers are utilised for storing valuables. If the cabinet containing the lockers were not kept in the strong room of the bank or if the security and the safety of the lockers were not ensured by elaborate security arrangement made by the bank, the customer would not have taken these lockers on rent.
22. To borrow the language of Viscount Finlay in the case of Governors of the Rotunda Hospital v. Coman [1921] AC 1 (HL) the subject which is hired out is a complex one.
23. In Rotunda Hospital's case [1921] AC 1 (HL), the Governors of the hospital had built a building which was connected with the hospital which was let out for public entertainment, concert, etc., for periods varying one night to six months. The income was utilised for the purpose of running the hospital. The dispute was about the nature of the income for the purpose of assessment of income tax. The rooms were fitted with arrangements for sitting, heating, attendance and various other facilities. The question was whether the profits that were derived by the hospital were letting out of the rooms and assessable as such to income tax.
24. It was held by the House of Lords :
Profits are undoubtedly received in the present case which are applied to charitable purposes, but they are profits derived not merely from the letting of the tenement but from its being let properly equipped for entertainments, with seats, lighting, heating and attendance. The subject which is hired out is a complex one. The mere tenement as it stands, without furniture, etc., would be almost useless for entertainments. The business of the Governors in respect of those entertainments is to have the hall properly fitted and prepared for being hired out for such uses. The profits fall under Schedule D, and to such profits the allowance in question has no application, as they cannot be properly described as rents or profits of lands, tenements, hereditaments or heritages.
25. That was a case under the Income Tax Act where the question was about the nature of the income. But the important point is that the House of Lords considered the case of letting out of a building which was specially prepared with various fixtures for public entertainments as not mere letting out of property.
26. In other words, where property is specially equipped and fitted out for a special purpose and let out, it cannot be regarded as mere parting with possession of the property for the purpose of earning income. The income is not for parting with the property simpliciter. But the income is derived from trade. In order to derive the income in the instant case, the bank being the property owner had to build a strong room, install a steel cabinet with safety lockers with double locking system and provide constant guard over the property. The access to the lockers was checked. Even the customer personally could not go at any time and open the locker. All these things go to show that the subject which was being hired out was a complex one.
27. The principle enunciated by the House of Lords in the Rotunda Hospital's case [1921] AC 1 (HL) was applied by the Supreme Court in the case of Commissioner of Income-tax v. National Storage Private Limited [1967] 66 ITR 596.
28. In that case, National Storage Private Limited, the assessee, was promoted by the Government of India, for the purpose of providing facilities for storage of films. Vaults were constructed for this purpose and the walls and ceilings were of a particular width. Fire proof doors were installed. The units were built at a distance of 50 fts. from one another. The customer had to enter into a standard form of agreement. Under the agreement, the customers could not use the vault for any other purposes except for storing cinema films. The customers could not transfer, assign, sublet or under let or grant any licence in respect of or part with the possession of the vault or any part thereof without with written permission of the assessee. The assessee was entitled to revoke, determine and put an end to the licence by giving the licensee at any time 70 days previous notice in writing. The assessee was entitled to terminate the licence by giving two days' notice to the licensee and allocate to the licensee alternative space in another vault of the same property. Apart from these conditions the key to each vault was retained by the vault holder but the key to the entrance which permitted access to the vaults was kept in the exclusive possession of the assessee. The assessee also rendered other services to the vault holder. A fire alarm was installed and an annual amount was paid to the municipality towards fire services. Several other facilities were provided which need not be elaborated.
29. The Supreme Court held :
But the learned counsel for the Commissioner says that Section 9 applies because the assessee cannot be said to be in occupation of the premises for the purpose of any concern of its own. He says that the licensees were in possession of the vaults as lessees and not merely as licensees. But, in our opinion, the agreements are licences and not leases. The assessee kept the key of the entrance which permitted access to the vaults in its own exclusive possession. The assessee was thus in occupation of all the premises for the purpose of its own concern, the concern being the hiring out of specially built vaults and providing special services to the licensees. As observed by Viscount Finlay in Governors of the Rotunda Hospital, Dublin v. Coman [1921] AC 1 (HL) 'the subject which is hired out is a complex one' and the return received by the assessee is not the income derived from the exercise of property rights only but is derived from carrying on an adventure or concern in the nature of trade.
30. Although in the case before the Supreme Court, the question was what was the nature of the income, the observation of the Supreme Court on the nature of the right of the vault-holders is illuminating. It has been emphasised by the Supreme Court that the income was received from hiring out of specially built vaults and providing special services to the licensees. The income could not be treated as return received from "the exercise of property rights only".
31. In the instant case, the return received by the bank is not from hiring out of the vaults only. In this case also "the subject which is hired out is a complex one". The bank makes all the security arrangements, provides protective services. It not only retains control to the entrance of the vaults, the locker cannot be opened by a customer until and unless the bank opens the lock with a master key. The lockers remain in the possession of the bank. The access to the lockers are guarded by the bank. The customers cannot gain admission to the vaults unless the bank opens the door and allows the customer to enter. The customer cannot open the bank locker unless the lock is opened previously by the master key kept by the bank. The double locking system ensures that the customer cannot on his own operate the locker.
32. Therefore this is also not a case whose consideration has been received or transfer of the rights to use the locker. The extended meaning of sale in Section 2(g) of the Act, takes in any transfer of the right to use any goods for any purpose for cash, deferred payment or valuable consideration. But in this case, the return that is being received by the bank is not from the exercise of property rights over the bank locker only but is derived from rendering various services along with a limited right to use the bank locker. The subject which is hired out is a complex one. This type of complex transaction cannot be treated as transfer of right to use any goods within the meaning of Section 2(g)(ii) of the Bengal Finance (Sales Tax) Act, 1941.
33. Under these circumstances, this writ petition must succeed. There will be orders in terms of prayers (b), (c) and (d).
34. There will be no order as to costs.