Karnataka High Court
United India Insurance Co. Ltd. vs Commissioner Of Commercial Taxes, ... on 25 March, 1986
Equivalent citations: ILR1986KAR3418, 1986(2)KARLJ107, [1986]63STC252(KAR)
ORDER S.R. Rajasekhara Murthy, J.
1. Petitioner is a company registered under the Companies Act, 1956 ("the Act"), and carries on business in general insurance. On the nationalisation of the petitioner-company, it is now a subsidiary of the General Insurance Corporation of India and is a Government company, as defined in section 617 of the Act.
2. The business of the petitioner-company is to insure motor vehicles, goods, machinery against damage, risk or theft, personal accidents, injuries and the like.
3. In the course of its business of general insurance of the motor vehicles and other goods, after the settlement of claims, the petitioner, sometimes, comes into possession of the insured goods, vehicles, etc., which are in a damaged condition and the claimants are compensated by the insurance company. Such vehicles and goods which come into possession of the petitioner-company are sold by it in the same condition at a salvage sale.
4. The petitioner had entered into a contract of insurance with M/s. Plascom Industries in the year 1977-78 whereunder the petitioner has insured plastic powder for risk in transit. In the course of such transit the insured goods had suffered extensive damage and therefore taken over by the petitioner after settling the claim of the owner for Rs. 58,800. The said goods was disposed of by the petitioner in a salvage sale conducted during the said year, for a price of Rs. 58,800.
5. The Additional C.T.O., 17th Circle, Bangalore, issued a notice under section 10(1) of the Karnataka Sales Tax Act ("the Act") and called upon the petitioner to register itself as a dealer under section 2(k)(i) of the Act.
6. A copy of the notice dated 22nd April, 1982, is produced as annexure A to the petition.
7. The petitioner replied to the said notice by its letter dated 28th May, 1982, annexure B, and contended that it was not carrying on any business of buying and selling as contemplated under the Act and was therefore not liable to register itself as a dealer under the Act. Since the department did not agree with the contention of the petitioner, this writ petition is filed raising, inter alia, among other grounds that the notice dated 22nd April, 1982, should be struck down.
8. It was brought to my notice during hearing by the learned High Court Government Pleader that during the pendency of the writ petition an order under section 10 of the Act had been made by the second respondent on 28th January, 1983. The petitioner thereupon filed an application seeking amendment of the writ petition and has produced the said order as annexure F, and has prayed for quashing the same. The said application was allowed and the petitioner has also amended the writ petition.
9. The arguments advanced by Sri Nagananda, learned counsel for the petitioner, challenging the notice issued under section 10(1) are adopted as arguments in respect of the order that followed :
Sri Nagananda has argued that having regard to the scheme of the Act and even after the introduction of "casual trader" in section 2(f-3) with effect from 1st April, 1964, by Act 9 of 1964 the petitioner-company cannot be considered as a "dealer" as defined under section 2(k) of the Act.
"2. (k) 'dealer' means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration, and includes -
(i) an industrial, commercial or trading undertaking of the Government of Karnataka, the Central Government, a State of Government of any State other than the State of Karnataka, a local authority, company, a Hindu undivided family, an aliyasanthana family, a society, a club or an association which carries on such business;
(ii) a casual trader;
(iii) ....................."
The contention of the petitioner is that business in general insurance is not a "business" as defined under section 2(f-2) of the Act. "Business" for the purpose of the Act, includes -
"(i) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern; and
(ii) any transaction in connection with, or incidental or ancillary to such trade, commerce, manufacture, adventure or concern."
10. According to the learned counsel, a person may carry on business as defined under the Act, but for attracting the charging provision, namely, section 5, he should be a "dealer" under the Act. It is, therefore, contended that there is intricate connection or nexus between the definitions of the terms "business" and "dealer" and the petitioner-company though carries on business in general insurance, cannot be treated as a "dealer" under the Act. "Dealer" for the purpose of the Act means, a person who carries on the business of buying, selling, supplying or distributing the goods, directly or otherwise, whether for cash or for deferred payment or for commission, remuneration or other valuable consideration and includes "casual trader".
11. It is argued on behalf of the petitioner that the department has erred in treated the salvage sale of the goods in question as forming part of the business of the company and the company as a "casual trader" and that therefore is liable to pay tax on the realisation from the said sale. The contention of the petitioner-company is that in order to satisfy the definition of a "dealer", it must, in the first instance, be found carrying on trade, commerce or manufacture and should be carrying on business of buying, selling, supplying, distributing, etc. Therefore, the sale of the goods which came into its possession as a consequence of the settlement of the claim of the owner of the goods was not a transaction in the course of its business nor can it be considered as a "casual trade" in order to attract the charging section of the Act. It is not every commercial activity that attracts the provisions of the Act, but only such activity of buying and selling in the course of its business. It is, therefore, vehemently argued that the insurance business of the petitioner-company is not one such which can fall within the concept of "business" as defined under the Act under section 2(f-2) and is therefore not a dealer falling under section 2(k) of the Act.
12. It is argued for the respondents by Sri Dattu, the learned High court Government Pleader, that the business of general insurance carried on by the petitioner-company is a business falling under the inclusive definition of "business" in section 2(f-2) of the Act. The sale of the goods was therefore incidental and ancillary to the business of the petitioner-company and that therefore it satisfies the definition of "business" under the Act. It is, therefore, contended that the petitioner-company was rightly treated as a dealer and the order made by the second respondent calling upon the petitioner to register itself as a dealer under the Act, should be upheld.
13. In support of his contention Sri Nagananda has relied upon a number of decisions and the first of them is :
(1) The Divisional Superintendent (Works), Southern Railway, Mysore v. State of Karnataka [1981] 48 STC 33 (Kar).
It was held in that decision that sales tax could not be levied under the provisions of the KST Act, 1957, as they stood prior to 1st April, 1976, on the sales of cinder, ash and scrap material by the railways since such sales were held not to be sales in the course of its business.
This Court applied the ratio of the decisions of the Supreme Court in Raipur Manufacturing Company and Burmah Shell case , but at the same time observed that after the amendment of section 2(k) in the KST Act, it takes within itself any transaction of sale which is ancillary or incidental to the main business.
(2) New India Assurance Company v. Deputy Commercial Tax Officer, Madras [1972] 29 STC 539 (Mad.).
Where a company carrying on general assurance business comes into possession of a damaged vehicle in the course of settling the claims under the insurance policy, the vehicle is sold by the company, they (company) cannot be characterised as casual dealers coming within the definition of a "dealer" in section 2(g) of the Madras General Sales Tax Act, 1959, and the sale of the vehicle cannot be subjected to sales tax.
Their Lordships proceeded on the basis that the commercial activity of the petitioner is general assurance business. They do not buy or sell or supply or distribute goods either for cash or deferred payment or for any other consideration. Occasionally, therefore, when they come into possession of damaged vehicle and dispose of the same in a salvage sale, it cannot amount to causal trade.
The Madras High Court applied the decision of the Supreme Court in the case of Raipur Manufacturing Co. . But this was a decision rendered before section 2(g) of the Madras Act was amended with effect from 1964, to include any transaction in connection with or incidental or ancillary to such trade, commerce or manufacture, etc. (3) State of Tamil Nadu v. Burmah Shell Co. Ltd. .
"Business" before amendment in the Madras General Sales Tax Act did not include the transactions which were incidental or ancillary to the trade or commerce, where there was no profit-motive. The sale of advertisement material and scrap by the Burmah Shell Company was held not a business, before its amendment in section 2(g) of the Madras General Sales Tax Act in 1964 and was not liable to sales tax on such sales.
(4) Manager, Pulpally Devaswom v. State of Kerala [1977] 40 STC 350 (Ker).
Dealing with section 2(vi) of the Kerala General Sales Tax Act, the Kerala High Court held that the sale of spontaneously grown timber which had been felled and dressed by the petitioner was not taxable under the the Act. It was further held that the dewaswom could not be treated as dealer as defined under the Act.
(5) Straw Products Ltd. v. State of Orissa [1978] 42 STC 302 (Orissa).
"Business" as defined under section 2(b) of the Orissa Sales Tax (Amendment) Act, 1974; sale of forest produce by the Government. Whether the Divisional Forest Officer can be assessed under the Act ? Held, that the DFO could not be a "dealer" qua the transactions covered by the contract. The Orissa High Court relied upon the decision in Orient Paper Mills' case [1971] 28 STC 532 (MP) which was upheld by the Supreme Court in State of Madhya Pradesh v. Orient Paper Mills Ltd. . But the said decision was held no longer good law in State Orissa v. Titaghur Paper Mills .
(6) Commissioner of Sales Tax v. Cantonment Board [1979] 44 STC 40 (All.) Sale of old fallen trees, fruits, grass, etc., by the Contonment Board Meerut, was held incidental to its statutory duty and could not therefore characterised as a systematic or organised course of activity falling within the definition of "business" in the Act. It was therefore held that the Cantonment Board was not a "dealer" within the meaning of that term as defined in section 2(c) of the U.P. Sales Tax Act.
(7) Deputy Commissioner of Commercial Taxes, Madurai v. A. R. S. Tirumeninatha Nadar Firm [1968] 21 STC 184 (Mad.).
Sale of pledged articles with the banker in the course of its business of money lending : Held by Sri Veeraswami, J., that the turnover representing the sale of pawned articles on behalf of the assessee by the banker was held to be included in the assessee's turnover liable to tax.
(8) State of Madras v. Trustees of the Port of Madras [1974] 34 STC 135 (Mad.).
State of unclaimed and unserviceable goods by the Madras Port Trust : The question was whether the Port Trust was a dealer liable under the Tamil Nadu General Sales Tax Act even after amendment of "business". Held, that the Port Trust, a statutory body had disposed of the unserviceable goods in the course of the exercise of its statutory duties and not as a dealer and were therefore not liable to pay sales tax.
(9) State of Gujarat v. Raipur Manufacturing Company .
14. This was a case in which the interpretation of the term "business" in the said Act before its amendment came up for interpretation.
15. The assessee-company was a manufacture of cotton textile. In the course of its business it had disposed of goods which were unserviceable or unsuitable.
16. The Supreme Court held, that it was not the intention of the assessee-company therein to deal in goods which were discarded, surplus or unserviceable, but was essentially a manufacturer of cotton textile. On the facts of the said case, the Supreme Court held, the burden was on the sales tax authorities to prove that the company was carrying on business of selling coal before the turnover in the said goods could be brought to tax.
17. Therefore, this decision is not of any assistance to the petitioner's case for more than one reason.
18. Firstly, that the definition of the term "business" in the Bombay Sales Tax Act before its amendment came up for interpretation and secondly, the Supreme Court held the burden was on the department to establish that the assessee was a dealer in the goods in question before their sales could be brought to tax.
19. In support of the arguments advanced by the learned Government Pleader he has relied upon the following decisions :
(1) State of Tamil Nadu v. Binny Ltd., Madras .
The assessee, Binny Ltd., was carrying on business of manufacture and sale of textiles. It also sold provisions to its workmen in the stores maintained by it.
The question that came up for interpretation was : whether the said activity of selling provisions was incidental to the business of manufacture of textiles and such sales were transactions falling within the definition of "business" in section 2(d)(ii) of the Tamil Nadu General Sales Tax Act, 1959.
The Supreme Court held, that the assessee carried on business in selling provisions in its stores and those sales attracted the liability to tax under the Act.
The Supreme Court relied upon its observations made in Burmah Shell case wherein the term "business", after its amendment in the year 1964 to the Madras Act, came up for interpretation.
Sri Krishna Iyer, J., speaking on behalf of the court, pointed out that "a thing is incidental to another if it merely appertains to something else as primary. Surely, such work should not be extraneous or contrary to the purpose of the establishment, but need not be integral to it either".
(2) The District Controller of stores, Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer .
The Supreme Court held, that in view of the definition of the word "business" in the Rajasthan Sales Tax Act it would include sales of unserviceable materials and scrap iron also. It covered any transactions in connection with or incidental or ancillary to such trading or commerce, etc. (3) Deputy Commissioner of Commercial Taxes, Tiruchirapalli Division v. North Arcot District Co-operative Sugar Mills Ltd. [1974] 34 STC 543 (Mad.).
The assessee, a co-operative sugar mills, regularly purchased fertilisers of different kinds and supplied the mixture thereof to the cane-growers who were members of the society which owned the mills. It was held, that the transactions of supply of fertilisers by the mills to the cane-growers amounted to sales and by reason of the decision of the Supreme Court in State of Tamil Nadu v. Burmah Shell , the sales were taxable transactions.
(4) National Insurance Co. v. Union of India, Delhi .
"Sales" of goods which were damages and rendered unuseable which came into the custody of the petitioner-company after making payment, were sought to be dealt by the sales tax authorities as constituting business activity of the petitioner-company.
The insurance-company had challenged the constitutional validity of the proceedings initiated under the Sales Tax Act. The court, while dismissing the writ petition, upheld the validity of the proceedings against the insurance company.
(5) Commissioner of Sales Tax, M.P. v. Project Automobiles [1978] 42 STC 279 (MP).
The assessee, a distributor of Ambassador cars, sold the car purchased for its office use. That sale was brought to tax as falling under the activity of "business" as defined under the M.P. General Sales Tax Act.
It was held, that after the definition of the word "business" was enlarged as amended under the M.P. Act, it included the sale in question as being incidental and ancillary to and connected with the business of the assessee.
(6) Birla Cotton Spinning and Weaving Mills Ltd. v. State of Haryana [1979] 43 STC 158 (P & H).
The assessee's business was mainly manufacture of cloth and yarn. The retrospective amendment of the definition of the "dealer" was upheld by the Punjab and Haryana High Court as valid. This case did not deal with the issue similar to the one raised in this petition.
(7) State of Tamil Nadu v. Saraswathy Kurwath Damodaran [1977] 39 STC 542 (Mad.).
Their Lordships were interpreting the amendment of section 2(g) of the Tamil Nadu General Sales Tax Act, 1959, referring to "business".
The definition of "business" introduced by the Amendment Act of 1964 refers not only to trade, commerce or manufacture, but also to any transaction in connection with or incidental or ancillary to such trade, commerce, manufacture, etc. Applying this definition, the Madras High Court held, that the turnover of the assessee in sale of paper and paper-boards imported under licence obtained to export sea-foods was intimately connected with the assessee's business and that the transaction was therefore liable to sales tax under the Tamil Nadu Act.
(8) Board of Revenue v. A. M. Ansari .
Dealing with the definition of "business" in the A.P. General Sales Tax Act of 1957, their Lordships of the Supreme Court held, in view of the amendment introduced in 1966, that the consideration of profit-motive could not be regarded as an essential constituent of the term "business", but the other ingredients of the term "business", viz., volume, frequency, continuity and regularity of transactions of sale and purchase must be satisfied in order that a person could be said to be carrying on the business of selling goods.
On the facts of that case, the Supreme Court held, that the sale by auction of the forest produce by the Government of Andhra Pradesh did not attract the liability to tax on the respondents (auction purchasers).
(9) State of Andhra Pradesh v. H. Abdul Bakshi and Bros. .
20. Dealing with the expression "business" (Sri Shah, J.) held that, "business" though extensively used is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation or profession which occupies the time, attention and labour of a person, normally with the object of making profit. It was held on fats, that a registered dealer carrying on the business of tanning hides and skins and of selling the tanned hides and skins is liable to pay tax under rule 5(2) of the Hyderabad General Sales Tax Rules.
21. Many of the decisions relied upon by the petitioner-company dealt with the definition of "business" before its amendment in the various sales tax legislation. They are :
(i) [1981] 48 STC 33 (Kar) [Divisional Superintendent (Works), Southern Railway, Mysore].
Sale of cinder ash and scrap by the railway was held not liable to tax under the KST Act prior to the amendment of "business" in 1976. By the said amendment, business includes, any transaction in connection or incidental or ancillary to such trade, commerce, manufacture, adventure or concern.
(ii) [1972] 29 STC 539 (Mad.) (New India Assurance Co. Ltd.)
(iii) [1977] 39 STC 542 (Mad.) (State of Tamil Nadu) and
(iv) (Raipur Manufacturing Co.).
22. The other cases of the Kerala High Court in [1977] 40 STC 350 (Manager Pulpally Devaswom v. State of Kerala), Orissa High Court in [1978] 42 STC 302 (Straw Products Limited v. State of Orissa and Madras High Court in [1968] 21 STC 184 (Deputy Commissioner of Commercial Taxes v. Thirumeninatha Nadar Firm) have no bearing on the point for consideration that arises in the present case.
23. The two decisions of the Allahabad and Madras High Courts reported in [1979] 44 STC 40 (Commissioner of Sales Tax v. The Cantonment Board) and [1974] 34 STC 135 (State of Madras v. Trustees of the Port of Madras) are also distinguishable.
24. As already stated, the Allahabad High court case related to sale by the Contonment Board of fallen trees, fruit, grass, etc., and supply of cement and iron to contractors for construction works. The High court held, that the Board could not be treated as a dealer within the definition of section 2(c) of the Act. It was held that the sale of trees was incidental to its statutory duty and could not be characterised as a systematic activity of business.
25. So also in the case that came up before the Madras High Court in [1974] 34 STC 135 (State of Madras v. Trustees of the Port of Madras). It was a case of sale or unclaimed or unserviceable goods by the Port Trust. It was held to be not a sale and was therefor not liable to sales tax. This was, no doubt, a decision rendered after the term "business" was amended in the Madras General Sales Tax Act.
26. These two decisions have to be distinguished in the light of the principle laid down by the Supreme Court in (Northern Railway, Jodhpur) and (Binny's case).
27. The learned High Court Government Pleader has relied upon the decisions of the Supreme Court in Binny's case and Northern Railway, Jodhpur .
28. In Binny's case , the definition of "business" in the Tamil Nadu General Sales Tax Act, after its amendment, came up for interpretation. The activity of selling provisions to its workmen was considered as incidental to its business of manufacture of textiles and it was therefore a business for purposes of liability to sales tax under the Madras Act.
29. Their Lordships referred to the observations made by the Supreme Court in the case of Burmah Shall . In the latter case, the sale of advertisement material, scrap and the canteen sales by the Burmah Shell was held to be business (after amendment) and was, therefore, liable to sales tax.
30. Sri Jaganmohan Reddy, J., while allowing the appeals of the State of Tamil Nadu partly held, that the sale of scrap by Burmah Shell was certainly connected with the business of the company and the turnover in respect of the said sale was also liable to tax.
31. The Supreme Court disagreed with the view taken by the Madras High Court and distinguished its earlier decision in Raipur Company relied upon by the assessee.
32. The other decision relied upon by the learned High Court Government Pleader are of the Madras High Court in [1974] 34 STC 135 (State of Madras v. Trustees of the Port of Madras), Punjab and Haryana High Court in [1979] 43 STC 158 (Birla Cotton Spinning and Weaving Mills Ltd. v. State of Haryana), M.P. High Court in [1978] 42 STC 279 (Commissioner of Sales Tax v. Project Automobiles) and Delhi High Court in [1978] 41 STC 30 (National Insurance Co. Ltd. v. Union of India) support the contention of the State.
33. On a careful analysis of the decisions relied upon for the State and in view of the principle laid down by the Supreme Court dealing with the definition of "business", as including transactions, which are incidental or ancillary and depending upon the facts of each case, I am of the view that the contention of the department has to be upheld. That the General Insurance Company, in this case, is carrying on the business of general insurance is not in dispute.
34. It is the contention of the petitioner-company that the sale of the goods which came into its possession, as a result of the settlement of the claim, cannot be treated as a business of the petitioner-company, nor as incidental or ancillary to its business. Stress is laid on the definition of "dealer" in the Act which suggests that a person to be constructed as a dealer for the purposes of the Act should be carrying on the business of buying and selling.
35. The other contention of the petitioner-company in this case is that it cannot be treated as a casual trader under the Act. The petitioner-company is called upon to register itself as a dealer, since it had sold the goods during the relevant year and had realised Rs. 58,800. At this stage, the petition-company challenged the said notice in this writ petition.
36. Applying the principles laid down by the Supreme Court in the cases of Binny and Company , Burmah Shell and Northern Railway , the contention of the petitioner has to be rejected. After the definition of "business" was expanded, it includes all ancillary and incidental transactions and it is no longer open to the petitioner to contend that the sale of the goods was not incidental to its business. It is not necessary that a transaction for purpose of attracting charging section of the Act should always involve buying and selling, vide observations of Sri Jaganmohan Reddy, J., in Burma Shell case in .
37. In the nature of business of the insurance company the sale of the goods in question had to be treated as a transaction incidental to its business and the CTO rightly called upon the petitioner to register itself as dealer under the K.S.T. Act so that it may be subjected to tax under the Act in respect of the sale of the goods.
38. The order made by the CTO under section 10 of the Act during the pendency of the writ petition on the 28th January, 1983, which is produced as annexure F, is also upheld.
39. In the result, the writ petition is dismissed and the rule issued is discharged.
40. Writ petition dismissed.