Commissioner of Commercial Taxes, Board of Revenue vs Evangelical Literature Service

Venkataraman, J.—These four appeals raise the validity of assessment to sales tax under the Madras General Sales Tax Act, 1939, of the

respondent in these appeals, namely, the Evangelical Literature Service, Madras, for the four years, 1954-55 (1st April, 1954, to 31st March,

1955), 1955-56, 1956-57 and 1957-58. The amount of tax involved is a little over Rs. 2,000.

The facts necessary for the disposal of the appeals may be taken not to be in dispute. The society purchases Bibles and other Christian literature

at a discount and sells them at the price marked in the books, thereby earning a profit up to 25 per cent on the whole. But the profit is utilised for

the propagation of the objects of the society and dissemination of Christian literature. The turnover was over Rs. 10,000 in each of the years and

hence the assessment was made by the Commercial Tax Officer. The Appellate Assistant Commissioner set aside the assessment. The Board of

Revenue set aside the orders of the Appellate Assistant Commissioner and restored the assessment. Against the order of the Board of Revenue,

the Evangelical Literature Service filed writ petitions under Article 226 of the Constitution in this court. It was heard by a learned Judge of this

court, lie allowed the writ petitions. The State has preferred these appeals against the said order. The reasoning of the learned Judge is in these

words:

Under the Sales Tax Act it is not every sale or purchase that will be liable to tax. The tax is attracted only by the turnover of a person carrying on a

business of buying or selling or both. A dealer has been defined by Section 2(g) as a 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''.

The expressions ''goods'', ''sales'' and ''turnover'' are also defined in the Act. A reading of these definitions will make it plain that, in addition to

the activity of buying and selling, to satisfy the definition of a dealer, the transactions should be motivated by a commercial and be of a commercial

character. Unless the purpose of the activity is essentially commercial, it is not business. It is in that sense the word ''business'' is used in the

definition of a dealer. So, a dealer under the Act is one who is engaged in trade or commerce as such of buying and selling of goods. A continuous

conduct of buying and selling and/or presence of motive to make profit, though they are important components, will not, by themselves, be decisive

on the question.

In this case, the main object of the society, as seen from the Memorandum of Association and Rules, is what is contained in Article 3(a) ,

namely, printing, publishing and distribution of Christian literature. The name of the society, Evangelical Literature Service, is also not without

significance on the nature of the object. It is true Article 3(b) which is relied on by the learned Additional Government Pleader states:

''To adopt all normal business means for the accomplishment of the objects outlined in the foregoing paragraph, saving that no monies shall be

borrowed whether on mortgage or not.''

But it is noteworthy that clause (b) itself expressly indicates the intention of adopting such means only for the accomplishment of the object

mentioned in clause (a) of Article 3. If the object of the society, as it is, is merely to print, publish and distribute Christian literature and is not, as I

think, commercial in character, it is obvious that the object does not become commercial because it is to be achieved by the normal business

means. I fail to see any trade or commercial motive in the objects of the society.

There is an authoritative decision of a Bench of this court consisting of Satyanarayana Rao and Rajagopalan, JJ., in Gannon Dunkerley and Co.

v. State of Madras ILR (1955) Mad. 832, on the definition of ""dealer"". In that case, the assessees, Gannon Dunkerley & Co., were contractors to

put up buildings, bridges, etc., and they supplied foodgrains to the workmen for cost price or less. There was absolutely no element of profit. The

revenue sought to tax the turnover on such sales of foodgrains to the workmen under the provisions of the Madras General Sales Tax Act, 1939.

The learned Judges held that buying and selling of grains were not carried on with a view to make any profit and, consequently, the assessees could

not be said to be carrying on business. There is an exhaustive discussion and it is enough to reproduce a few passages. They observed thus:

There is no element of profit. It was intended merely as a scheme for the amelioration of the workmen and it was in no sense a business of selling

goods within the meaning of the definition. ''Business'' in the definition does not include every activity which in popular sense is called business. The

word ''business'' must be understood in a commercial sense as involving an activity designed to earn profit.

The learned Judges quote what Fry, L.J., had stated in Graham v. Lewis (1889) 22 Q.B.D. 1 thus:

Now, I think that the expression ''carry on business'' is not ordinarily used in the sense of a person being busy or doing business merely. A butler

employed to look after his master''s plate and perform the other duties of his occupation may be a very busy man, but he could not be said to be

carrying on business. A man who busies himself about science, the volunteer movement, or politics, though he may have a great deal of business to

transact in respect of those matters, does not carry on business....

They then referred to another case, namely, the decision in Inland Revenue Commissioners v. Korean Syndicate Ltd. [1921] 3 K.B. 258,

where the company made some profit by acquiring some concessions and turning the same to account. Profit element was present and, therefore, it

was held to be carrying on business within the meaning of the relevant Finance Act. The learned Judges then referred to another case, to which we

shall make reference later, namely, Religious Tract and Book Society of Scotland v. Forbes (1896) 3 Tax Cas. 415, and observed that it was a

peculiar instance of a case in which one particular transaction was held to be a business and the other was not. It was further observed:

The Religious Tract and Book Society of Scotland, which was founded for the diffusion of religious literature, sold Bibles, etc., at a shop in

Edinburgh and also sent out colporteurs, whose duty was to sell Bibles and to act as cottage missionaries. The sales at the Edinburgh shop earned

profit but the colportage ended in loss. The combined effect of the two operations was an annual loss, which was made good by subscriptions. It

was held that colportage, though it involved an element of sale, was not a trade and that the loss on it could not be set off for purposes of income

tax against the profits from the bookseller''s business carried on at the shop in Edinburgh.

Then they concluded:

From a review of these authorities, it seems to us clear that the word ''business'', employed in the definition of ''dealer'' in the Madras General Sales

Tax Act is used in the sense of buying or selling goods with a view to earn profit.

As observed already, in the present case, the supply of foodgrains to the workmen by the assessees is not carried out with a view to earn profit

and in fact no profit accrued. We think, therefore, that the objection of the assessees that they are not liable to pay sales tax must be upheld.

This decision decided another point, namely, that in the contract of works undertaken by the assessees, there was no sale of the materials

which were used by them in putting up constructions like bridges or buildings and, consequently, they were not liable to assessment under the

Madras General Sales Tax Act for the turnover. An appeal was preferred against this decision to the Supreme Court on both the points; but at the

time of arguments, the learned Advocate-General appearing for the Madras State did not press the appeal in respect of the foodgrains, but

pressed the appeal only in respect of the works contract and even then the decision of this court was confirmed -- vide State of Madras v. Gannon

Dunkerley and Co. (1958) 2 M.L.J. 66 , We are mentioning this because the learned Advocate-General of Madras State accepted the

correctness of the decision of this court in regard to the foodgrains and the enunciation of law about the essential element of business being a

motive to earn profit. In view of these authoritative pronouncements, it is unnecessary to refer to any other decision. In fact, it is this principle which

the learned Judge of this court in the judgment under appeal had in mind for the said purpose. He has observed:

A reading of these definitions will make it plain that, in addition to the activity of buying and selling, to satisfy the definition of a dealer, the

transactions should be motivated by a commercial and be of a commercial character.

But the learned Judge goes on to say that the presence of motive to make profit will not be decisive on the question. With great respect, we

are unable to agree with this portion of the enunciation of the law. The statement of law as contained in Gannon Dunkerley''s case (1958) 2 M.L.J.

66 , leaves no doubt that if there is continuous activity of buying and selling carried on ""for some pecuniary gain"" -- to quote the words of Fry, L.J.

-- the assessee must be said to be carrying on business of buying and selling within the meaning of the Madras General Sales Tax Act, 1939, as a

dealer. The learned Judge himself recognised that the assessee was making profit up to 25 per cent on the sale of the books; but he (the learned

Judge) does not think this circumstance as decisive, but what he considers decisive is the ultimate object of the society, namely, to print, publish

and distribute Christian literature. But, it seems to us, and as we shall show, what we say is amply supported by authorities, that for the purpose of

assessment under the Madras General Sales Tax Act, it is immaterial how the profit which is actually earned is utilised -- it is immaterial whether it

is spent wholly for a charitable purpose as the respondent in this case does. To hold otherwise would lead the taxing authorities into an

investigation whether really the profit was used for the alleged religious or charitable purposes, and we do not think that the Legislature ever

contemplated that the taxing authorities should undertake such a task. Further, if such a task is to be undertaken, complications may arise because

an assessee may partly use it for charitable purposes and partly for his own personal purposes, and difficult questions of apportionment would

arise. There is absolutely no provision in the Madras General Sales Tax Act, 1939, requiring the assessing authority to undertake any such task or

to make any such apportionment. The reason for this is that the Legislature felt it to be wholly irrelevant how the profit was utilised. If the object of

the Legislature was wholly to exempt from tax an assessee, if the assessee utilises the profit entirely for charitable purposes, it would have been

easy for the Legislature to enact such a provision in the Act or to grant such an exemption u/s 5 of the Act. They have not done this. It is of interest

to note, as brought to our notice by Mr. Athanasius, the learned counsel for the respondent, that the Government exempted sales of books by any

dealer under the provisions of the Madras General Sales Tax Act, 1959, for the years subsequent to the assessment years now under

consideration -- vide item 22 of Notification G.O. Ms. No. 976, Revenue, dated 28th March, 1959. There is no such exemption for the years in

question.

Apart from principle, there are authorities also laying down that the destination of the profits, which are earned is immaterial in considering the

question of liability to assessment. For this purpose, the learned Government Pleader, Sri S. Mohan, had cited two decisions, namely,

(i) Commissioners of Inland Revenue v. The Incorporated Council of Law Reporting (1888) 3 Tax Cas. 105, and (ii) Religious Tract and Book

Society of Scotland v. Forbes (1896) 3 Tax Cas. 415. In the former case, an association for the preparation and publication at a moderate price

of reports of judicial decisions of the Superior and Appellate Courts in England was established. The business was carried on with a view to make

profits; but the profits were ploughed back for the accomplishment of the objects of such association and could not be distributed. The decision

laid down two propositions, namely, (1) the association was carrying on business because, there was a motive to make profit; and

(2) it was immaterial that they could not pay dividends out of the profits.

In the second case, the society was formed with the object, inter alia, of circulation of religious tracts and books on Christianity and the object

was intended to be carried out partly by the establishment of central and branch shops where there were sales of Christian literature and also by

means of colportage, that is to say, a Christian missionary would go to the villages, do Christian propaganda and also sell Christian literature. The

booksellers'' shops were established at Edinburgh and Belfast. The shop at Edinburgh earned profit. The shop at Belfast worked at a loss; but it

was set off against the profits earned in the Edinburgh shop and the assessment to income tax was made on the net profits of the two shops taken

together. The assessee wanted to set off further the loss incurred by the society in the colportage activity. The learned Judges agreed with the

revenue in repelling this contention of the assessee. They pointed out that the nature of the colportage activity was entirely different and could not,

as a matter of admission, be carried on at a profit and, therefore, it did not amount to a business or even trade and it could not partake of the same

character as the booksellers'' shops at Edinburgh and Belfast. It is important to note that the assessee did not contend that even the business at

Edinburgh and Belfast taken together could not be taxed at all on the profits. Its only contention was that the loss sustained on colportage activity

should also be set off towards the profits. The point to note is that though the assessee there was also founded (as in the present case) to

propagate Christian religion by the sale of books and one of the means of such propagation was to sell Christian literature, the society and its legal

advisers never thought of putting forward a contention that the sales of books at Edinburgh and Belfast were not commercial activities and did not

attract income tax. The position is the same here. In other words, it is clear that the ultimate object of the society there was to utilise the net profits

at Edinburgh and Belfast for the propagation of Christian ideas, and in fact, the profits were utilised in full to meet the loss in respect of the

colportage activity and there was an appeal to the public for subscriptions to make up the deficit still remaining. The assessee submitted to the

assessment of income tax in respect of the bookselling business at Edinburgh and Belfast. The decision, therefore, establishes two things: (1) that

even though the ultimate object might be the utilisation of the profits for some charitable purpose, it is immaterial for the assessment to tax; and (2)

that even a Christian missionary society could be taxed in respect of its commercial activity or sale of books. The decision was cited before the

learned Judge here only for such purposes, but has been explained away thus:

I do not think that the authorities relied on are of assistance to him. The first of them, Religious Tract and Book Society of Scotland v. Forbes

(1896) 3 Tax Cas. 415, related to a certain deduction for purposes of income tax, the Court of Exchequer being of the opinion that the colportage

was not a trade and the loss incurred in connection with it was not deductible for the purpose of income tax.

The real purposes for which the decision was cited have been overlooked by the learned Judge.

The learned Government Pleader has also cited before us a decision in Indian Coffee Board v. State of Madras [1954] 5 S.T.C. 292, wherein

the Indian Coffee Board was held to be a dealer assessable to sales tax under the Madras General Sales Tax Act, 1939, notwithstanding the fact

that the Board could not take the profits on the sale of coffee purchased by them from the producers, except to a small extent. That shows again

that the way in which the profits could be utilised is immaterial to the question of assessability to sales tax.

The aim of the respondent-society in buying and selling the books was to make a profit and that alone is material for us and it ought not to be

confused with the ultimate objects of the society, namely, to propagate Christian literature.

The learned counsel for the respondent, Mr. Athanasius, read to us paragraph 3 of the affidavit of Donald J. David, the General Secretary of

the society. Paragraph 3 is to the following effect:

The petitioner-society buys books from foreign sellers who are in sympathy with the objects of the society and on that account allow a reasonable

discount. They are sold at prices marked and printed in the books. And to those who cannot afford to pay the marked price, they are sold at a

much reduced price and to those who cannot afford to pay at all, they are supplied free of cost according to necessity....

The affidavit also says:

No portion of the proceeds or property of the society can be or are paid or transferred to the members of the society.

It must be made clear that by reading out this affidavit, the learned counsel did not for a moment dispute the finding of fact in the judgment

under appeal, namely, that ""the petitioner purchased books from foreign countries at a discount and sold them at a profit up to 25 per cent"". In

other words, it is not disputed that on the whole, irrespective of the sale of the books to some persons at reduced prices or gifts of the books,

there was a total profit and there was the motive to make some profit up to 25 per cent. The learned counsel referred to this circumstance of sale

to some persons at reduced prices and gift of the books to others only as reinforcing the general object of the society, namely, to propagate

Christian literature. He further submits that the society did not start as traders or businessmen, but was founded for the establishment and

propagation of Christian literature and that buying and selling of books was only incidental. We do not think that any of these considerations has

any relevancy on the question of liability to sales tax. These are considerations which might well have weighed with the Government to grant

exemption to the society u/s 5 of the Act; but these are not considerations which the court can take note of. The society seems to have approached

the Government to grant exemption to them just as they have granted exemption in respect of sale of books by Ramakrishna Mission Society and

the request seems to have been turned down; but that would not prevent the society from again approaching the Government for exemption. The

learned Government Pleader stated that the object of the Government was more to get this court to recognise the principle that the society is liable

to assessment of sales tax.

We may say in fairness that the learned Government Pleader himself brought to our notice that the decision under appeal was followed by a

Bench of the Allahabad High Court in M.C., Temple Sri Bankey Behari Ji v. Commissioner of Sales Tax [1972) 29 S.T.C. 685. There, a devotee

coming to the temple pays some money to an employee of the temple who in turn supplies bhog (sweetmeat) to the priest. The priest takes some

portion of the bhog and gives the remainder to the worshipper. The question arose whether there was a sale of bhog and the turnover of such sales

was liable to sales tax. The learned Judges held that there was no sale of bhog because there was no bargaining between the worshipper and the

temple. Alternatively, they stated that the temple could not be said to be carrying on the business of selling bhog and in support of that reasoning,

they relied on the decision under appeal. We do not wish to say anything about the first part of the decision, but about the alternative reasoning, we

must respectfully differ if it implies that the criterion of profit is not relevant at all and if the decision intended to lay down that the destination of the

profit has any relevance.

In the result, we allow the appeals, set aside the order of the learned Judge and dismiss the writ petitions filed by the assessee. The parties will

bear their costs in both the courts.