Southern Railway Employees' Workshop Canteen vs The Deputy Commercial Tax Officer and Another

Ramakrishnan, J.—The petitioner in these two writ petitions is the Southern Railway Employees'' Workshop Canteen, Golden Rock,

Tiruchirapalli, the first respondent is the Deputy Commercial Tax Officer, Tiruchirapalli Town IV, and the second respondent is the Appellate

Assistant Commissioner (C.T.), Tiruchirapalli. The petitioner''s contentions are briefly the following. The Southern Railway Workshop at Golden

Rock employs about 6,000 workers apart from the clerical and office staff. As required under the provisions of Section 46 of the Factories Act

(Central Act 63 of 1948) and the rules framed thereunder, the railway is obliged to maintain a canteen for its employees where eatables are

supplied to them on a non-profit basis, in other words, on the basis that there should be no motive to make a profit. Thus, there is no commercial

aspect in the sales effected at the canteen by the petitioner to these workers, and therefore the petitioner could not be deemed to be engaged in

business so far as this canteen is concerned, and it could not also be treated as a dealer for the purpose of the Madras General Sales Tax Act of

1959 (Act 1 of 1959), hereinafter called the Act. Nevertheless, the first respondent assessed the petitioner to sales tax on its sales effected in

1959-60 and collected from it unauthorisedly Rs. 2,229-09 nP. towards sales tax assessment. The appeal to the second respondent against the

order of assessment failed. The contention of the petitioner is that the levy is illegal and ultra vires the Constitution.

Writ Petition No. 1347 of 1962 is filed to quash the above assessment order by a writ of certiorari. Writ Petition No. 1348 of 1962 is filed for

the issue of a writ of mandamus or other appropriate writ directing the return of the sales tax amount unlawfully collected. The claim thus put

forward that the levy was illegal and opposed to the provisions of the Constitution was denied by the department in their counter-affidavit.

The learned Counsel for the petitioner relied upon Section 46 of the Factories Act, which gives power to the State Government to make rules

requiring that in any specified factory wherein more than two hundred and fifty workers are ordinarily employed, a canteen or canteens shall be

provided and maintained by the occupier for the use of the workers. Rules 65 to 71 of the Madras Factories Rules, 1950, are the rules thus

framed by the State Government. They contain detailed directions as to how the canteen should be run and they also provided for close

supervision by the Chief Inspector of Factories over the running of the canteen, which is treated as an item of amenity to the workers, which the

management is bound to provide. Rule 68 states that food, drinks and other items served in the canteen shall be served on a non-profit basis and

prices charged shall be subject to the approval of the canteen Managing Committee, and in the event of the Committee not approving the price list,

or if the Committee was equally divided on the issue, the price list should be sent to the Chief Inspector for approval. The charge per portion of

food-stuff, beverages and any other item served in the canteen shall be conspicuously displayed in the canteen. Relying on these provisions, learned

Counsel Sri Thyagarajan, appearing for the petitioner, has urged that the canteen is run because of the requirement of the statutory provision, and

therefore, the management have no option in the matter of carrying on such activity or not. It is therefore'' an involuntary activity which the

management is compelled to engage in. Secondly, he referred to the insistence in Rule 68, which is referred to above, that the canteen should be

run on a non-profit basis, and he urged that this would rule out a profit motive, and would show that the activity was not of a commercial character.

He stressed that under the Sales Tax Act, as per definition of ""dealer"" in Section 2(g) (any person who carries on the business of buying and

selling...), of ""business"" in Section 2(d) (""business"" includes any trade, commerce or manufacture or any adventure or concern in the nature of

trade, commerce or manufacture, whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern) and of ""sale

in Section 2(n) (every transfer of the property in goods by one person to another in the course of business for cash or for deferred payment or

other valuable consideration), the activity should be commercial in nature, and that the aspect of a profit motive should be present as an essential

requirement in the transactions of a person before he can be assessed as a dealer to sales tax, in respect of them; but these requirements are absent

in the present case.

He also referred to a series of decisions which have laid down propositions in more or less the same terms as mentioned above. Sri Meenakshi

Mills Ltd. v. State of Madras [1954] 5 S.T.C. 291 was a case of a canteen run by a factory under the statutory obligation, and a Bench of this

Court held that the word ""business"" in the definition of ""dealer"" in the Madras General Sales Tax Act, 1939, was used in a commercial sense an

integral part of which was the motive to make profits by sales or purchases, and that if this was wanting, a person merely buying or selling would

not be a dealer. Another early decision of this Court in Gannon Dunkerley and Co. v. State of Madras [1954] 5 S.T.C. 216 is also to the same

effect. It may be pointed out that the 1939 Act did not contain a definition of the word ""business"". ""Dealer"" was defined in that Act but it was less

comprehensive than in the 1959 Act, which added activities like the ""business of buying, selling, supplying or distributing the goods"" to the definition

of dealer. The definition of ""sale"" in the 1939 Act had the requirement that there should be a transfer of property in the course of trade or business;

the amendment in the 1959 Act retained this part of the definition, but made alterations in other respects to the definition. Therefore, the principles

laid down in Sree Meenakshi Mills Ltd. v. State of Madras [1954] 5 S.T.C. 291 would continue to apply even after the 1959 Act, if the definition

of ""dealer"" and ""sale"" alone had to be considered. In the 1959 Act, however, ""business"" was defined for the first time in Section 2(d). But this

definition used the words ""whether or not any profit accrues from such trade, commerce etc."" The learned Judge, Veeraswami, J., dealing with this

definition of ""business"" in the 1959. Act in Soundarapandian & Bros. v. Deputy Commercial Tax Officer [1962] 13 S.T.C. 870, held that this new

definition did not dispense with the requirement of profit motive, to constitute an activity into a business for the purpose of the Act. That was a case

which dealt with sales in a canteen for labourers run by a plantation proprietor. The learned Judge also held that the principles in Sree Meenakshi

Mills Ltd. v. State of Madras [1954] 5 S.T.C. 291 would continue to apply notwithstanding the new definition of ""business"" incorporated in the

1959 Act. This view was followed in Integral Coach Factory Canteen v. Deputy Commercial Tax Officer [1962] 13 S.T.C. 827, which dealt with

a case of canteen run in the Integral Coach Factory, Madras. In Deputy Commissioner, Commercial Taxes v. Carriage Works Canteen [1963] 14

S.T.C. 654, a Bench of this Court followed the view of Veeraswami, J., in his interpretation of the term ""business"" in the 1959 Act. The view of

the Madras High Court in Gannon Dunkerley and Co. v. State of Madras [1954] 5 S.T.C. 216 was followed by the Allahabad High Court in

Kanpur Development Board v. Commissioner of Sales Tax [1963] 14 S.T.C. 493 in interpreting the U.P. Sales Tax Act, 1948. In the last

mentioned decision two meanings of the word ""business"" were adverted to:--

''Business'' has (1) a broad, generic meaning which is the primary meaning of right or occasion of making oneself busy, that which busies or

occupies the time, attention or labour of one as his principal concern, regardless of any idea for gain or profit and (2) a narrower or restricted

meaning which is the commercial, legal or trade meaning of occupation for livelihood or profit such as a commercial or industrial establishment or

enterprise. In the narrower sense it applies only to that in which one engages for the purpose of livelihood, profit or the. like. In stressing the

purpose of livelihood or the profit motive it is essential that livelihood or profit be at least one of the purposes for which the employment is pursued

though it is enough if there is a bona fide intention to earn a livelihood or make a profit.

and the second and narrower meaning was preferred for application to the U.P. Sales Tax Act of 1948. The above decisions are relied upon by

the learned Counsel for the petitioner for attacking the assessment in these cases as being opposed to the principles of General Sales Tax Act even

after its amendment in 1959.

The learned Government Pleader, while not disputing the above interpretation of the law as laid down in the 1959 Act, and in the decisions

which interpreted that law, and which have been cited above, however, referred to an amendment of the Madras Act, by Act 15 of 1964, which

contains two important provisions relevant for the present case. Section 2 of the Amendment Act substituted, for the definition of ""business"" in

Section 2(d) of the 1959 Act, a new definition:

(d) ''business'' 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.

Section 9 of the Amendment Act contains a validating provision in the following terms:

Notwithstanding anything contained in any judgment, decree or order of any court, no levy or collection of any tax under the provisions of the

principal Act and of rules made thereunder in respect of sales in the course of business, whether or not it is carried on with a motive to make gain

or profit shall be deemed to be invalid or ever to have been invalid on the ground only that such levy or collection was not in accordance with law

and such tax levied or collected or purporting to have been levied or collected shall, for all purposes, be deemed to be and always to have been

validly levied or collected.

The learned Government Pleader urged, relying upon the above provisions of the amending Act, that after this amendment, it was not necessary

to look for the existence of a profit motive before sales in the course of business can be assessed to sales tax. He also relied upon the validating

provisions for upholding the assessment in the present cases, even if one holds that a profit motive is absent in this case.

That the validating provision will have such effect is not disputed by the learned Counsel appearing for the petitioner. But, according to him, even

after the amendment of the definition of ""business"" in Act 15 of 1964, the activity comprehended within that term should be restricted only to an

activity which is commercial in nature and which has, therefore, a profit motive. If the interpretation thus put forward by the learned Counsel for the

petitioner is accepted, it will imply that the new definition of ""business"" involves a mutual contradiction in terms. If ""business"" for the purpose of the

Madras General Sales Tax Act were to be given the narrower meaning mentioned in the Allahabad High Court''s decision, which is cited above,

namely an activity designed for one''s livelihood, i.e., for earning profit, then the provision in the amendment, that a profit motive is unnecessary

would imply a self-contradiction in the language of the definition itself. Before dealing with this point more fully, I will refer to the power of the State

Legislature to enact sales tax legislation, derived from Entry 54 in List II of the Seventh Schedule of the Constitution, which relates to tax on the

sale or purchase of goods other than newspapers. The significance of Entry 54 in List II came up for consideration before the Supreme Court in

State of Madras v. Gannon Dunkerley & Co. (1958) 2 M.L.J. 66. Venkatarama Aiyar, J., who delivered the opinion of the Bench, after an

elaborate discussion of the authorities, came to the conclusion that the expression ""sale of goods"" in the entry must be construed in the sense which

it has in the Indian Sale of Goods Act. But the definition of ""sale"" in the Sale of Goods Act obviously has no restriction which will confine its

application to sales with a profit motive. It would, therefore, follow that the power of the State to tax sales of goods is not restricted to sales which

are in the course of trade or business with a profit motive. On a strict interpretation of the entry in the Second List of the Seventh Schedule of the

Constitution, the power will include the power to tax sales of goods of all description so long as they satisfy the definition of ""sale"" in the Sale of

Goods Act. In using that power to levy the tax, the State Legislature had, in the past, selected only sales of a commercial nature, i.e., those

effected with a profit motive by merchants and tradesmen because such levy was expected to provide a source of revenue, which would be

certain, regular and capable of being readily assessed as well as easily collected. But, as the welfare activities of the State progressively included

also trading and other commercial activities, such sales were also included for the purpose of levy of sales tax by appropriate addition to the

definition clauses in the Act. During the same process of expanding the welfare activities in the ""private sector"", so called, social and ameliorative

legislation was passed, one of the consequences of which was that industrial concerns were compulsorily required to undertake purchases and

sales of essential goods for supply to the workers. In this category fall grain shops and provision stores. In a slightly different category, but included

within the scope of the same ameliorative activity, compulsorily enjoined on industrial concerns, falls the running of canteens where tiffin and

beverages are supplied to workers. To provide an incentive to workers by supplying these items as cheaply as possible, it was insisted that such

supplies should be made without a motive to profit. The industry was expected to look for its profits to its principal activity, and the buying and

selling that takes place in the canteens was treated as a subsidiary activity of an ameliorative character which should be conducted without an idea

to make a profit thereby. As long as the sales thus conducted in the course of such ameliorative activity are regular, continuous and do not in any

way differ from similar activity conducted by a private person, for example a tradesman or a merchant who makes living out of it, it will continue to

be a trading activity, even though a profit motive is absent. Such an activity will be one in the nature of trade or commerce.

Learned Counsel Sri Thyagarajan, appearing for the petitioner, next urged that the element of a contract or a bargain between the purchaser and

the seller is an essential condition for a sale even under the Sale of Goods Act, but in a canteen, where the prices of foodstuffs are fixed

beforehand, such an element of bargain will be absent. I am unable to agree. One is familiar with hotels where everyday, prices of different kinds of

food-stuffs are announced. The customer selects those items which are attractive and which are within the means of his purse. It is open to him to

select what he desires to buy and what he could afford to buy. The element of bargain is clearly present in such sales. Solely for the reason that the

prices are fixed beforehand, it cannot be concluded that the element of contract between the buyer and the seller is left out. Referring to an

identical argument, the Allahabad High Court in Swadeshi Cotton Mills Co. Ltd. v. Sales Tax Officer [1964] 15 S.T.C. 505 observed:

The petitioner-company displays the goods in the canteen for the use of its workmen. Thereby it invites offers from the workmen. The workmen

are free to visit or not the canteen. When they visit the canteen and take the goods, they voluntarily make an offer. The canteen accepts the offer

and makes the supply on payment of the price. A contract results and the property in the goods passes. At the point of time when the transaction

takes place the parties come in contact and do enter into a contract of sale voluntarily. In my opinion, the transaction in the canteen is a ''sale''

within the meaning of the Sale of Goods Act, 1930.

I will now refer to the contention of the learned Counsel for the petitioner that even after the amending Act 15 of 1964, the requirement of a

profit motive is still implicit in the definition of ""business"", as introduced in that Act. As mentioned a little earlier in this judgment, this argument

proceeds on the basis that the idea of business must necessarily co-exist with a profit motive and that if the definition of ""business"" excludes a profit

motive, such exclusion will involve a contradiction in terms and therefore the ordinary normal conception of business, as an activity conducted with

a profit motive should prevail. A well-known rule, however, is that in interpreting the terms of a statute, every part of it should be given weight, and

the Court should attempt to give a harmonious interpretation to all the provisions in the statute, to the extent that it is reasonably possible, before

striking down any portion of the statute as invalid. The decisions cited at the Bar do not support the view that the idea of business or trade should

necessarily co-exist with a profit motive. The learned Government Pleader cited a recent decision of the Allahabad High Court in Swadeshi Cotton

Mills Co. Ltd. v. Sales Tax Officer [1964] 15 S.T.C. 505, which is mentioned above. In that case, the company, as in the present case, ran a

canteen for its workers on a non-profit basis under the provisions of the Factories Act. The Aligarh Muslim University maintained dining-halls,

wherein it served food and refreshments to its resident students. The Allahabad High Court had to interpret whether the sales in the above two

institutions fell under the definition of ""business"" introduced in the U.P. Sales Tax Act, 1948. Section 2(aa) after its amendment by Act 14 of 1963

ran: ""(aa) ''Business of buying or selling'' includes such business carried on without the motive of making of profit.

Following the view of the Supreme Court in Mazagaon Dock Ltd. Vs. The Commissioner of Income Tax and Excess Profits Tax, and in

Narain Swadeshi Weaving Mills Vs. The Commissioner of Excess Profits Tax, , it was held that the word ""business"", which is a word of wide

import, should be construed in fiscal statutes in a broad rather than a restricted sense, that all that the word ""business"" connotes is some real,

substantial and systematic or organised course of activity or conduct with a set purpose, and that what the U.P. State Legislature did was that it

brought the definition of ""business"" in conformity with the views of the Supreme Court. Sales at the canteen were, therefore, held to be assessable

to sales tax under the new definition, but the sales of the Aligarh University were held to be not assessable. The reason for this was that the

University did not charge any price as such for the food-stuffs, but levied an inclusive fee on the residential students, the fee including cost of food,

refreshments as well as other services rendered to the students by the University. The fee charged under the head ""food and nashta"" was not the

actual price of the food in fact consumed by a student, but only approximated to the expense that the University might incur in providing the food

and nashta to the students. Besides the two Supreme Court decisions referred to in the Allahabad High Court''s decision, reference can also be

made to two other decisions in this connection. In Commissioners of Inland Revenue v. Marine Steam Turbine Co. [1920] 1 K.B. 193, Rowlatt,

J., had to interpret the words ""trade or business"" in connection with the Finance Act of 1915. The learned Judge has observed that the word

business"" is a very wide word, but in connection with the Finance Act, which came up before him, the word must be understood in the sense of an

active occupation or profession continuously carried on. The second is the decision of the Supreme Court in Union of India (UOI) and Another

Vs. Ladu Lal Jain, at . In that decision, the Supreme Court had to consider the meaning of the words ""carries on business"" in Section 20(a), Civil

Procedure Code, for determining the forum of a civil suit. No doubt, this case does not relate to the interpretation of a fiscal statute, but

nevertheless the observations of the Supreme Court are important so far as the meaning of the commonly used term is concerned. Following the

decision in The State of Bombay and Others Vs. The Hospital Mazdoor Sabha and Others, , which was a case under the Industrial Disputes Act,

the Supreme Court expressed its view at page 1684 thus: ""We are of opinion that ''profit element'' is not a necessary ingredient of carrying on

business, though usually business is carried on for profit.

In a recent decision in C.A. No. 473 of 1963, State of Andhra Pradesh v. H. Abdul Bakshi & Bros. [1964] 15 S.T.C. 644, the Supreme

Court held: ""The expression ''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."" These decisions

would show that the profit motive is usually or ""normally"" present in the conception of a business activity but it is not an essential requirement to

make an activity in the nature of business.

The further question is whether, when the definition of ""business"" in the amending Act of 1964 referred to trade or commerce or adventure or

concern in the nature of trade or commerce, the use of the expression ""trade or commerce"" should be construed as involving a profit motive. The

word ""trade"" is defined in the Dictionary of English Law, Volume 2 (1959 edition) as ""traffic; intercourse; commerce; exchange of goods for other

goods, or for money."" In the Shorter Oxford English Dictionary the word ""trade"" means ""the practice of some occupation, business, or profession

habitually carried on, especially when practised as a means of livelihood or gain."" It would appear from the above meanings of the word that

trade"" need not necessarily connote a profit motive, though ordinarily such a motive will exist when a trade is practised as a means of livelihood or

gain. The word ""commerce"" is defined in the Dictionary of English Law, Volume 2 (1959 edition) as the ""intercourse of nations in each other''s

produce and manufactures, in which the superfluities of one are given for those of another. ''Commerce'' strictly relates to dealings with foreign

nations, colonies etc. trade, to mutual dealings at home."" The Shorter Oxford English Dictionary (third edition) gives the following meaning to the

word ''commerce'': ""Exchange between men of the products of nature and art; buying and selling together; exchange of merchandise, especially on

a large scale between different countries or districts."" The meaning of the word ""commerce"" also therefore does not require a profit motive as an

essential requisite. I am of the opinion that there is nothing illegal or ultra vires the power of the State Legislature in excluding the profit motive when

it amended the definition of ""business"" in the amending Act 15 of 1964. Section 9 of the amending Act 15 of 1964 will validate the present levy.

The petitions are, therefore, dismissed. There will be no order as to costs.