State of Karnataka vs Suresh Enterprises

N. Kumar, J.—This revision is preferred by the State challenging the order passed by the Karnataka Appellate Tribunal (Suresh Enterprises, Bangalore v. State of Karnataka 2011 (71) Kar. L.J. 734 (Tri.) (DB)), which has held that the godown cannot be treated as a person for the purpose of levying tax under the provisions of the Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976 (for short hereinafter referred to as the Act). The assessee is a registered dealer under the provisions of the Karnataka Value Added Tax Act, 2003 and the provisions of the Act on the file of LVO-010, Bangalore. It is a partnership firm dealing in electrical goods. The assessee has godowns and warehouses. The Assessing Authority issued notice proposing levy of professional tax on the additional place of business of the assessee treating them as branches. The assessee replied to the said notice. Rejecting their contention the Assessing Authority levied professional tax for the assessment years 1-4-2005 to 31-3-2010 considering each godown as a branch. Being aggrieved by the said order the assessee preferred an appeal before the First Appellate Authority who dismissed the appeal confirming the order passed by the Assessing Authority. Aggrieved by these two orders the assessee preferred an appeal to the Karnataka Appellate Tribunal. The Appellate Tribunal on careful consideration of the relevant provisions and looking into the judgment of the Apex Court held that if the godown of a firm or a company would be treated as a place of business then the professional tax is leviable treating that godown as a branch and a person. But if no business activity is being carried on in the godown then it cannot be treated as a person for the purpose of levying tax under the Act. Therefore the Tribunal set aside the order passed by the authorities who had treated the godown as a branch and levied tax. Aggrieved by the said order, the State is before this Court.

Learned Counsel for the revenue assailing the impugned order contended that when the godown is to be treated as a branch and in turn treated as a person then levy of tax is permissible in respect of the said godown. He submits that the approach of the Tribunal is erroneous and requires to be set aside.

Per contra, learned Counsel for the assessee supported the impugned order.

The question of law that arises for our consideration in this revision is:

"Whether a godown can be treated as a branch and consequently as a person for the purpose of the Act?"

The revenue in support of their contention relied on a judgment of the Supreme Court in the case of Karnataka Bank Ltd. Vs. State of A.P. and Others, . In the said decision the constitutional validity of Section 2 of the Andhra Pradesh Tax on Professions, Trades, Callings and Employments Act, 1987 was an issue. As could be seen from the facts of that case one of the companies was having branches and stock points where it transacted its business and stored its goods. At the material time if had 74 stock points, every stock point had been duly recorded in the registered authority under the Andhra Pradesh General Sales Tax Act, 1957. In another case it was a banking company which had 300 branches throughout India. In another case it was a partnership firm which was carrying on business of petroleum products at several outlets. In that context the question that arose was, whether those branches also are liable to tax independently. Answering the said question the Apex Court held that the definition of the word ''person'' in the impugned explanation and also Explanation 1 to the First Schedule of the Act is not intended to tax a person at a rate higher than Rs. 2,500/- p.a. per person but to treat even a branch of a firm, company, corporation or other corporate body, any society, club or association as a separate person and therefore a separate assessee within the meaning of Section 2(h) of the Act. The Andhra Pradesh State Legislature has undoubtedly the competency to adopt such a devise of taxation and therefore it did not violate the mandate of Article 276(2) of the Constitution of India.

We have gone through the entire judgment of the Apex Court. In the entire judgment they were not considering the question, whether a godown could be taxed as a person. In the facts of that case they have referred to stock points where the assessee transacted business and stocked its goods. The assessee was carrying on the business in that stock point itself and therefore they treated it as a branch and they are liable to pay tax. In the instant case the word ''person'' is defined under the Act u/s 2(h) and it reads as under:

"2. (h) "Person" means any person who is engaged in any profession, trade, calling or employment in the State of Karnataka and includes a Hindu Undivided Family, firm, company, corporation or other corporate body, any society, club or association, so engaged but does not include any person who earns wages on a casual basis".

Explanation to Section 2(h) reads as under:

"Explanation.--Every branch of a firm, company, corporation or other corporate body, any Society, Club or Association shall be deemed to be a person".

A reading of the explanation makes it very clear that every branch of a firm, company, corporation or other legal entity mentioned therein shall be deemed to be a person. The definition makes it clear that any person who is engaged in any of the professions or callings mentioned therein is a person liable to pay tax. A harmonious reading of the provision makes it very clear that it is the involvement of the person in a profession or calling which attracts levy of tax under the Act. He may be engaged in carrying on the business at the principal place and also at branch office then under the Act each of the places where he is engaged in business is liable to pay tax as a person. But if that person owns a godown where the goods are stocked and the business is carried on at principal place or in the branches and from the godown the goods are delivered, it cannot be said that the person is carrying on business in the godown. But on facts if it is shown that not only the person is carrying on the business in the principal branch but also at godown then such a godown would fall within the definition of person and liable to tax independently. In the instant case the material on record discloses that the assessee is carrying on business in electrical goods and these electrical goods are stocked in the godown and warehouses. They are only used for the purpose of storing the goods with which they are dealing with and therefore in the facts of this case, in view of the aforesaid legal position, the Tribunal was justified in holding that the assessee is not liable to pay any professional tax in respect of these godowns. The said order of the Tribunal is in accordance with law and we do not find any legal infirmity which calls for interference. Hence, we pass the following:

ORDER

I. The question of law is answered in favour of the assessee and against the revenue.

II. We do not see any merits in this appeal and accordingly, it is dismissed.