Tamil Nadu Trading Company vs The State of Tamil Nadu

Padmanabhan, J.—The assessee, M/s. Tamil Nadu Trading Co., Korangumudi, purchased 400 acres of land from M/s. Co-operative Tea

Society Ltd., Iyerpadi. They cut and sold the trees standing on the land. The Deputy Commercial Tax Officer, Valparai, determined the taxable

turnover of the assessee for the year 1973-74 at Rs. 25,12,043.61 being the sale proceeds of timber and fuel sold. The assessee contended that

the land had been purchased by it for the purpose of raising coffee plantation. For planting coffee it had to clear the forest trees of spontaneous

growth. Consequently, the sale of trees of spontaneous growth effected by the assessee would not be exigible to sales tax and the assessee could

effected by the assessee would not be exigible to sales tax and the assessee could not be considered a dealer in timber. This contention was

rejected by the Deputy Commercial Tax Officer. The Deputy Commercial Tax Officer found that the assessee had not carried on any plantation

activity at all. On appeal by the assessee before the Appellate Assistant Commissioner, Pollachi, the latter upheld the decision of the Deputy

Commercial Tax Officer and dismissed the appeal. The assessee took the matter in second appeal before the Sales Tax Appellate Tribunal,

Coimbatore. The Tribunal also came to the conclusion that the assessee was a dealer within the meaning of section 2(g) of the Tamil Nadu General

Sales Tax Act, 1959, and that the sale of timber and firewood from the lands owned by the assessee-firm during the assessment year was exigible

to sales tax. The assessee has come by way of revision before this Court.

Mr. K. Srinivasan, the learned counsel, reiterated the identical contentions urged before the Tribunal. The learned counsel submitted that the

assessee was not a dealer in timber or firewood, that the trees sold were of spontaneous growth, that they were cut and sold as the forest area had

to be cleared for the purpose of coffee plantation for which the land was bought by the assessee-firm and therefore no sales tax could be levied on

the sale proceeds of timber and fuel. In the circumstances, the learned counsel argued that the sale proceeds of trees of spontaneous growth could

not be exigible to tax under the Tamil Nadu General Sales Tax Act, 1959 (hereinafter called the Act), and that the assessee would not be a dealer

within the meaning of section 2(g) of the Act. In this connection, the learned counsel heavily relied on the decision of the Supreme Court in The

Deputy Commissioner of Agricultural Income Tax Vs. Palampadam Plantations Ltd., Kottayam, . The learned counsel also laid stress on the fact

that the Tribunal had found, as a matter of fact, that the trees were of spontaneous growth and had not been reared by any human effort.

The Tribunal found as a fact that the assessee-firm carried on business in timber. For arriving at this conclusion the Tribunal relied on the

partnership deed. The Tribunal found that certain areas of lands being part of the lower Sheikaludi Estate in Anamalais Hills had been purchased

by Mohamed Kassim and Kurian Uthub, partners of the firm, and were to form part of the assets of the firm, the firm was registered in the name of

M/s. Tamil Nadu Trading Co., the primary object of the firm as per the deed of partnership was said to be timber business and there was no

reference at all to any plantation activity. The Tribunal also took note of the fact that in the letter head of the company the assessee had described

itself as timber merchants and in the annual return of the turnover, the principal place of business had been referred to as Korangumudi Coupe

which term was normally used with reference to forest contract. The Tribunal further referred to the fact that in the books of account of the

company, only a sum of Rs. 15,700 had been shown as having been spend for the purpose of raising plantation. In these circumstances, the

Tribunal came to the conclusion that the main activity of the firm was exploitation of timber and firewood from the land and plantation activity was

only incidental. It cannot be said that the finding arrived at by the Tribunal is either perverse or based on no material.

Mr. K. Srinivasan is right in his contention that the finding of the Tribunal and the sales tax authorities is that the trees were of spontaneous

growth. But that would not in any manner affect the exigibility of the sale of timber to sales tax. Section 2(d) of the Act defines ""business"" thus :

''Business'' includes :-

(i) any trade, or 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 2(g) of the Act defines a dealer meaning ""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) a local authority, company or Hindu undivided family, firm or other association of persons which carries on such business;

(ii) a casual trader .......

According to section 2(j) of the Act ""goods"" means all kinds of movable property (other than newspapers, actionable claims, stocks and shares

and securities) and includes all materials, commodities, and articles (including those to be used in the fitting out, improvement or repair of movable

property); and all growing crops, grass of things attached to, or forming part of the land which are agreed to be severed before sale or under the

contract of sale. ""Sale"" as defined u/s 2(n) of the act means 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, but does not include mortgage, hypothecation, charge or pledge. From

the above definitions, it will be clear that the timber and fuel sold by the assessee formed ""goods"" within the meaning of the Act and also the sale of

such goods will constitute sale within the meaning of the definition of ""sale"" u/s 2(n) of the Act. In view of the clear finding of fact by the Tribunal

that the main activity of the assessee is trading in timber, such trade would clearly fall within the definition of ""business"" u/s 2(d) of the Act. Even if it

were to be assumed, without accepting, for the sake of argument, that the assessee purchased the land for the purpose of coffee plantation, the

sale of timber and fuel would fall under ""any transaction"" in connection with or incidental or ancillary to the business of coffee plantation and would

therefore fall within the definition of ""business"" u/s 2(d) of the Act. Consequently, the assessee would be a dealer within the mischief of section 2(g)

of the Act and the sale of timber and fuel would be sale within the meaning of the Act.

The above discussion based on the provisions of the Act would be sufficient to dispose of the tax revision case. However, in view of the fact

that the counsel for the assessee as well as the department have placed reliance upon certain decisions of other courts and this Court, it is but

appropriate that a reference is made to those decisions.

In State of Tamil Nadu Vs. Burmah Shell Oil Storage and Distributing Co. of India Ltd. and Another, , a case cited by the learned Additional

Government Pleader, Mr. Bakthavatsalam, the question related to the chargeability to sales tax under the Madras General Sales Tax Act, 1959, as

amended by the Acts of 1961 and 1964 in respect of (1) advertisement materials, (2) canteen sales, (3) sale of scrap, and (4) penalty. The

assessee, the Burmah Shell Co. Ltd., which was the respondent before the Supreme Court, sold as scrap periodically unserviceable oil drums,

rubber hoses, jerry cans, rims, unserviceable pipe fittings and old furniture. The assessee also supplied to its agents as cost price or less than the

cost price advertisement materials such as calendars, purses and key chains. The High Court held that inasmuch as the object of the assessee was

not shown to be to engage itself in trade or commerce of publicity materials or the sale of scrap, it would not be liable to pay sales tax. The High

Court held that the words ""in connection with or incidental or ancillary to"" in the second part of the definition of ""business"", after the amendment,

still retained or preserved the requisite that the transaction should be in the course of business understood in a commercial sense and that the

intention of Madras Act 15 of 1964 did not appear to be to bring into the tax net a transaction of sale or purchase which is not of a commercial

character. The Supreme Court, however, took the view that the sale of the scrap and the advertisement materials at cost price or less than the cost

price was connected with the business of the assessee as being incidental or ancillary to the said business.

Again in The District Controller of Stores, Northern Railway, Jodhpur Vs. The Assistant Commercial Taxation Officer and Another, the

Supreme Court had to consider the definition of ""business"" in section 2 of the Rajasthan Sales Tax Act, 1954. The said definition of ""business"" in

so far as it is relevant for our purpose took in ""any transaction in connection with or incidental or ancillary to such trade, commerce, manufacture,

adventure or concern"". The assessee in that case was the Northern Railway, Jodhpur. The question for determination by the Supreme Court was

whether the Northern Railway, Jodhpur, was liable to pay sales tax on the sales of unserviceable materials and scrap, etc., for the period in

question. Mathew, J., speaking for the Court, observed :

The contention of the appellant was that it was not carrying on the business of buying and selling and therefore the sales of unserviceable material

and scrap iron, etc., would not be a transaction in connection with or incidental or ancillary to ''such'' trade, commerce, manufacture, adventure of

concern .......

We also think that there is no fallacy in thinking that the Railway since it is concerned in the activity of transportation is engaged in commerce within

the meaning of clause (i) of the definition and that the sale of unserviceable materials and scrap iron, etc., is transaction in connection with or

ancillary to such commerce within the clause (ii) of that definition.

More or less a similar situation arose before a Bench of this Court in L.N. Plantation Co. v. State of Tamil Nadu [1981] 47 STC 210. The

assessee, L.N. Plantation Co., was registered as a dealer. The assessee for the purpose of raising plantation crops cleared the area of forest

growth. The assessee after cutting the trees which had grown spontaneously on the land, transported them to a saw mill, had them sawn into

suitable sizes of logs and sold the sized logs locally and in inter-State trade. The question was whether notwithstanding the fact that the ultimate

object of the assessee was to grow coffee, tea or cardamom, the sale by the assessee of the timber and firewood which are of spontaneous growth

would be exigible to sales tax. The Board of Revenue clearly found that the intention on the part of the assessee of doing business in timber,

firewood and charcoal was very clear and on that basis held that the assessee was liable to sales tax. This was confirmed by this Court.

Mr. K. Srinivasan, the learned counsel for the assessee, heavily learned on the decision of the Supreme Court in The Deputy Commissioner of

Agricultural Income Tax Vs. Palampadam Plantations Ltd., Kottayam, . The assessee, Palampadam Plantations Ltd., was the respondent before

the Supreme Court. It owned and maintained vast areas of forest land. The question that arose before the Supreme Court was whether the

assessee was a dealer within the meaning of section 2(viii)(e) of the Kerala General Sales Tax Act, 1963, and liable to sales tax in respect of the

sale of trees of spontaneous growth in respect of which it was found that the assessee had not done anything towards the production of the trees.

Grover, J., speaking for the court, held that the assessee was not a dealer within the meaning of the definition in section 2(viii)(e) of the Act. The

learned Judge further held that in order to fall within the definition of ""dealer"" a person must sell goods produced by him by manufacture,

agriculture, horticulture or otherwise and trees of spontaneous growth could not be regarded as having been produced by him by agriculture or

horticulture. Mr. K. Srinivasan relied on this decision of the Supreme Court for his argument that the sale of trees of spontaneous growth could not

be subjected to sales tax. We are unable to accept the contention of Mr. K. Srinivasan. We are clearly of the opinion that the above decision of

the Supreme Court turned on the interpretation placed by it on the definition of ""dealer"" within the the meaning of section 2(viii)(e) of the Kerala

General Sales Tax Act, 1963. According to the definition, ""dealer"" means any person who carries on the business of buying, selling, supplying or

distributing goods directly of otherwise whether for cash or for deferred payment or for commission, remuneration or other valuable consideration

and includes a person who sells goods produced by him by manufacture, agriculture, horticulture or otherwise. The Supreme Court laid emphasis

on the inclusive portion of the definition as found in section 2(viii)(e) of the Act and came to the conclusion that trees which have grown

spontaneously and without any plantation by the assessee could not possibly be regarded as having been produced by agriculture or horticulture.

This would be clear from the following passage found in the judgment :

The other question was whether the said activity, i.e., forestry, would not come within the scope of ''agriculture, horticulture or otherwise''

particularly when the respondent owns substantial area of forest land and timber from the trees of spontaneous growth is sold year after year with

the object of earning profit. Now in order to fall within the definition of dealer ''a person must sell goods produced by him by manufacture,

agriculture, horticulture or otherwise''. Such trees which have grown spontaneously and without any plantation by that person cannot possibly be

regarded as having been produced by him by agriculture or horticulture. The word ''otherwise'' also cannot cover trees of spontaneous growth

since the element of production must be present. The context in which the word ''produce'' appeared in the definition can only mean ''to bring forth,

bring into being or existence - to bring (a thing) into existence from its raw materials or elements'' (See the meaning of the word ''produce'' in the

Shorter Oxford English Dictionary). According too Webster''s International English Dictionary the verb ''produce'' means to bring forward, beget,

etc. The juxtaposition of the word ''manufacture'' with ''agriculture'' and ''horticulture'' is significant and cannot be lost sight of. The intention in

employing the word ''produced'' obviously was to introduce an element of volition and effort involving the employment of some process for

bringing into existence the goods. The respondent in the present case has not been found to have done anything towards the production of the trees

and even the cutting has been done by the contractor. The respondent therefore cannot possibly be regarded as a person who sells goods

produced by him by agriculture, horticulture or otherwise.

We have already referred to the definition of ""dealer"" in the Act. The inclusive portion found in the Kerala Act and which was the subject-

matter of interpretation by the Supreme Court in The Deputy Commissioner of Agricultural Income Tax Vs. Palampadam Plantations Ltd.,

Kottayam, is conspicuously absent in the Tamil Nadu Act. Consequently, we hold that the said decision of the Supreme Court does not help the

assessee in this case.

Mr. Srinivasan then referred to the decisions in Kuttirayin and Co. v. State of Kerala [1976] 38 STC 282 and Deputy Commissioner (C.T.) v.

Sree Shanmuga Estate [1979] 43 STC 226. We don not derive any support from these cases on the question arising for decision in this case. In

the circumstances, we hold that the timber cut from the land of the assessee and sold by the assessee is liable to sales tax. We therefore dismiss the

tax revision case. The department will be entitled to its costs. Counsel''s fee is fixed at Rs. 250.