# BOARD OF REVENUE ETC v. A. M. ANSARI ETC

- **Citation:** [1976] 3 S.C.R. 661
- **Court:** Supreme Court of India
- **Decided:** 1976-03-17
- **Case number:** Civil Appeals Nos. 67 to 122 and 238 of 1969
- **Bench:** A. N. Ray, M.. H. Beg, Jaswant Singh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/board-of-revenue-etc-v-a-m-ansari-etc-6828
- **Pages:** 11

## Headnote

Indian Stamp (Andhra Pradesh Extension and Amendment) Act XIX of
1959-Arts. 31(c) and 35(c)--Scope of-Lease and licence-Distinction.
Sales Tax-JVhether payabh on annual auction Sales.
A
B
Under the terms and conditions of sale th'e respondents, who were the highC
est bidders at an auction of forest produce, were called upon to pay stamp
duty on the agreements to be executed by them as if they were leases of immovable property falling under Art. 31(c) and on the deposits of security as mortgages under art. 35(c) of the ll!ldian Stamp Act, 1899 as also sales tax on the
bid amounts. In a petition under art. 226, the respondents contended that the
right to pluck, collect and take away the forest produce v.-as not a right or
interest in immovable property ·within the meaning of art. 31(c) of the Stamp
Act, the security deposits were not mortgages nor did the Government carry
on any business of sale and, as such. they were not liable to pay the amounts
D
demanded. The High Court allowed the petitions.
Dismissing the State's appeal,
HELD :
The acquisition by the respondents not being an interest in the
soil but merely a right to cut 1he fructus narurales, the agreements possessed
the characteristics of licences and did not amount to leases so as to attract
the applicability of art. 31 ( c) of the Stamp Act. [667D]
Firm Chhotabhai Jethabai Patel & Co. & Or9. v. The State of Madhya
Pradesh. [1953] S.C.R. 476 and Mahadeo v. State of Bombay 1959 S.C.J. 1021 :
A.I.R. 1959 S.C. 735 referred 10.
(1) A study of the definitions of immovable property occurring in
the
E
· Transfer of Property Act, the Jtegistration Act and the General Clauses Act
shows that it is the creation of an interest in immovable property or a right
to possess it that distinguishes a f.~ase from a licence. A licence does not create
an interest in the property to which it relates while a lease does. In the case
F
of a lease there is transfer of a right to enjoy the property. For the purpose
of deciding whether a particular grant amounts to a lease or a licence, it is
essential to look to the substance and essence of the agreement and not to its
form.
[665F-G]
Associated Hotels of lndia Lid. v. R. N. Kapoor A.l.R. 1959 S.C. 1262;
Kauri Timber Company Litnited v. The Commissioner of Taxes, [1913] A.C.
771 (776) Marsliall v. Green (1875)
L.R.l.C.P.l.D. 35 and Firm Chhotabhili
G
Jethabai Patel & Co. & Ors. v. The State of Madhya Pradesh [1953] S.C.R.
576 referred to.
Mahadeo v. State of Bombay :t959 S.C.J. 1021 : AIR 1959 S.C. 735 distinguished.
In the instant case the salient. features emerging from the agreements are
(i) that they were made for a short duration of 9 to 10 months; (ii) they did
not create any estate or interest in the land and (iii) the respondents were not
granted exclusive possession and control of the land but were merely granted
H
the right to pluck, cut, carry awa:1 and appropriate the forest produce, present
or future. The right to go on tbt: land was only ancillary to the real purpose
of the contract.
[667C-DJ
A
B
c
D
E
662
SUPREME COURT REPORTS
[1976] 3 S.C.R.
(2) The respondent could not be called upon to pay stamp duty under Art.
35(c) of the_ Stamp Act.
For an instrument to fall within the definition of
mortgage deed contained in s. 2 ( 17) of the Stamp Act it is necessary that it
should satisfy the essential conditions by creating a right over or in r~spect of
a specified property in favour of another person. [6710; 670G]
In the instant case there is nothing in the relevant clause of the sale notice
to indicate that any right over or in the security deposits was created in favour
of the State Government.
[67JA]
Reference under Stan1p Act, Section 46 15 l.L.R. Mad. 134 nnd Rishidev
Sondhi v. Dhampur Sugar Mills A.I.R. 1947 All. 190 F.B. approved.
(3) (a) The respondents were not liable to pay sales lax. It cannot be said
that the Government, by holding auction of forest produce, carried on business
in the sale of that class of goods, which is an

## Text

f
•
f
•
661
BOARD OF REVENUE ETC.
v.
A. M. ANSARI ETC.
March 17, 1976
(A. N. RAY, C.J., M.. H. BEG AND JASWANT SINGH, JJ.]
Indian Stamp (Andhra Pradesh Extension and Amendment) Act XIX of
1959-Arts. 31(c) and 35(c)--Scope of-Lease and licence-Distinction.
Sales Tax-JVhether payabh on annual auction Sales.
A
B
Under the terms and conditions of sale th'e respondents, who were the highC
est bidders at an auction of forest produce, were called upon to pay stamp
duty on the agreements to be executed by them as if they were leases of immovable property falling under Art. 31(c) and on the deposits of security as mortgages under art. 35(c) of the ll!ldian Stamp Act, 1899 as also sales tax on the
bid amounts. In a petition under art. 226, the respondents contended that the
right to pluck, collect and take away the forest produce v.-as not a right or
interest in immovable property ·within the meaning of art. 31(c) of the Stamp
Act, the security deposits were not mortgages nor did the Government carry
on any business of sale and, as such. they were not liable to pay the amounts
D
demanded. The High Court allowed the petitions.
Dismissing the State's appeal,
HELD :
The acquisition by the respondents not being an interest in the
soil but merely a right to cut 1he fructus narurales, the agreements possessed
the characteristics of licences and did not amount to leases so as to attract
the applicability of art. 31 ( c) of the Stamp Act. [667D]
Firm Chhotabhai Jethabai Patel & Co. & Or9. v. The State of Madhya
Pradesh. [1953] S.C.R. 476 and Mahadeo v. State of Bombay 1959 S.C.J. 1021 :
A.I.R. 1959 S.C. 735 referred 10.
(1) A study of the definitions of immovable property occurring in
the
E
· Transfer of Property Act, the Jtegistration Act and the General Clauses Act
shows that it is the creation of an interest in immovable property or a right
to possess it that distinguishes a f.~ase from a licence. A licence does not create
an interest in the property to which it relates while a lease does. In the case
F
of a lease there is transfer of a right to enjoy the property. For the purpose
of deciding whether a particular grant amounts to a lease or a licence, it is
essential to look to the substance and essence of the agreement and not to its
form.
[665F-G]
Associated Hotels of lndia Lid. v. R. N. Kapoor A.l.R. 1959 S.C. 1262;
Kauri Timber Company Litnited v. The Commissioner of Taxes, [1913] A.C.
771 (776) Marsliall v. Green (1875)
L.R.l.C.P.l.D. 35 and Firm Chhotabhili
G
Jethabai Patel & Co. & Ors. v. The State of Madhya Pradesh [1953] S.C.R.
576 referred to.
Mahadeo v. State of Bombay :t959 S.C.J. 1021 : AIR 1959 S.C. 735 distinguished.
In the instant case the salient. features emerging from the agreements are
(i) that they were made for a short duration of 9 to 10 months; (ii) they did
not create any estate or interest in the land and (iii) the respondents were not
granted exclusive possession and control of the land but were merely granted
H
the right to pluck, cut, carry awa:1 and appropriate the forest produce, present
or future. The right to go on tbt: land was only ancillary to the real purpose
of the contract.
[667C-DJ
A
B
c
D
E
662
SUPREME COURT REPORTS
[1976] 3 S.C.R.
(2) The respondent could not be called upon to pay stamp duty under Art.
35(c) of the_ Stamp Act.
For an instrument to fall within the definition of
mortgage deed contained in s. 2 ( 17) of the Stamp Act it is necessary that it
should satisfy the essential conditions by creating a right over or in r~spect of
a specified property in favour of another person. [6710; 670G]
In the instant case there is nothing in the relevant clause of the sale notice
to indicate that any right over or in the security deposits was created in favour
of the State Government.
[67JA]
Reference under Stan1p Act, Section 46 15 l.L.R. Mad. 134 nnd Rishidev
Sondhi v. Dhampur Sugar Mills A.I.R. 1947 All. 190 F.B. approved.
(3) (a) The respondents were not liable to pay sales lax. It cannot be said
that the Government, by holding auction of forest produce, carried on business
in the sale of that class of goods, which is an essential condition to make the
respondents liable to pay sales tax.
[670D]
State of Gujarat v. Raipur Manufacturing Co. Ltd. (1967) 19 S.T.C. l(S.C.)
followed.
(b) The consideration of profit motive cannot ·be regarded as an essential
ingredient of the term 'business· in view of the amendment in the definition of
1
'dealer' in 1966. The auctions were carried on only annually and not at fre-
.......,_
quent intervals. The important element of frequency being lacking it cannot
be held that the Government was carrying on the business of sale of "lorest
produce.
[669D-EJ
P.T.C.C.S. Merchants Union v. State of A.P., (1958) 2 An. W.R. JOO:
(1958) 9 S.T.C. 723; Raja Bhairabendra v. Superintendent of Taxes (1958) 9
S.T.C. 60; Orient Paper Mills Ltd. v. The State of Madhya Pradesh and Ors.
(1971) 28 S.T.C. 532; Deputy Commissioner of Agricultural Income-Tax and
Sales Tax, Qui/on v. Travancore Rubber and Tea Co. ( 1967) 20 S.T.C. 520
(S.C.); Deputy Commissioner of Agricultural Income-tax and Sales Tax, Qui/on
v. Midland Rubber anlt Produce Co. Ltd. [1970] 25 S.T.C. 57 (S.C.) Ramakrishna Dea v. The Collector of Sales Tax, Orissa (1955) 6 S.T.C. 674 referred
to.
CIVIL APPELLATE JURISDICTION:
Civil Appeals Nos. 67 to 122
and 238 of 1969.
From the Judgment and Decree dated the 21-8-67 of the Andhra
Pradesh High Court in Writ Petitions Nos. 489, 491, 537, 538, 539,
540, 541, 561, 635, 636, 638, 639, 677, 684, 686, 688, 695, 710,
F
711, 71Z 713, 714, 715,716, 71~718, 719, 811, 81Z 813, 83~ 831,
832, 853, 854, 855, 867, 870, 1146, 1216, 1219, 1260, 1261, 1265,
1284, 1285, 1292, 1293, 1294, 1309, 1310, 1340, 1446, 1447, 1697
and 687 of 1967 respectively.
G
H
P. Ram Reddy, B. Parthasarthi for the Appellants.
K. J. John and J. B. Dadaclumji for Respondent in CAs. 67, 78,
79, 100, 101, and 103 of 1969.
G. Narayana Rao for Respondent in CAs. 69-73/69.
H. K. Puri and R. V. Pillai for Respondents in CAs Nos. 77, 83,
89, 90, 93, 95, 96, 102 and 120/69.
The Judgment of the Court was delivered by
JASWANT SINGH, J.-This bunch of Civil Appeals Nos. 67-122
238 of 1969 by certificate granted under Article 133(1) (b) of the
Constitution by the High· Court of Judicature of Andhra Pradesh at
•
BOARD OF REVENUE v. A. M. ANSARI (Jaswant Singh, .T.)
6 6J
Hyderabad by its order dated June, 28, 1968 against its common
judgment and order dated August 21, 1967, passed in Writ Petition
Nos. 489, 491, 537 to 541, 635, 684, 685, 687, 688, 830 to 832,
561, 1219, 715 to 719, 812, 813, 1216, 677, 638, 639, 695, 853 to
856, 636, 867, 870, 1146, 1285, 1260, 1261, 1284, 1292, 1293,
1294, 1309, 1310, 1340, 1447, 1697 and 1265 of 1967 which raise
interesting questions of law relating to the interpretation of some of
the provisions of the Indian Stamp Act, 1899 and the Andhra Pradesh General Sales Tax Act, 1957
shall be disposed of by
this
judgment.
The facts giving rise to these appeals are :
The Forest Department of the Government of Andhra Pradesh after giving a sale notice
held, in accordance with the terms and conditions thereof, an auction
in 1967 in respect of various items of forest produce viz. timber,
fuel, bamboos, minor foref.t produce, beedi leaves, tanning barks,
parks mohwa etc.
Clause 23 of the notice inter alia required the
contractors to pay within 10 days of the receipt of the confirmation
f orders of the competent authority: (a) the balance of the !st instalment amount,
as might be fixed by the
Divisional Forest Officer,
(b) 6t% of the bid amount as security deposit; (c) sales tax on the
bid amount at the rates current at the time of the sale.
Clause 60
of the notice provided that the contractors would at all times comply
with the provisions of the Indian Stamp (Andhra Pradesh Extension
and Amendment) Act XIX of 1959, and the Andhra Pradesh Court
Fees and Suits Valuation Act, 1956, and all the rules that might, from
time to time, be in force ther1~under.
The respondents herein being the highest bidders in respect of
some items of the forest prnduce were called upon to pay in terms
of the above noted conditions the stamp duty on the agreements to
be executed by them as if they were leases of immovable property
falling under Article 3!(c) of the Indian Stamp Act, 1899.
They
were also called upon to pay sales tax on the bid amount in terms
of clause (23) of the sale notice.
They were further called upon
to pay stamp duty on the deposits made by them by way of security
as mortgages, falling within Article 35(c) of the Stamp Act. Aggrieved by the said notices, the respondents filed the aforesaid petitions
under Article 226 of the Constitution for issue of appropriate writs
etc. declaring the aforesaid demand notices as illegal and void and
restraining the appellants from enforcing or taking any proceeding
for the levy and recovery of the amounts mentoned therein.
The
respondents contended before the High Court that as the right to
pluck, collect and take away beedi leaves and to cut and carry away
bamboos, standing timber etc. was not a right or interest in immovable property so as to attract Article 31 ( c) of the Stamp Act, there
could be no question of payment by them of the stamp duty.
The .
respondents also challenged the demand made from them for payment of sales tax on the bid amount on the ground that as the Government did not carry on any business of sale, the demand was illegal.
They further challenged the demand of stamp duty under Article 3 5
( c) of the Stamp Act pleading that the securify deposits were not
mortgages so as to attract the provisions of the said Article of the
Stamp Act.
A
B
c
D
E
F
G
H
A
B
c
D
E
F
G
H
664
SUPREME COURT REPORTS
(1976] 3 S.C.R.
The petitions were contested by the appellants herein who contended inter alia that pursuant to clause ((JU) of the terms and conditions of. the sale nonce, the respondents were bound to pay the
stamp dunes that were chargeable in view of the extension ol the
Indian Stamp Act to the whole of the State of Andhra Pradesh by
the Indian Stamp
(Andhra Pradesh Extension and
Amendment)
Act XIX of 1959 with effect from April 1, 1959, and repeal ot the
Hyderabad Stamp Act, and the rules, notifications, instructio!lS etc.
made or issued thereunder: that the right acquired by the respondents was not merely a right to collect, appropriate and sell
beedi
leaves that had already grown but also the right to collect, use and
sell beedi leaves that would subsequently grow on the standing trees
and their branches taking nourishment from
the land during
the
period of lease which showed that the respondents obtained under
the agreement an interest in immovable property.
The
appellants
further contended that the respondents were, according to the sale
notice, liable to pay sales tax on the bid amount as a!So the stamp
duty on security deposits which fell within the definition of mortgages
as contemplated by the Stamp Act.
On a careful consideration of the respective stands of the parties,
the High Court negatived the contentions of the appellants and allowed
the petitions.
Aggrieved by the Judgment and order of the J;Iigh
Court, the appellants applied for certificate under Article 133(l)(b)
of the Constitution which, as already stated, was granted to them.
This is how the appeals are before us.
Three questions fall for consideration in these appeals.
The first
question that we are called upon to determine is whether the agreements Which the respondents were called upon to execute in respect of
the aforesaid rights relating to forest produce were in the nature of
leases or licences.
It is necessary in this connection to notice at the outset the distinction between a lease and a licence by reference to the relevant Acts.
Section 2 (16) of the Stamp Act defines the lease as meaning a lease
of immovable property but this definition, it would be noted, is neither
exhaustive nor self-explanatory.
We are, therefore, driven to
find
out the true meaning of the term by turning to the Transfer of Property
Act. Section 105 of the said Act defines 'lease' as follows :- .
"A lease of immovable property is a transfer of a right to
enjoy such property, made for a certain time, express or
implied, or in perpetuity in consideration of a price paid or
promised, or of money."
'Licence' is defined in section 52 of the Easement Act, 1882 as
under:-
"Where one person grants to
another, or to a
definite
number of other persons, a right to do, or continue to do,
in or upon the immovable property of the grantor, something whic~ would, in the absence of such right, be unlawful,
and such right does not amount to an easement or an interest
in the property, the right is called a licence".
...
"
•
BOARD OF REVENUE v. A. M. ANSARI (Jaswant Singh,!.)
665
The expression 'immovable property' is not defined in the Stamp
Act but is defined in section 3 of the Transfer of Property Act, section 2(6) of the Registration Act and section 3(26) of the General
Clauses Act.
An idea as to the meaning of the expression can also
be gleaned from section 2 ('7) of the Sales of Goods Act.
According
to learned counsel for the appellants, it is the definition of 'immm·-
able property as given in section 3 (26) of the General Clauses Act that
has to be applied in determining. whether the agreements in question fall
within the definition of 'lease' or not. It would be useful at this
stage to set out in juxtaposition the definitions of 'immovable property' as contained in the aforesaid Acts, as also the definition of goods
as given in the Sale of Goods Act:-
Section 3(26) of General Clauses Act
Section 3 of Trans- Section
2(6) of
Scciion 2(7) of
Sale of Goods
Act
fer of Property
Registration Act
"Imm'.Jvable prooerty"
sh:i.ll include land, benefits to arise out of
land, and things attached to
the earth,
or p~rm1nently fastened to anything attached to the earth.
t\ct.
In this J'"ct, unless
there is ~1omething
repugnant in the
subject or context
"immovable property" does
not
include standing
timber,
growing
crops
or grass.
"Immovable proIn this
Act,
perty''
includes unless
there is
land,
buildings, anything repugnhereditary allowant in the subances,
rights to ject or context,
ways, lights, ferries "goods"
means
or any other bene- every
kind of
fit to arise out of movable
proland, and things perty other than
attached to the actionable claims
earth or permamoney; and innently fastened to eludes stock and
anything
which shares,
growing
is attached to the crops,
grass and
earth,
but
not things attached to
standing
timber or forming part
growing crops nor of the land which
grass.
are agreed to be
severed before or
under the contract or sale.
A close study of the above definitions shows that it is the creation
of an interest in immovable property or right to possess
it that
distinguishes a lease from a licence.
A licence does not create an
interest in the property to which it relates while a lease does. There
is in other words transfer of a right to enjoy the property in case of a
lease.
As to whether a particular transaction creates a lease or a
licence is always a question of intention of the parties which is to be
inferred from the circumstances of each case.
For the purpose of
deciding whether a particular grant amounts to a lease or a licence,
it is essential, therefore, to look to the substance and essence of the
agreement and not to its form. We are fortified in this view by the decision of this Court in Associated Hotels of India Ltd. v. R. N. Kapoor
where Subba Rao, J. (with whom Das, J. agreed) observed:
"If a document gives only a right to use the property in a
particular way or under certain terms while it remains in
possession and control of the owner thereof, it will be a
licence.
The legal possession, therefore, continues
to be
(1) A.LR. 1959 S.C. 1262.
10-608SCI/76
A
B
c
D
E
F
G
H
A
B
c
D
E
666
SUPREME COURT REPORTS
[1976] 3 s.c.R.
with the owner of the property, but the licensee is permitted
to make use of the premises for a particular purpose.
But
for the permission, his occupation would be unlawful.
It
does not create in his favour any estate or interest in the
property.
There is therefore, clear distinction between the
two concepts.
, The
dividing line
is clear though sometimes it becomes very thin or even blurred. At one time it
was thonght that the test of exclusive possession was infallible and if a person was given exclusive possession of a premises, it would conclusively establish that he was a lessee.
But there was a change and the recent trend of judicial
opinion is reflected in Errington v. Errington [1952] 1 All
ER 149, wherein Lord Denning reviewing the case law on
the subject summarizes the result of his discussion thus at
p. 155:
"The result of all these cases is that, although a person
who is let into exclusive possession is, prima facie, to be
considered to be tenant, nevertheless he will not be held to
be so if the circumstances negative any intention to create
a tenancy."
The Court of Appea'1 again in Cobb v. Lane [1952] I All
ER 1199, considered the legal position and laid down that
the intention of the parties was the real test for ascertaining the character of a document
At p, 1201, Somervell
L.J., stated:
" ........ The solution that would
seem to have been
found is, one would expect, that it must depend on the intention of the parties".
Denning L.J, said much to the same effect at p. 1202 :
"The question in all these cases is one of intention: Did
the circumstances and the conduct of the parties show that
all that was intended was that the occupier should have a
F
personal privilege with no interest in the land?"
The following propositions may, therefore, be taken as
well-established : ( 1) To ascertain whether a document
creates a licence or lease,, the substance of the document
must be preferred to the form : (2) the real test is the
intention of the parties-whether they intended to create a
lease or a licence; (3) if the document creates an interest
G
in the property, it is a lease; but, if it only permits another
to make use of the property, of which the legal possession
continues with the owner, it is a licence; and ( 4) if under
the document a party gets exclusive possession of the property, 'prima facie' he is considered. to be a tenant, but
circumstances may be established which negative the intention to create a lease."
H
The crucial tests to be employed in cases of the present nature can
be gathered from the observations made by Lord Shaw while delivering the judgment of the Board in Kauri Timber Company Limited v.
•
\
'
'
"
;-
.
....
,
•
..
"
BOARD OF REVENUE v. A. M. ANSARI (Jaswant Singh, J.)
6 67
The Commissioner of Taxes('). According to those observations, in
order, an agreement can be said to partake of the character of lease,
it is necessary that the grantee should have obtained an interest in and
possession of land.
If the rnntract does not create an interest in land
then to use the words of Lord Coleridge, C.J. in Marshall v. Green(')
the land would be considered as a mere warehouse of the thing sold
and the contract would be a contract for goods.
For the purpose, therefore, of ascertaining the
intention of the
parties and finding out the character of the agreements in question, it
is necessary to notice the ~:alien! features of the agreements.
The
first salient feature of the agreements is that they were for a shor.t
duration of nine to ten months.
The second important feature of
the agreements is that they did not create any estate or interest in
land.
The third salient feature of the agreements is that the respondents were not gramcd exclusive
possession
and control of the
land but were merely granted the right to pluck, cut, carry away and
appropriate the forest produce that might have been existing at the
time of the contract or which might have come into existence during the
short period of the currency of the agreements.
The right to go on
the land was only ancillary to the real purpose of the contract.
Thus
the acqnisition by the respondents not being an interest in the soil
but merely a right to cut the fructus naturales, we arc clearly of the
view that the agreements in question possessed the characteristics of
licences and did not amount to leases so as to attract the applicability
of Article 31 ( c) of the Sta"1p Act.
The conclusion arrived at by us gains strength from the judgment
A
B
c
D
of this Court in Firm Chhotabhai Jethahai Patel and Co. & Ors. v.
E
The State of Madhya Prade<h(') where contracts and agreements enter0d into by person with th'' previous proprietors of certain estates and
mahals in the State under which they acquired
the rights to pluck.
coJlect and carry away tendu leaves, to cultivate, culture and acquire
lac, and to cut and carry away teak and timber and miscellaneous
species of trees called hardwood and bamboos were held in essence
and effect to be licences.
F
There is, of course a judgment of this Court in M ahadeo v. State
of Bombay(') where seemingly a somewhat different view was expressed
but the facts of that case were quite distinguishable.
In that case
apart from the bare right to take the leaves (}f tendu trees, there were
further benefits including the right to occupy the land, to erect buildmgs and to take away other forest produce not necessarily standing
G
timber, growing crop or grass and the rights were spread over many
years.
For the foreging reasons, the first question has to be decided in
favour of the respondents.
The second question that falls for consideration is whether the
respondents could be validly called upon to pay the sales tax.
For
(I) [19!3] A.C. 771, 776.
(3) [1953] S.C.R. 476.
(2) [1875] L.R.I.C.P.I.D. 35.
(4) [1959] S.C.J. 1021=A.T.R.1959 S.C. 7)5.
H
A
B
c
D
E
668
SUPREME COURT REPORTS
[1976] 3 S.C.R.
the decision of this question, it is necessary to examine a few provisions of the Andhra Pradesh General Sales Tax Act 1957.
The
charging section is section 5 which in so far as it is relevant for the
puq;iose of these appeals runs thus :-
"5. Levy of tax on Sales or Purchases of Goods :-
(1) Every dealer (other than a casual trader and an
agent of a non-resident dealer) whose total turnover for a
year is not less than Rs. 25,000 and every agent of a nonresident dealer whatever be his turnover for the year, shall
pay a tax for each year, at the rate of four paise on every
rupee of his turnover:
"Every casual trader shall pay a tax at the rate of four
paise on every rupee of his turnover :
Provided that a dealer in jaggery shall pay a tax at the
rate of two paise on every rupee upto the 31st March
1966 and at the rate of three paise on every rupee on and
from the 1st April 1966, of his tutn-over irrespective of
the quantum of turnover".
The term 'dealer'~has been defined in section 2(e) of the Act as
follows:-
"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) the Central Government, a
State Government,
local authority, a company, a Hindu
undivided family or any society (including a co-operative
society), club, firm or association which carries on such
business ..... "
The term 'business' has been defined in section 2 (bbb) of the
Act as follows :-
F
"'business' includes-(i) any trade, commerce, or manuG
H
facture or any adventure or concern in the nature of trade,
commerce or manufacturing whether or not with trade,
commerce, manufacture, adventure concern is carried on
or undertaken with a motive to make gain or profit and
whether or not any gain or profit accrues therefrom; and
(ii) any transaction in connection with, or incidental
or ancillary to, such trade, commerce, manufacture, adven~
ture or concern".
'Sale' is defined in section 2(n) thus :
'Sale' with all its grammatical variations and cognate
expressions means every transfer of t!he property in goods
by one person to another in the course of trade or business, for cash, or for deferred payment, or for any other
valuable consideration, and includes
any transfer of
materials for money consideration in the execution of a
..
•
•
•
r
i
I
BOARD OF REVENUE v. A. M. ANSARI (Jaswant Singh, J.)
669
works contract provided that the contract for the transfer
of such materials can be separated from the contract for
the services and the work done, although the two conracts
are embodied in a single document or in the supply or distribution of goods by a society (including a co-operative
society), club, firm or association to its members, but does
not include a mortgage, hypothecation or pledge of, or a
charge on, goods".
In order that the sales tax should be payable by the respondents
in accordance with the obligation imposed on them by clause (23)
of the sale notice, it is necessary that the Government of Andhra
Pradesh should have been carrying on the business of selling the forest produce. In State of Gujarat v.
Raipur
Manufacturing
Co.
Ltd.( 1), this court while examining the term 'business' in another
context observed that 'whether a person carries on business in
a
particular commodity must depend upon the
volume,
frequency,
continuity and regularity of transactions of purchase and sale in a
1class of goods and the transactions must ordinarily be entered into
with a profit motive.
The Court further went on to observe that
when a subsidiary product is turned out in the factory of the assessee
regularly and continuously and it is being sold from time to time,
an intention to carry on business in such product may be reasonably
attributed
to the assessee.
As the consideration of profit motive
cannot be regarded an essential constituent of the term 'business' in
view of the amendment introduced in the definition of the term 'dealer'
in 1966, what we are left to consider is whether the other ingredients
of the term 'business' viz. volume, frequency, continuity and regularity
of transactions of sale and purchase are satisfied in the instant cases.
The auctions of the forest produce by the Government of Andhra
Pradesh are adntittedly carried on only annually and not at frequent
intervals. Thus the important element of frequency being lacking in
the instant cases, it cannot be held that the said Government was carrying on the business of sale of forest produce.
In P. T. C. C. S.
Merchants Union v.
State of A.P.('). where a person who
grew
agricultural products and incidentally sold the same, it was held that
no sales tax was payable as it could not be said that the person carried
on business.
A similar view was expressed in Raja Bhairabendra v.
Superintendent of Taxes(') where standing sal trees grown spontaneously in his Zamindari were sold by the Zamindar by auction and the
purchasers were permitted to fell the trees and sell them after sawing
and other processes.
In Orient Paper Mills Ltd. v. The State of Madhya Pradesh &
Ors.(•) it was held that the State Government or the forest department could not, merely by selling the forest produce grown on their
land, be regarded as carrying on any business of buying, selling, supplying or distributing goods and therefore in respect of mere sales of
forest produce, neither the State Government nor the forest department was a dealer within the meaning of the definition in section 2( d)
of the M.P. General Sales Aax Act, 1958. In Deputy Commissioner
(!) (1967) 19 S.T.C. 1 (SC.)
(3) (1958) 9 S.T.C. 60.
(2) (1958) 9 S.T.C. 723.
(4) (1971) 28 S.T.C. 532.
A
B
c
D
E
F
G
H
A
B
c
D
E
F
G
670
SUPREME COURT REPORTS
[1976] 3 S.C.R.
of Agricultural liu;ome-tax and Sales Tax,
Qui/on v.
Travancore
Rubber and Tea Co.( 1) and
Deputy Commissioner of Agricultural
Income-tax and Sales Tax, Qui/on v. Midland Rubber and Produce
Co.(') Lt.
where the only facts established were that the assessee
converted the latex tapped from its rubber trees into sheets and effected a sale of those sheets to its customers and the conversion of latex
into sheets was a process essential for the transport and marketing
of the produce, it was held that the department had not been able to
discharge the onus of proving that the assessee
was carrying on
business and was, therefore, a dealer within the meaning of section
2(b) of the Central Sales Tax Act, 1956. In Ramakrishna Deo v.
The Collector of Sales Tax, Orissa(') where Maharaja of Jeypore
had sold the sal trees from his forest for preparing sleepers, it was
held that he was not a dealer within the meaning of the Orissa Act
because he was not carrying on the business of selling or supplying
the goods for the reason that the element of purchase, one of the
necessary ingredients of the business was absent.
In view of the foregoing discussion, we find ourselves unable to
hold that the Government of Andhra Pradesh by holding auction of
forest produce carried on business in the sale of that class of goods.
As such, the respondents could not be made liable to pay the sales
tax.
There now remains for consideration only the last question as
to whether the security deposits made by the respondents were in the
nature of mortgages so as to make the respondents liable to pay the
stamp duty under Article 35(c) of the Stamp Act.
For the determination of this question, it is necessary to scrutinize the definition of
'mortgage deed' as contained in section 2 ( 17) of the Stamp Act which
runs thus:-
"2(17). Mortgage-deed
includes
every
instrument
whereby, for the purpose of securing money advanced, or to
be advanced, by way of loan, or an existing or future debt,
or the performance of an engagement, one person transfers,
or creates to, or in favour of, another, a right over or in
respect of specified property".
A bare perusal of the above definition makes it clear that in order
that an instrument should fall within the above definition, it is neces'
sary that the instrument should satisfy the essential conditions
by
creating a right over or in respect of a specified property in favour of
another person.
Bearing in mind the above mentioned essential requisites of a deed
of mortgage let us examine clause (17) of the sale notice to which
alone our attention has been invited.
Clause ( 17) runs thus :-
"Earnest money deposit
to be
returned-The earnest
money deposits of all bidders except those of the successful
bidders collected at the time of sale according to condition
5 above, will be returned to the depositors, on the conclusion
(1) (1967) 20 S.T.C. 520 (SC.)
(2) (1970) 25 S.T.C. 57 (S.C.).
(J) (1955) 6 S.T.C. 674.
\
J.,
,
+
BOARD OF REVENUE v. A. M. ANSARI (Jaswant Singh, J.)
671
of the sales provided that the officer conducting the sale, may
A
if he considers it advisable, retain the deposits of any bidders".
There is nothing in the above clause to indicate that any right
over or in the security deposits was created in favour of the State
Government.
In Reference under Stamp Act, section 46(1)
where a licence
issued to an arrack renter expressly required as one of its conditions
B
that the licensee should deposit a sum equal to three months' rental
as a security for the due performance of the contract and the licensee
executed a muchalka stating that he agreed to all the terms and conditions mentioned in the licence, it was held that neither the licence
nor the muchalka taken separately or together fulfilled the conditions
of a mortgage as defined in the Stamp Act i.e., neither thereby actually created an interest in the deposit in favour of the Government.
C
In Rishidev Sondhi v. Dhampur Sugar Mills(') it was held that
an instrument in which specific sums have been offered as security
is not a mortgage deed within the meaning of section 2(17) as money
is not 'specified property'.
In view of the above we have no manner of doubt that the resD
•
pondents could not be called upon to pay the stamp duty under Article
35(c) of the Stamp Act.
In the result the appeals fail and are hereby dismissed with costs.
P.B.R.
Appeals dismissed.
i
(1) 151.L.R. Mad.134.
(2) A.LR. 1947 All. 190 (F.B.)