CANARA BANK Vs. COMMERCIAL TAX OFFICER

JUDGEMENT

(1.) AN Interesting question as to whether a banking company under the Banking Regulation Act, 1949, can be treated as a "dealer" under section 2 (1) (k) of the Karnataka Sales Tax Act, 1957, while realising the security, falls for determination in this appeal preferred by a nationalised bank. The facts which gave rise to the filing of this appeal, are not in dispute and are required to be briefly stated to appreciate the claim of the appellant-bank. The appellant is a Government of India undertaking which was acquired by the Government of India under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. The business of the appellant-bank is regulated under the provisions of the Banking Regulation Act, 1949. The expression "banking" is defined under section 5 (b) and means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise. The expression "secured loan or advance" is defined under section 5 (n) and means a loan or advance made on the security of assets, the market value of which is not at any time less than the amount of such loan or advance. Section 6 of the Act sets out the forms of business in which banking companies may engage and sub-section (1) (a), inter alia, provides that in addition to the business of banking, a banking company may engage in lending or advancing of money either upon or without security. Section 6 (1) (a) to (n) sets out various forms of business in which the banking companies can engage. Clause (f) confers power on the banking company to manage, sell or realise any property which may come into the possession in satisfaction or part satisfaction of any of its claims, while clause (i) authorises the banking company to undertake the administration of estates as executor, trustee to otherwise. Clause (o) of sub-section (1) of section 6 entitles the banking company to engage in any other form of business which the Central Government may specify as a form of business. Sub-section (2) of section 6 prescribes that no banking company shall engage in any form of business other than those referred to in sub-section (1 ). Section 8 of the Banking Regulation Act reads as follows :

(2.) THE Karnataka Legislature passed the Karnataka Sales Tax Act, 1957, to consolidate and amend the laws relating to the levy of tax on the purchase or sale of goods in the State. Section 5 of the Act provides that every dealer shall pay for each year tax on his taxable turnover. The expression "dealer" is defined under section 2 (k) and 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. The expression "business" is defined under section 2 (1) (f-2), which reads as follows :

(3.) THE learned counsel appearing on behalf of the appellant-bank submitted that the learned single Judge was in error in dismissing the petition filed by the bank by observing that the issue stands concluded in view of the judgment delivered in the case of Karnataka Pawn Brokers' Association (Regd.) v. State of Karnataka [1992] 87 STC 366 (Kar); ILR 1995 Kar 1753. It was contended that the case of the appellant-bank stands on an entirely different footing from that of the Pawan Brokers' Association's case [1992] 87 STC 366 (Kar) and the grievance of the appellant-bank had gone unheard before the learned single Judge. The learned counsel submitted that it is impossible to suggest that a nationalised bank can be considered as "dealer" under section 2 (1) (k) of the Karnataka Sales Tax Act. It was submitted that section 8 of the Banking Regulation Act prohibits the banks from trading and consequently, the banks cannot be treated as "dealers" under the Sales Tax Act. The Government Advocate appearing on behalf of the Commercial Tax Officer, on the other hand, submitted that the decision in the case of Karnataka Pawn Brokers' Association [1992] 87 STC 366 (Kar) was upheld by the Division Bench in the case of Karnataka Pawn Brokers' Association v. State of Karnataka [1994] 94 STC 243 (Kar); ILR 1993 240 and the ratio laid down by the Division Bench would squarely apply to the case of the appellant-bank. It was further submitted that though section 8 prohibits the banking companies from trading, there are certain exceptions set out under the section and when the bank, for realisation of the security, sells the goods, then the bank becomes a "dealer" and is liable to pay sales tax. It was further submitted that even if the bank is not carrying on the business of selling, still the bank performs the duties which are of a commercial nature and consequently, it carries on business and as such, should be treated as "dealer". In view of the rival submissions, the question, which falls for determination, is whether a banking company constituted under the Banking Regulation Act can be treated as a "dealer" when, in realisation of loans advanced to the customers, securities are sold.