STATE OF MADRAS Vs. T NARAYANASWAMI NAIDU

JUDGEMENT

(1.) THESE two cases were hard together as they raise a common point. We will take up T. C. No. 105 of 1963 first. The assessee is a dealer in cotton and cotton seeds. During the year of assessment 1960-61 it was found that the dealer had with him, at the close of the year, stock of cotton valued at Rs. 2,27,250. Cotton in the year in question was an item of declared goods under S. 14 of the Central sales Tax Act, 1956, it being considered to be of special importance in inter-State trade or commerce. The consequence of such a declaration is, as per S. 15 (a) of the Central Sales Tax Act, that the sales tax law of a State can levy a tax on the sales or purchases of cotton at a rate which shall not exceed two percent and the sales tax shall not be levied at more than one stage. There is a further benefit conferred under S. 15 (b), that where a tax has been levied under the State law on any declared goods and such goods are sold by the assessee thereafter in the course of inter-State trade or commerce, the tax course of inter-State trade or commerce, the tax shall be refunded to the assessee subject to certain conditions. We are not now concerned with this last mentioned provision for refund. Acting upon S. 15 (a) of the Central Sales Tax Act, the Government of Madras provided for the tax on declared goods, in S. 4 of the Madras Central Sales Tax act, 1959, which states that tax in respect of the point specified against each in the Second Schedule on the turnover in such goods in each year, whatever be the quantum of turnover in that year. In the Second Schedule "cotton" is entered as item 2 and the single point of levy adopted is "at the point of last purchase in the state" and the rate of tax is one per cent. Adopting the interpretation to the words "last purchase in the State" given by the Kerala High Court in Abdul Salam rowther v. State of Kerala, (1961) 12 STC 98 (Ker) and the Mysore High Court in hormusji Hirjibhoy and Co. v. Commercial Tax Officer, (1962) 13 STC 773 (Mys), the assessing authority in this case levied sales tax on the unsold stock remaining with the assessee at the end of the year, holding that the purchases in respect of it must be deemed to be the last purchase in the State, and liable to be assessed under S. 4 of the Madras General Sales Tax Act read with Schedule II to it. The gist of the view of the Kerala and Mysore High Courts is that for the purpose of the levy of sales tax, the year shall be taken as the unit, that no event that happens either before or after the year shall be taken into account for the purpose of deciding the stage of single point levy, and that, therefore, the last purchase should be deemed to be the last purchase so far as the year of assessment is concerned. Against the decision of the assessing authority, the appeal filed to the appellate Assistant Commissioner failed; but the Sales Tax Tribunal allowed the further appeal of the assessee. Now the State has come before us in revision against the decision of the Tribunal.

(2.) WE will briefly refer to the Kerala and Mysore High Court decisions on which reliance has been placed by the department. In (1961) 12 STC 98 (Ker), the kerala High Court had to interpret a provision for single point levy described as "last purchase in the State which is not exempt form taxation under S. 3 (3) of the act. " The dealer in that case at the conclusion of the assessment year, had a certain quantity if unsold stock. He asserted that after the assessment year he had sold that stock to the other assessable dealers in the State and, therefore, he was not the last purchaser liable to assessment. The Kerala High Court relied upon certain decisions under the Indian Income-tax Act, which lay down that for the purpose of computing yearly profits and dealings, each year is a separate self-contained period of time in regard to which profits earned or losses sustained before its commencement are irrelevant. One of them is Sir S. M. Chitnavis v. Commr. , of Income-tax, C. P. and Berar, 6 ITC 453 (PC ). In another decision, the Supreme Court decision in Kikabhai Premchand v. Commr. , of Income-tax, it was held that for income-tax purposes, each year is a self-contained accounting period, and the income-tax authorities could take into account only the income, profits and gains made in that year and they were not concerned with potential profits which may be made to another year. In a third decision, namely, that of the Bombay High Court in kishinchand Chellaram v. Commr. , of Income-tax, Chagla, C. J. , observed that it was difficult to understand on what principle of taxation law, could an assessee rely on a subsequent event in order to escape taxation which he was properly liable to pay as far as the assessment year itself was concerned. Adopting the view on these decisions, the Kerala High Court held that for fixing the stage of the single point levy in any given assessment year, the fact that the goods were sold subsequent to that year should not be taken into account.

(3.) THE Mysore High Court in (1962) 13 STC 773 (Mys), dealt with a case where groundnuts, according to the schedule in the Measure Sales Tax Act, was to be assessed to sales tax, on the last purchase in the State. It was found that the dealer had sold after the expiry of the year of assessment, a certain quantity of groundnuts to another dealer, and he claimed at the time of assessment, that the turnover represented by this subsequent sale, should be excluded from his assessable turnover in the year of assessment. There was no allegation that the person to whom groundnuts were sold by the dealer subsequent to the year of assessment had been called upon to pay sales tax. According to the judges of the mysore High Court, the provision that sales tax should not be levied at more than one stage had not been transgressed in the case that came up before them. The argument was pressed before that Court that the incidence of tax was not on the last purchase in the assessment year, but only the last purchase in the chain of transactions after which there was no sale of the goods. The Mysore High Court negatived this contention, and reached the conclusion that the words "last purchase" in the corresponding provision of the Mayors Act, should refer to the last purchase, "the price for which was included in the turnover of the purchase in each year". The Mysore High Court also stated that any other construction, would lead to the incongruous result that every dealer who was the last purchaser in his assessment (year), could by making a subsequent sale during the next year, pass on the liability to his purchaser, who could in his turn, do the same thing making the levy of tax impossible, until a purchaser was found who made no further sale himself.