STATE OF TAMIL NADU VERSUS THERMO ELECTRICS BURMAH SHELL OIL STORAGE AND DISTRIBUTING COMPANY OF INDIA LIMITED Vs. GOVERNMENT OF TAMIL NADU

JUDGEMENT

(1.) IN these two tax revision cases, a common point is raised though the facts are slightly different. IN the first case, Thermo Electrics is the assessee. It is a sole proprietary concern. The assessee was a dealer in heating mantles and was dealing in the purchase and sale of those articles. She was also manufacturing and selling standard cells (Toshnival Brand ). Under an agreement Dt. 1st July, 1970 , she agreed to give the standard cells to Thermo Electricals Madras manufacturing, hereinafter referred to as TEMM, a firm of partnership, in consideration of a 10 per cent royalty on the net sale prices marketed by TEMM. Under the agreement, TEMM was given the exclusive right to manufacture and sell the standard cells in four States, namely Madras, andhra, Kerala and Mysore. If TEMM wants to market the goods in other States, it would have to enter into a separate agreement with the assessee. As part of the agreement, the assessee sold all the raw materials which she had as listed in Appendix A to the agreement for the prices mentioned therein. Similarly, she sold to semi-finished products and finished products listed in Appendix B for the prices mentioned in that Appendix. The finished products included in this appendix did not exhaust the stocks which she held, but only a portion of it was given to TEMM and the remaining was retained by her for the purpose of sale in the areas other than four States in respect of which TEMM was given the exclusive right. Under the agreement, the assessee also transferred also the tools, jigs, fixtures, furnitures and other items as listed in Appendix C on their book value which is also mentioned in that Appendix. For the asst. yr. 1970-71, the assessee returned a total and taxable turnover of Rs. 1, 746-09 and Rs. 1, 528/- respectively. On the ground that the raw material as listed in appendix A to the agreement and the semi-finished products listed in Appendix B thereto were sold by the assessee during the assessment year, the assessing officer sought to include a sum of Rs. 1, 59, 753-85 in the taxable turnover. The assessing officer did not propose to include the value of the books mentioned in Appendix C which was valued at Rs. 250/ -. The assessee objected to the proposal to include the sum of Rs. 1, 59, 753-85 on the ground that they were realisations on the sale of the business as a whole and that the sale was also not in the course of carrying on her business, but it was a case of winding up of the manufacturing unit. The assessing officer did not accept this contention and included the turnover as proposed in the pre-assessment notice. On appeal, however, the AAC held that so far as the raw materials were concerned, it could not be said to be a sale in the regular course of business activity of the assessee and that, therefore, it is not liable to be included in the turnover, but confirmed the assessment so far as it related to the value of semi-finished products and finished products. The assessee preferred a further appeal to the Tribunal in respect of the semi-finished products and finished products and the Revenue filed an enhancement petition in respect of the raw materials. Before the Tribunal, the Revenue relied strongly on the decision of the Supreme Court in State of Tamil Nadu vs. Burmah Shell Co. Ltd. 1. IN support of its contention that the entire turnover was liable to be taxed. The Tribunal held that the sale of capital assets or sterlized assets could not be considered to be a sale in the course of business or in connection with or incidental or auxiliary to the business carried on by the assessee and that, therefore, the sale of the materials mentioned in Appendix A and Appendix b were not liable to be taxed. According to the Tribunal, the decision in State of Tamil Nadu vs. Burmah Shell Co. Ltd. did not dispense with the basic necessity that the assessee must be carrying on the business at the time when the transaction took place and the necessity of its being incidental; or auxiliary to the actual business carried on. IN the view of the Tribunal when the assessee agreed to give the know-how to TEMM and as part of the agreement sold the raw materials and semi-finished and finished products, the raw materials semi finished products and finished products which were the current assets before the agreement became sterilized assets awaiting disposal having become a mere investment of a dead business activity. IN other words, the Tribunal seems to think that the know-how is given first and by reason if it, the manufacturing activity of the assessee had come to a dead-end and the sale of the raw materials, semi-finished and finished products takes the next places, when she was no longer a dealer in the manufacture and sale of standard cells. Thus, according to the Tribunals, at the time when the sale was made, the assessee was not manufacturing the standard cells and the goods sold were freeze assets. Thus, both on the grounds that it was a sale of the capital assets and therefore could not be traded as a sale in the course of business and also on the ground that the sale was after she had ceased to do any business, the tribunal held that the entire turnover relating to Appendix A and Appendix B were not liable to be included in the gross turnover. It is requisitioning this view of the Tribunal, the Revenue has filed T. C. No. 287 of 1974.

(2.) IN the other tax revision case, the assessee was the erstwhile Burmah Shell; Oil Storage and Distributing Co. of INdia Ltd. Which is now taken over and designed as Bharat Refiners Limited. The disputed turnover related to two items of Rs. 2, 58, 104-04 and Rs. 17, 444-35. The assessment year in question is 1972-73. During the year, the assessee had closed down or wound up certain storing stations due to shrinkage, of business and sold the various tanks and pumps of those station. IN some other cases, on the ground that the storage points were no longer economical or had became absolute and redundant, the tanks and pumps were sold. IN some other cases, the assessee replaced the existing tanks with tanks of larger capacity and sold the old tanks. The disputed turnover of Rs. 2, 58, 104-04 related to the sales of those tanks, pumps. Pump shelters barbed write fencing, gates, sentry room material, conical filling machines etc. During the assessment year, the assessee sold also different kinds of scrap and the sale value is the sum of Rs. 17, 444-35 which is the disputed turnover. The assessing officer disallowed the claim of the assessee relying on the decision in State of Tamil Nadu vs. Burmah Shell co. Ltd. that these two items were not liable to be included in the gross turnover on the ground that the sales were in the course of or incidental or auxiliary to its business. This order was confirmed by the AAC. Before the tribunal in so far as the turnover of Rs. 2, 58, 104-84 was concerned, the assessee claimed that the sales related to discredited or redundant capital assets and they had to be sold for the various reasons mentioned earlier and that they were not sold in the course of its business. It was also its case that the sales could not be held to be incidental or auxiliary to its business of storage, distribution and sale of petrol and petroleum products. It also claimed that scrap also was not liable to be included as transactions incidental or auxiliary to its business. Though the Tribunal agreed with the assessee that the disputed turnover of Rs. 2, 58, 104-04 represented the sale value of discredited capital assets in the view that they amounted to rationalisation of the business activities and that the sale made during the course of such rationalisation should be demand to be incidental of its business, it held that they were liable to be included in the gross turnover. Following the decision of the Supreme Court in State of Tamil Nadu vs. Burmah shell Co. Ltd. the value of scrap also was included in the taxable turnover. The assessee is the petitioner in this revision case.