Appeal No 717 of 1973
Appeal by Special Leave from the Judgement and Order dated 27 10 1972 of the Allahabad High Court in Sales Tax Ref
No 85771
section Markandeya for the Appellants
O P Verma for the Respondent
The Judgment of the Court was delivered by SEN J
This is an appeal from a judgment of the Allahabad High Court dated October 27 1972 which was given upon a reference of certain questions of law made to the High Court by the Additional Judge Revisions Sales Tax Meerut in compliance with its directions under sub section
4 of section 11 of the UP Sales Tax Act 1948 calling for a statement of the case
The two questions referred were as follows 1
Whether there is no material in support of best judgment assessment  2
Whether on the facts and in the circumstances of this case the assessee acted in respect of the estimated purchase turnover of Rs 380000 as a dealer so as to be liable to purchase tax  The Commissioner of Sales Tax submitted that the first question should be answered in the negative and the second in the affirmative
The High Court decided in favour of the assessee and against the Commissioner holding that the submission of the assessee was right and answered both the questions to the contrary
From this decision the appellant the Commissioner of Sales Tax has appealed
The reference arose out of assessment for the assessment year 1967 68 of Messrs Bishamber Singh Layaq Ram which carries on business in jaggery amchur khandsari etc
on its own account and as kuccha arhatiya in jaggery foodgrains etc
at Shahpur in the district of Muzaffarnagar and is registered as a dealer under section 8 A of the Act hereinafter referred to as the assessee 
The material facts may be stated as follows During the assessment year in question the Sales Tax Officer Muzaffarnagar by his order dated December 27 1968 rejected the account books of the 551 assessee on the basis of some discrepancies found during the four surveys carried out at his shop and made a best judgment assessment under sub section
3 of section 7 of the Act determining the taxable turnover of purchases effected by it as a kutcha arhatiya at Rs 530000 and the tax payable thereon at Rs 25450
On appeal the Assistant Commissioner Judicial Sales Tax Muzaffarnagar by his order dated August 11 1969 reduced the taxable turnover of purchases by Rs 150000 and the tax by Rs 7500
There were two cross revisions by the Commissioner of Sales Tax and by the assessee both of which were allowed by the Additional Judge Revisions Sales Tax Meerut who by his order dated February 10 1970 while negativing the plea of the assessee that he was not a dealer however felt that on the material on record the taxable turnover of the assessee could not reasonably be determined at Rs 380000
He accordingly set aside the orders of the Assistant Commissioner Judicial and of the Sales Tax Officer and directed that there should be a fresh best judgment assessment
Upon reference the High Court on question No 2 as to the liability of the assessee to tax on transactions effected by it as kutcha arhatiya held that the assessee was not a dealer observing If the assessee is a Kutcha Arhatiya then he is not liable to sales tax
The change in the definition of the word dealer  in 1961 upon which the Judge Revisions has relied does not change the situation
A person can be liable to tax as a dealer only if he acts as an agent having the authority to pass title in the goods sold
A kutcha arhatiya merely brings together the seller and the purchaser and helps in settling the price and weighing the goods etc
The fact that he sometimes advances money to cultivators who bring their produce for sale or sometimes pays the entire sale price to the cultivator from his own pocket is not inconsistent with his being a kutcha arhatiya
 It was rightly contended on behalf of the Commissioner that the High Court was wrong in holding that the assessee was not a dealer within section 2c of the Act and that the Sales Tax Officer was not justified in making an assessment to the best of his judgment under section 73
It is pointed out that the High Court has completely overlooked Explanation to section 2c of the Act which was inserted by the UP Sales Tax Amendment Act 1959 particularly the words through whom the goods are sold or purchased  appearing therein
with regard to the applicability of section 73 it is urged that the question was not referred
552 The finding arrived at by the High Court that the assessee as a kutcha arhatiya merely brought together the seller and the buyer charging an additional sum by way of commission and therefore could not be regarded as a dealer ie a person engaged in the business of buying and selling goods is contrary to the admitted facts of the case
The facts stated in the agreed statement of the case clearly show that the assessee is not a kutcha arhatiya in the usual sense of the term but his business brings into existence the relation of vendor and purchaser
The nature of the business carried on by the assessee is described thus Cultivators bring their produce to the assessee for sale
The goods are weighed at his shop and then supplied to the pucca arhatiyas or to other persons
Price of the commodity in full or part is paid by the assessee to the cultivators directly
The price from the purchasers is readied afterwards
In any case it is not the responsibility of the cultivators to realise the price from the purchasers
On the contrary it is the assessee who is responsible for the payment of the price to the cultivators
Some times the cultivators are also paid advances and these are adjusted when the price of the produce is paid to the cultivators Emphasis supplied The decision on the question whether the assessee is a dealer must turn on the construction of section 2c which insofar as material reads 2c dealer means any person or association of persons carrying on the business of buying or selling goods in Uttar Pradesh whether for commission remuneration or otherwise Explanation A factor a broker a commission agent or arhati a del credere agent an auctioneer or any other mercantile agent by whatever name called and whether of the same description as hereinbefore mentioned or not who carries on the business of buying or selling goods on behalf of his principals or through whom the goods are sold or purchased shall be deemed to be a dealer for the purposes of this Act
 There can be no doubt that a pucca arhatiya comes within the substantive part of the definition of dealer  contained in section 2c of the Act but the question still remains whether a kutcha arhatiya is covered by the definition by reason of the Explanation thereto
The basic distinction between a kutcha and a pucca arhatiya is that a kutcha arhatiya acts as an agent on behalf of his constituent and never acts as a principal to him
The person with whom he enters into a transaction on behalf of his constituent is either brought into contact with the constituent or at least the constituent is informed of 553 the fact that the transaction has been entered into on his behalf with a particular person
But in the case of a pucca arhatiya the agent makes himself liable upon the contract not only to third parties but also to his constituent
He does not inform his constituent as to the third party with whom he has entered into a contract on his behalf
Thus a pucca arhatiya acts as a principal as regards his constituent and not as a disinterested middleman who brings about two principals together there being no privity of contract between the constituent and the third party and may substitute his own goods towards the contract made for the principal and buy the principals goods on his personal account
On the other hand a kutcha arhatiya usually denotes a person who merely brings together the buyer and the seller  charging his commission who has no dominion or control over the goods unlike a pucca arhatiya who deals as a principal in relation to both his constituent and to the third party
The crucial test is whether the agent has any personal interest of his own when he enters into the transaction or whether that interest is limited to his commission agency charges and certain out of pocket expenses and in the event of any loss his right to be indemnified by the principal
This principle was applied in the case of pakki arhat by Sir Lawrence Jenkins CJ in Bhagwandas Narotmdas vs Kanji Deoji and approved of by the Judicial Committee in Bhagwandas Parasram vs Burjorji Ruttonji Bomanji and by this Court in Shivnarayan Kabra vs State of Madras
As to the incidents of pakkiarhat Sir Lawrence Jenkins in Bhagwandas Narotamdas s case succinctly states the legal position in his own terse language A pakka adatia is not in the proper sense of the word an agent or even a del credere agent
The relation between him and his up country constituent is substantially one of principal and principal In a commercial sense a kutcha arhatiya acts as an agent on behalf of his constituent
The main characteristic of a kutcha arhatiya has been described by the Judicial Committee in Sobhagmal Gianmal vs Mukundchand Balia4 in these terms When a katcha adatia enters into transactions under instructions from and on behalf of his up country constituent with a third party in Bombay he makes privity of contract between the third party and the constituent so that each becomes liable 554 to the other but also he renders himself responsible on the contract to the third party
 Vivian Bose J in Kalyanji Kuwarji vs Tirkaram Sheolal1 puts the matter thus The test to my mind is this does the commission agent when he sells have authority to sell in his own name Has he authority in his own right to pass a valid title If he has then he is acting as a principal vis a vis the purchasers and not merely as an agent and therefore from that point or he is a debtor of his erstwhile principal and not merely an agent
Whether this is so or not must of course depend upon the facts in each particular case
 It is plain on an examination of the language as it stood at the material time from the definition of dealer  in section 2c that even a selling or purchasing agent is within that definition
A person to be a dealer  under that definition must be engaged in the business of buying and selling goods in Uttar Pradesh whether for commission remuneration or otherwise
Explanation to section 2c brought within the definition of dealer  not only a commission agent a factor a del credere agent or any other mercantile agent by whatever name called and whether of such description or not but also a broker an auctioneer as well as an arhatiya
The use of the words through whom the goods are sold or purchased in the Explanation is significant and they must be given their due meaning
Thus the definition of dealer  in section 2c is wide enough to include a selling or purchasing agent of whatever name or description
The term arhatiya  is wide enough to include a kutcha arhatiya
If the Explanation to section 2c of the Act were not there perhaps it could be said that a kutcha arhatiya is merely an agent who helps cultivators who bring their produce to the market for sale to find buyers assist them in weighment and secure to them payment of price but the assessee here certainly does not answer that description
That apart the Explanation clearly brings within the definition of dealer  in section 2c a kutcha arhatiya
It was not suggested at any time that the Explanation was ultra vires the State Legislature being beyond the ambit of Entry 54 of List II of the Seventh Schedule
The constitutional validity of a similar Explanation to section 2c of the Bengal Finance Sales Tax Act 1941 which brought an auctioneer within the purview of the definition of dealer  in that section
was upheld by this Court in Chowringhee Sales Bureau P Ltd vs CIT West Bengal2 The whole object is to tax a transaction of sale in the 555 hands of a person who carries on the business of selling goods and who has the legal or customary authority to sell goods belonging to the principal
It is evident from the statement of the case that the business carried on by the assessee was more or less similar to that of a pucca arhatiya and it is a misnomer to call it a kutcha arhatiya
It actually purchased the goods from the sellers ie the cultivators and then sold them in the market to the other buyers as if they were its own obviously at a profit
It paid to the cultivators the price of the goods it purchased and received from the buyers the price at which is sold
Selling of goods was not simultaneous with receiving them
These facts can lead to no other conclusion except that it bought and then sold goods and not merely brought buyers into contact with sellers and arranged transactions between them
In these circumstances the High Court should have held the assessee to be a dealer under section 2c of the Act read with the Explanation thereto
There remains the question whether the High Court was justified in holding that there was no basis for making a best judgment assessment
The Addl
Judge Revisions had remanded the case for a reassessment on the basis of best judgment on his finding that there was no material whatever on record to enable him to come to a conclusion one way or the other on the disputed question of fact ie whether the best judgment assessment of the taxable turnover at Rs 380000 could be sustained
Though the question of the applicability of section 73 of the Act was not in terms referred to the High Court under section 114 the Addl
Judge Revisions in stating the case mentioned that the assessee had contended before him that his account books had been wrongly rejected
The statement of the case sets out the details of the various surveys made and the nature of the deficiencies found
The High Court treating the question referred to be a composite one embarked upon an enquiry as to whether the Sales Tax Authorities were justified in rejecting the account books and in making the best judgment assessment under section 73
It has referred to the four surveys carried out on August 11 1967 December 13 1967 January 7 1968 and March 8 1968
In the first survey held on August 11 1967 it was found that the Nagal Bahi had not been written for eleven days
The High Court observes that no adverse inference could be drawn on this account because the assessee s explanation was that there were no cash transactions for this period and therefore the Nagal Bahi had not been written 
With regard to the second survey carried out on December 13 1967 it was discovered that there was 556 a loose parcha containing several entries
One of the entries of Rs 37117 in the name of Sakh Chand Udit Mohan alone was entered in the account books
That too on December 13 1967 after inspection while the payment was actually made on December 11 1967 ie it was not contemporaneous with the transaction
The High Court observes that it has not been found that any other entry contained in the loose parcha had not been entered in the account books  With regard to the third survey carried out on January 7 1968 when twelve bags of wheat were found in stock the stock register was not shown to the surveying officer
The High Court has again accepted the explanation of the assessee saying that there was no duty cast on the assessee to produce the stock register and it was not shown since there was no demand for it 
It observes that there is nothing in section 13 or in any other provisions of the Act or the rules framed thereunder which requires a dealer to produce his books of accounts and other documents before the surveying officer 
As regards the last survey held on March 8 1968 the Mondhi Bahi was found to be posted upto February 29 1968
Thus there were no entries for eight days
The explanation of the assessee was that it had not entered into any contract during the eight days in question
The High Court observes that as there was no material whatever for rejecting his explanation no adverse inference could be drawn with regard to the veracity of the accounts since Mondhi Bahi is not a necessary account book 
We are not inclined to agree with this line of reasoning
While we refrain from expressing any opinion on the requirements of section 132 of the Act we are satisfied that the finding of the High Court that there was nothing wrong with the method of accounting adopted by the assessee cannot be upheld
In our opinion the High Court should have declined to go into the question of the applicability of section 73 of the Act
When a question of law was neither raised before the Addl
Judge Revisions nor considered by him nor did it arise on the findings given by him it will not be a question arising out of his order
The question as to whether the Sales Tax officer was justified in making a best judgment assessment under section 73 of the Act was not referred to the High Court
It was therefore not open to the High Court to go into the question
It could not allow the new point to be raised for the first time in reference
Nor was the High Court entitled on a reference under section 114 of the Act to set aside the finding of the Addl
Judge Revisions merely because on a reappraisal of the evidence it would have come to a contrary conclusion
It was also not entitled to examine whether the explanation of the assessee in regard to the deficiencies found in the account books 557 should or should not be accepted
It may be that the Sales Tax Authorities should have accepted the explanation of the assessee with regard to the aforesaid deficiencies but it may as well be that there are various other deficiencies which the assessee will have still to explain
For all these reasons the judgment of the High Court is set aside and that of the Addl
Judge Revisions Sales Tax Meerut remanding the case for a fresh judgment assessment under section 73 of the Act is restored
There shall be no order as to costs
NVK Appeal allowed


Summary:
Section 2c of the UP Sales Tax Act 1948 defines dealer to mean any person or association of persons carrying on the business of buying or selling goods in Uttar Pradesh whether for commission remuneration or otherwise
By the UP Sales Tax Amendment Act 1949 an Explanation was inserted in this section to provide that a factor a broker a commission agent or arhatiya a del credere agent an auctioneer or any other mercantile agent by whatever name called and whether of the same description as hereinbefore mentioned or not who carries on the business of buying or selling goods on behalf of his principles or through whom the goods are sold or purchased shall be deemed to be a dealer for the purposes of the Act
The respondent assessee who was registered as a dealer under section 8A was carrying on business in jaggery amchur khandsari etc
on its own account and as kutcha arhatiya
The nature of the business carried on by the assessee was that cultivators brought their produce to the assessee for sale
The goods were weighed at his shop and then supplied to the pucca arhatiyas or to other persons
Price of the commodity in full or part was paid by the assessee to the cultivators directly and the price from the purchaser were realised after wards
During the assessment year 1967 68 the Sales Tax Officer by his assessment order rejected the account books of the assessee on the basis of some discrepancy found during the four surveys carried out at the shop and made a best judgment assessment under sub section 3 of section 7 of the Act determining the taxable turnover of purchases effected by the assessee as a kutcha arhatiya at Rs 53 lacs and taxed it
On appeal the Assistant Commissioner Judicial Sales Tax reduced the taxable turnover of purchase by Rs 15 lacs
Cross revisions by the appellant as well as by the respondent were allowed by the Additional Judge Revisions Sales Tax who by his order negatived the plea of the assessee that he was not a dealer but held from the material on record that the taxable turnover of the assessee could not reasonably be determined at Rs 38 lacs
The orders of the Assistant Commissioner Judicial and Sales Tax officer were set aside and a fresh best judgment assessment was directed to be made
549 The High Court upon reference as to the liability of the assessee to tax on the transactions effected by it as kutcha arhatiya held that the assessee was not a dealer
It further held that a person can be liable to tax as a dealer only if he acts as an agent having the authority to pass title in the goods sold and that a kutcha arhatiya merely brought together the seller and the purchaser and helped in settling the price and weighment of the goods etc
In the appeal to this Court it was contended on behalf of the appellant that the High Court was wrong in holding that the assessee was not a dealer within section 2c of the Act and that the High Court had completely overlooked the Explanation to section 2c which was inserted by the UP Sales Tax Amendment Act 1959 particularly the words through whom the goods are sold or purchased and that the Sales Tax Officer was not justified in making an assessment to the best of his judgment under section 73
Allowing the appeal  HELD 1i The finding arrived at by the High Court that the assessee as a kutcha arhatiya merely brought together the seller and the buyer charging an additional sum by way of commission and therefore could not be regarded as a dealer ie a person engaged in the business of buying and selling goods is contrary to the admitted facts of the case
551 H ii Explanation to section 2c brought within the definition of dealer  not only a commission agent a factor a del credere agent or any other mercantile agent by whatever name called and whether of such description or not but also a broker an auctioneer as well as an arhatiya
554 D iii The definition of dealer  in section 2c is wide enough to include selling or purchasing agent of whatever name or description
The term arhatiya  is wide enough to include kutcha arhatiya
554 E iv The basic distinction between a kutcha and a pucca arhatiya is that a kutcha arhatiya acts as an agent on behalf of his constituent and never acts as a principal to him
A pucca arhatiya acts as a principal as regards his constituent and not as disinterested middleman who brings principals together there being no privity of contract between the constituent and the third party
On the other hand a kutcha arhatiya usually denotes a person who merely brings together the buyer and seller  charging his commission who has no dominion or control over the goods unlike a pucca arhatiya who deals as a principal in relation to both his constituent and to the third party
In a commercial sense a kutcha arhatiya acts as an agent on behalf of his constituent
552 G 553 B F Bhagwandas Parasram vs Burjorji Ruttonji Bomanji LR 1917 18 45 IA 29 Shivnarayan Kabra vs State of Madras
  Sobhagmal Gianmal vs Mukundchand Balia LR 1926 53 IA 241 Chowringhee Sales Bureau P Ltd vs CIT West Bengal   referred to
2i The High Court should have declined to go into the question of the applicability of section 73 of the Act
When a question of law was neither raised before the Addl
Judge Revisions nor considered by him nor did it arise on findings given by him it will not be a question arising out of his order
556 F ii The question as to whether the Sales Tax Officer was justified in making a best judgment assessment under section 73 of the Act was not referred to the High Court
It was therefore not open to the High Court to go into the question
It could not allow the new point to be raised for the first time in reference
556 G 550 iii The High Court was also not entitled on a reference under section 114 of the Act to set aside the findings of the Addl
Judge Revisions merely because on a reappraisal of the evidence it would have come to a contrary conclusion
It was also not entitled to examine whether the explanation of the assessee in regard to the deficiencies found in the account books should or should not be accepted
556 H