Case: State of Mysore and Another Vs. Mysore Spinning and Manufacturing Company, Limited and Another

the words of rule 11(7)(ii) - "he shall pay in full the amount or amounts collected by him by way of tax or taxes to the Government .........".The appeal originally came on before a Division Bench of this Court when the arguments just now summarised were urged and it was then submitted on behalf of the respondents, that if section 11(2) were construed in the manner contended by the learned counsel for the appellants, the direction to pay over to the Government, money belonging to the dealer which could not lawfully be and was not in fact charged to tax under the Act would violate the fundamental rights guaranteed by Articles 19(1)(f) and 31 of the Constitution. By reason of this contention being raised the appeals were directed to be posted before a Constitution Bench and that is how these appeals come to be heard by us.After arguments as regards the proper interpretation of the words "by way of tax under this Act" occurring in sub-sections (1) and (2) of section 11 had been advanced by the learned counsel on either side on the lines above indicated, it was realised that on the facts of all these cases, there was no "collection" at all, whether "by way of tax" or otherwise, so as to bring the amounts received and held by the respondents within the scope of section 11. We have already set out the questions referred, which would clearly indicate that the amounts were received by the Cement Marketing Co. and by the Mysore Spinning and Manufacturing Co. and the Minerva Mills Ltd. only as "a deposit" to cover a possible contingency of these companies being held liable to pay the tax. That this was the real nature of the transaction was never in dispute. Indeed even the Commissioner of Sales Tax in making the reference in the three cases made it clear that the amounts were received by the companies on the definite understanding and condition that they were to be held only "as deposits" to be refunded when the company in question was held not liable to include the relevant sales in its taxable turnover. The construction on which the Sales Tax Authorities proceeded was that the Act made no difference between one type of receipt and another, and that any receipt of money by a dealer from the purchaser was a "collection by way of tax" within section 11(2) of the Act, provided it had some relation to sales tax, and that it mattered not that the receipt was merely a deposit by the payer carried to suspense account, the amount being received on the express undertaking and definite condition that the same would be refunded in the event of the dealer being held not liable to sales tax on the transaction in regard to which the "deposit" was made. We are unable to agree in this construction of the expression "collection" occurring in section 11(2) of the Act. Where an amount is received merely by way of deposit, on the express understanding or undertaking as in these cases, the company held the money as a mere custodian, and on the fulfilment of the condition became a trustee for the depositor. It is sufficient to state that when once the tax authorities determined that the proceeds of the sales in question were not within the taxable turnover of the company, the beneficial ownership became vested in the depositors and the company ceased to have any right to continue to hold the moneys. The fact that the physical control of the moneys passed from the "depositor" to the "dealer" did not render the receipt a "collection" within section 11(2) of the Act.We should not be understood as saying that collections by a dealer from a purchaser of amounts not lawfully demandable by him are not "collections" within section 11, merely because the purchaser could in law make a claim for refund and enforce that right in appropriate proceedings. But such a case is far removed from the ones before us, where the payment by the purchaser was conditional and made on an express contract that the sum would be refunded in the contingency of the dealer being held not to be assessable in respect of the relevant turnover. On the facts of these appeals we are unable to hold that there has been any "collection" by way of tax of any amount under section 11(2) of the Mysore Sales Tax Act, 1948.So far we have been dealing with the facts of the cases in which "references" were made to the Court. In Civil Appeal 75 of 1957 which is against the order of the High Court in Writ Petition No. 39 of 1954 there was no "reference". Facts exactly similar to those in the other cases and the circumstances under which deposits were obtained and retained by the company were set out in the affidavit in support of the petition. The State filed no counter-affidavit challenging the correctness of the assertions made in the petition and the High Court proceeded on the basis that there was no difference on the facts between the cases covered in the references and those in the writ petition. We consider, therefore, that the facts in Civil Appeal 75 of 1957 are not substantially different.In view of this conclusion, we consider it proper not to embark on an investigation of the proper construction of section 11(1) and (2) of the Act and the sustainability of the rival contentions urged before us on this matter. Nor do we consider it necessary or proper to deal with the soundness or otherwise of the constitutional objections which have been put forward to the demand by the State, to amounts "collected by way of tax" if that were to include collections in respect of sale-transactions not charged to tax under the Act. We consider it desirable to reserve the determination of these questions to an occasion when they properly arise and have necessarily to be decided.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]After arguments as regards the proper interpretation of the words "by way of tax under this Act" occurring in sub-sections (1) and (2) of section 11 had been advanced by the learned counsel on either side on the lines above indicated, it was realised that on the facts of all these cases, there was no "collection" at all, whether "by way of tax" or otherwise, so as to bring the amounts received and held by the respondents within the scope of section 11. We have already set out the questions referred, which would clearly indicate that the amounts were received by the Cement Marketing Co. and by the Mysore Spinning and Manufacturing Co. and the Minerva Mills Ltd. only as "a deposit" to cover a possible contingency of these companies being held liable to pay the tax. That this was the real nature of the transaction was never in dispute. Indeed even the Commissioner of Sales Tax in making the reference in the three cases made it clear that the amounts were received by the companies on the definite understanding and condition that they were to be held only "as deposits" to be refunded when the company in question was held not liable to include the relevant sales in its taxable turnover. The construction on which the Sales Tax Authorities proceeded was that the Act made no difference between one type of receipt and another, and that any receipt of money by a dealer from the purchaser was a "collection by way of tax" within section 11(2) of the Act, provided it had some relation to sales tax, and that it mattered not that the receipt was merely a deposit by the payer carried to suspense account, the amount being received on the express undertaking and definite condition that the same would be refunded in the event of the dealer being held not liable to sales tax on the transaction in regard to which the "deposit" was made. We are unable to agree in this construction of the expression "collection" occurring in section 11(2) of the Act. Where an amount is received merely by way of deposit, on the express understanding or undertaking as in these cases, the company held the money as a mere custodian, and on the fulfilment of the condition became a trustee for the depositor. It is sufficient to state that when once the tax authorities determined that the proceeds of the sales in question were not within the taxable turnover of the company, the beneficial ownership became vested in the depositors and the company ceased to have any right to continue to hold the moneys. The fact that the physical control of the moneys passed from the "depositor" to the "dealer" did not render the receipt a "collection" within section 11(2) of the Act.We should not be understood as saying that collections by a dealer from a purchaser of amounts not lawfully demandable by him are not "collections" within section 11, merely because the purchaser could in law make a claim for refund and enforce that right in appropriate proceedings. But such a case is far removed from the ones before us, where the payment by the purchaser was conditional and made on an express contract that the sum would be refunded in the contingency of the dealer being held not to be assessable in respect of the relevant turnover. On the facts of these appeals we are unable to hold that there has been any "collection" by way of tax of any amount under section 11(2) of the Mysore Sales Tax Act, 1948.So far we have been dealing with the facts of the cases in which "references" were made to the Court. In Civil Appeal 75 of 1957 which is against the order of the High Court in Writ Petition No. 39 of 1954 there was no "reference". Facts exactly similar to those in the other cases and the circumstances under which deposits were obtained and retained by the company were set out in the affidavit in support of the petition. The State filed no counter-affidavit challenging the correctness of the assertions made in the petition and the High Court proceeded on the basis that there was no difference on the facts between the cases covered in the references and those in the writ petition. We consider, therefore, that the facts in Civil Appeal 75 of 1957 are not substantially different.In view of this conclusion, we consider it proper not to embark on an investigation of the proper construction of section 11(1) and (2) of the Act and the sustainability of the rival contentions urged before us on this matter. Nor do we consider it necessary or proper to deal with the soundness or otherwise of the constitutional objections which have been put forward to the demand by the State, to amounts "collected by way of tax" if that were to include collections in respect of sale-transactions not charged to tax under the Act. We consider it desirable to reserve the determination of these questions to an occasion when they properly arise and have necessarily to be decided.