Case: Karnataka Pawnbrokers' Association and Others Vs. State of Karnataka and Others

behalf of the appellants that if at all in the transactions in question, the auctioneer must be held liable for payment of tax34. Now coming to the contention that inasmuch as the pawnbroker is given liberty to bid and purchase at the sale of unredeemed goods, he cannot be deemed as a "seller" as he cannot sell the goods to himself. This contention is misconceived as the pawnbroker in such a circumstances plays a dual role - one as a pawnbroker and the other as the individual self. As a matter of fact, a similar question arose before the Madras High Court in L.S. Chandramouli & Co. v. State of Madras (Mad)). In that case, the question for consideration was whether a local agent of a non-resident principal who carried on business of his own also transfers the goods of the non-resident principal to his own business can be considered as a transaction of sale chargeable to tax. The learned Judges overruling a similar contention held that the agent concerned held two different capacities - one as an agent of a non-resident principal - and the other as the proprietor of his own business, two different identities altogether. While transferring the goods of the non-resident principal to himself, he not only acted as an agent of his non-resident principal but also as a purchaser and there is nothing in law which militates against the said conclusions and consequent tax liability on such person. We have no hesitation to reject the contention of the learned counsel for the appellants that the pawnbroker cannot be treated as a seller of goods in the first and circumstances of these cases and, therefore, not a "dealer" under the Sales Tax Act35. It is now well settled that any activity incidental or ancillary to the main business will also come within the definition of "business" under the Sales Tax Act and, therefore, the contention that the sale of unredeemed goods, being incidental to the business of pawnbroker was not liable to sales tax, cannot be accepted36. Let us now consider the decisions cited on behalf of the learned counsel for the appellants 37. Mr. K. Parasaran, learned Senior Counsel for the appellants, cited a Single Bench judgment of the Madras High Court in Provincial Govt. of Madras v. Mudukuru Munirathnam Chetti. This judgment, apart from the fact that it was rendered under the Madras General Sales Tax Act, 1939, is not directly on the point and the context in which the judgment was rendered, was entirely different. That judgment considered a transaction treated by both the parties as loan and entrustment of goods for sale to others to discharge the loan. It was held that that transaction cannot be treated as a sale at the hands of the person who advanced the money for the purpose of levy of sales tax. The nature and character of the transaction in the case on hand are totally different. Therefore, the case cited has no application to the facts of this case38. Likewise, the decision cited by Mr. Dave learned Senior Counsel for the appellants, namely, Dy. Commr. of Commercial Taxes v. A.R.S. Thirumeninatha Nadar (Mad)); Lallan Prasad v. Rahmat Ali ; Balkrishan Gupta v. Swadeshi Polytex Ltd. and Chowringhee Sales Bureau (P) Ltd. v. CIT are all under different circumstances and with reference to the facts of those cases which have no direct bearing to the issues raised in these cases39. In Dy. Commr. of Commercial Taxes (Mad)) the Division Bench of the Madras High Court, on the facts of the case, held that the bank in selling the goods pawned to it did not act as an agent of the assessee and the sales were on behalf of the pledger. The learned Judges further held that the pawn or pledge by itself did not make the pawnee or pledgee the owner of the goods on the peculiar facts of that case40. In Lallan Prasad case this Court considered a question whether the appellant in that case was entitled to a decree in view of his denial of the pledge and his failure to offer to redeliver the goods. In answering that question, this Court, after referring to Section 176 of the Indian Contract Act, held that so long, however, as the sale does not take place, the pawnor is entitled to redeem the goods on payment of the debt. Therefore, the right to sue on the debt assume that he is in a position to redeliver the goods on payment of the debt, and if by denying the pledge or otherwise, he was put himself in a position whereby he is not able to redeliver the goods, he cannot obtain a decree41. In Balkrishan Gupta again a judgment of this Court had considered a question that arose under the Companies Act, 1956 and the effect and consequence of appointment of a receiver in respect of certain shares of a company42. In Chowringhee Sales Bureau (P) Ltd. this Court, on the peculiar facts of that case, found that there was a close and direct connection between an auctioneer and the transaction of auction-sale in that case. On the basis of the peculiar facts, this Court also found that the auctioneer had collected sales tax on the auction-sale of the goods but had not passed on the same to the Revenue. In such circumstances, this Court held that the auctioneer was liable to pay sales tax under the West Bengal Act43. None of the cases cited by the learned counsel for the appellants had any bearing on the facts of the cases on hand. On the other hand, the decisions cited in the judgments under appeal and cited in this judgment in support of the conclusions are directly on point44. We have already stated that we are in agreement with the conclusions reached by the learned Judges in the judgments under appeal and we have dealt with only the principal reasons sufficient for approving the judgments under appeal

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

Explanation:
1[ds]25. The learned Judges of the Division Bench of the Karnataka High Court as well as the learned Judges of the Division Bench of the Madras High Court have written elaborately on the subject citing numerous authorities of this Court and of the High Courts to support their conclusions. We are, with respect, in agreement with the conclusions and the reasonings given for such conclusions in the judgments under appeal. We do not, therefore, propose to give elaborate reasonings, except to point out the principal reasonings to sustain the conclusions reached in judgments under appeal26. It cannot be and it is not disputed that the pawnbroker has special property rights in the goods pledged, a right higher than a mere right of detention of goods but a right lesser than general property right in the goods. To put in differently, the pawnor at the time of the pledge not only transfers to the pawnee, the special right in the pledge but also passes on his right to transfer the general property right in the pledge in the event of the pledge remaining unredeemed resulting in the sale of the pledge by public auction through an approved auctioneer. The position being what is stated above, the natural consequence will be that it is the pawnee who holds not only the absolute special property right in the pledge but also the conditional general property interest in the pledge, the condition being that he can pass on that general property only in the event of the pledge being brought to sale by public auction in accordance with the Act and the Rules framed thereunder27. In this connection, we can usefully quote a passage from Kandula Radhakrishna Rao which has been approved by this Court in Bagal Kot Cement Co. v. State ofApplying the above principle to the facts of these cases, we are clearly of the opinion that in the sales of unredeemed goods through public auction by an approved auctioneer, the pawnee who has control or possession over the goods and who was given statutory authority to pass the general property in and title to the goods, is the seller and as such, satisfies the definition of "dealer" under the General Sales Tax Act of both the States. This conclusion is further strengthened by the definition of "pawnbroker" (supra). The Explanation to the definition of "pawnbroker" contemplates that every person who keeps a shop for the purchase or sale of goods or chattels and who purchases goods or chattles and pays or advances thereon any sum of money, with or under an agreement or understanding expressed or implied that the goods or chattles may be afterwards repurchased on any terms, is a "pawnbroker" within the meaning of the main clause. The activities of a pawnbroker as detailed above will satisfy the definition of "business" as well. We have also noticed that the pawnor has no role at all in the sale of the goods pledged except to redeem the same before the sale is concluded. Therefore, he cannot be treated as a seller in the context of theWe are in agreement with the above observations and the conclusions reached thereon. This answers, in the negative, the contention advanced on behalf of the appellants that if at all in the transactions in question, the auctioneer must be held liable for payment of tax34. Now coming to the contention that inasmuch as the pawnbroker is given liberty to bid and purchase at the sale of unredeemed goods, he cannot be deemed as a "seller" as he cannot sell the goods to himself. This contention is misconceived as the pawnbroker in such a circumstances plays a dual roleone as a pawnbroker and the other as the individual self. As a matter of fact, a similar question arose before the Madras High Court in L.S. Chandramouli & Co. v. State of Madras (Mad)). In that case, the question for consideration was whether a local agent of aprincipal who carried on business of his own also transfers the goods of theprincipal to his own business can be considered as a transaction of sale chargeable to tax. The learned Judges overruling a similar contention held that the agent concerned held two different capacitiesone as an agent of aand the other as the proprietor of his own business, two different identities altogether. While transferring the goods of theprincipal to himself, he not only acted as an agent of hisprincipal but also as a purchaser and there is nothing in law which militates against the said conclusions and consequent tax liability on such person. We have no hesitation to reject the contention of the learned counsel for the appellants that the pawnbroker cannot be treated as a seller of goods in the first and circumstances of these cases and, therefore, not a "dealer" under the Sales Tax Act35. It is now well settled that any activity incidental or ancillary to the main business will also come within the definition of "business" under the Sales Tax Act and, therefore, the contention that the sale of unredeemed goods, being incidental to the business of pawnbroker was not liable to sales tax, cannot be accepted36. Let us now consider the decisions cited on behalf of the learned counsel for theMr. K. Parasaran, learned Senior Counsel for the appellants, cited a Single Bench judgment of the Madras High Court in Provincial Govt. of Madras v. Mudukuru Munirathnam Chetti. This judgment, apart from the fact that it was rendered under the Madras General Sales Tax Act, 1939, is not directly on the point and the context in which the judgment was rendered, was entirely different. That judgment considered a transaction treated by both the parties as loan and entrustment of goods for sale to others to discharge the loan. It was held that that transaction cannot be treated as a sale at the hands of the person who advanced the money for the purpose of levy of sales tax. The nature and character of the transaction in the case on hand are totally different. Therefore, the case cited has no application to the facts of thiscase38. Likewise, the decision cited by Mr. Dave learned Senior Counsel for the appellants, namely, Dy. Commr. of Commercial Taxes v. A.R.S. Thirumeninatha Nadar (Mad)); Lallan Prasad v. Rahmat Ali ; Balkrishan Gupta v. Swadeshi Polytex Ltd. and Chowringhee Sales Bureau (P) Ltd. v. CIT are all under different circumstances and with reference to the facts of those cases which have no direct bearing to the issues raised in these cases39. In Dy. Commr. of Commercial Taxes (Mad)) the Division Bench of the Madras High Court, on the facts of the case, held that the bank in selling the goods pawned to it did not act as an agent of the assessee and the sales were on behalf of the pledger. The learned Judges further held that the pawn or pledge by itself did not make the pawnee or pledgee the owner of the goods on the peculiar facts of that case40. In Lallan Prasad case this Court considered a question whether the appellant in that case was entitled to a decree in view of his denial of the pledge and his failure to offer to redeliver the goods. In answering that question, this Court, after referring to Section 176 of the Indian Contract Act, held that so long, however, as the sale does not take place, the pawnor is entitled to redeem the goods on payment of the debt. Therefore, the right to sue on the debt assume that he is in a position to redeliver the goods on payment of the debt, and if by denying the pledge or otherwise, he was put himself in a position whereby he is not able to redeliver the goods, he cannot obtain a decree41. In Balkrishan Gupta again a judgment of this Court had considered a question that arose under the Companies Act, 1956 and the effect and consequence of appointment of a receiver in respect of certain shares of a company42. In Chowringhee Sales Bureau (P) Ltd. this Court, on the peculiar facts of that case, found that there was a close and direct connection between an auctioneer and the transaction ofin that case. On the basis of the peculiar facts, this Court also found that the auctioneer had collected sales tax on theof the goods but had not passed on the same to the Revenue. In such circumstances, this Court held that the auctioneer was liable to pay sales tax under the West Bengal Act43. None of the cases cited by the learned counsel for the appellants had any bearing on the facts of the cases on hand. On the other hand, the decisions cited in the judgments under appeal and cited in this judgment in support of the conclusions are directly on point44. We have already stated that we are in agreement with the conclusions reached by the learned Judges in the judgments under appeal and we have dealt with only the principal reasons sufficient for approving the judgments under appeal