Case: Tirumala Venkateswara Timber Andbamboo Firm Vs. Commercial Tax Officer, Rajahmundry

the title to the property must actually pass in the goods.As we have already pointed out, the third Explanation to S. 2 (1) (n) of the Act must be interpreted to mean that where there is in reality a transfer of property in the goods by the principal to the agent and by the agent in his turn to the buyer, there are two transactions of sale. It is therefore impossible to accept the contention put forward on behalf of the appellant that the Explanation has converted what, in fact, is not a sale into a sale for the purpose of assessment to sales-tax.4. It was contended on behalf of the appellant that in any event items Nos. 2 to 11 of the notice related to goods which the appellant had sent for sale to the commission agents and as the latter had already paid the sales-tax the appellant was not liable to be assessed to tax again on the same transaction as there was only one sale.As a matter of law there is a distinction between a contract of sale and a contract of agency by which the agent is authorised to sell or buy on behalf of the principal and make over either the sale proceeds or the goods to the principal. The essence of a contract of sale is the transfer of title to the goods for a price paid or promised to be paid. The transferee in such a case is liable to the transferor as a debtor for the price to be paid and not as agent for the proceeds of the sale. The essence of agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principa1 who continues to be the owner of the goods and will therefore be liable to account for the sale proceeds. The true relationship of the parties in each case has to be gathered from the nature of the contract, its terms and conditions, and the terminology used by the parties is not decisive of the legal relationship.For instance, in W. T. Lamb and Sons v. Goring Brick Co. Ltd., 1932 KB 710 there was an agreement in wringing by which certain manufacturers brick and other building materials appointed a firm of builders merchants "sole selling agent of all bricks and other materials manufactured at their works". The agreement was expressed to be for three years and afterwards continuous subject to twelve months notice by either party. While the agreement was in force the manufacturers informed the merchants that they intended in the future to sell their goods themselves without the intervention of any agent, and thereafter they effected sales to customers directly. It was held by the Court of Appeal that the agreement was one of vendor and purchaser and not one of principal and agent. The same principle is enunciated in Hutton v. Lippert, (1883) 8 AC 309 in which there was a contract between the defendant and E which in its terms purported to be one of guarantee or agency; that is to say the defendant guaranteed the sale of Es property in whole or by lots at a fixed price, E giving the defendant a power of attorney to deal with the property as he thought fit, and agreeing that he should receive any surplus over and above the fixed price as his commission on and recompense for the said guarantee. It was held by the Judicial Committee, upon a construction of the agreement, that the transaction was really a sale and that the defendant was liable to pay duty on his purchase money under Act II of 1863. At page 318 of the Report, Sir Robert P. Collier, who delivered the opinion of the Board, stated as follows :"Under these circumstances it appears to their Lordships that the Chief Justice was justified in saying that the effect of the transaction was to give Ekstein every right which a vendor could legally claim, and to confer upon the defendant every right which a purchaser could legally demand. Does it make any difference that the parties have called this transaction by the name of a guarantee ? It appears to their Lordships at because the parties have used this term guarantee in a sense which is unusual and not applicable to this case, - for Lippert really guaranteed nothing, - the nature of the transaction is not thereby changed; and because they have said that Lippert was to be entitled to whatever surplus or balance shall remain on the resale of portions of property, if any were resold, as commission and recompense for the said guarantee this expression does not convert him from a purchaser into an agent.5. It is manifest that the question as to whether the transactions in the present case are sales or contracts of agency is a mixed question of fact and law and must be investigated with reference to the material which the appellant might be able to place before the appropriate authority. The question is not one which can properly be determined in an application for a writ under Art. 226 of the Constitution.6. It was also submitted on behalf of the appellant that the third Explanation to S. 2 (1) (n) of the Act violated the guarantee under Art. 14 of the Constitution since the classification contemplated i. e., sales through commission agents who account fully for all collections made and sales through commission agents who do not account for collections, was not made on any intelligible differentia and had no rational relationship to the purpose of the statute.In our opinion, there is no substance in this argument as the classification is based upon an intelligible differentia and it has a rational relationship with the object sought to be achieved by the statute counsel for the appellant is therefore unable to make good his submission on this aspect of the case.

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

Explanation:
0[ds]3. In our opinion the real object of the Explanation is to prevent the misuse by the assessee of the relationship of principal and agent for the purpose of evading tax. The first situation contemplated by the legislature is that covered by Cl. 2 (i) of Explanation III where the agent has sold the goods at one rate and passed on the sale proceeds to its principal at another rate. The second situation is where the agent has purchased the goods at one rate and has passed them on to the principal at another rate. The third situation is where the agent has not accounted to his principal for the entire collections or deductions made by him in the sales or purchases effected by him on behalf of his principal, and the fourth is where it appears that the agent has acted for a fictitious or non existentour opinion, there is no warrant for this argument. The real effect of the third Explanation is to impose the tax only when there was a transfer of title to the goods and not where there is a mere contract of agency. The Explanation says in effect that where there is in reality a transfer of property by the principal to the agent and by the agent in his turn to the buyer, there are two transactions of sale. In our opinion, the phrase "when the goods are transferred" in cls. (1) and (2) of Explanation III on a proper construction means "when title to the goods is transferred" and so construed it is impossible to say that the Explanation enlarges the scope of the mainis a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement.In other words, it is necessary for constituting a sale that there should be an agreement between the parties for the purpose of transferring title in the goods, that the agreement must be supported by money consideration and that as a result of the transaction the title to the property must actually pass in the goods.As we have already pointed out, the third Explanation to S. 2 (1) (n) of the Act must be interpreted to mean that where there is in reality a transfer of property in the goods by the principal to the agent and by the agent in his turn to the buyer, there are two transactions of sale. It is therefore impossible to accept the contention put forward on behalf of the appellant that the Explanation has converted what, in fact, is not a sale into a sale for the purpose of assessment toa matter of law there is a distinction between a contract of sale and a contract of agency by which the agent is authorised to sell or buy on behalf of the principal and make over either the sale proceeds or the goods to the principal. The essence of a contract of sale is the transfer of title to the goods for a price paid or promised to be paid. The transferee in such a case is liable to the transferor as a debtor for the price to be paid and not as agent for the proceeds of the sale. The essence of agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principa1 who continues to be the owner of the goods and will therefore be liable to account for the sale proceeds. The true relationship of the parties in each case has to be gathered from the nature of the contract, its terms and conditions, and the terminology used by the parties is not decisive of the legalquestion is not one which can properly be determined in an application for a writ under Art. 226 of theour opinion, there is no substance in this argument as the classification is based upon an intelligible differentia and it has a rational relationship with the object sought to be achieved by the statute counsel for the appellant is therefore unable to make good his submission on this aspect of the case.