Case: State of Mysore Vs. P. B. Hussain Kunhi and Company

2. The respondents in these appeals were firms of commission agents having their place of business in Mangalore City in South Canara within the new State of Mysore. The respondents had been dealing mainly in areca. Their principals in areca trade were residents of Malabar District and Kasargod Taluk in the former State of Madras. Every year the respondents used to take out licence under section 8 of the Madras General Sales Tax Act, 1939 (Madras Act No. 9 of 1939) (hereinafter referred to as the Act). So, for the year, the respondents took out licences in respect of their dealings as commission agents. On 1st November, 1956, the States Reorganisation Act (Act No. 37 of 1956) came into force and as a result of that Act, some of the territories comprised in the former State of Madras became a part of the present Mysore State and some parts of the old Madras State became a part of the new Kerala State. Some of the principals of the respondents were residing either at Kasargod or in places in the former District of Malabar. After the States reorganisation all those principals who were residing in Kasargod Taluk which before the reorganisation was a part of South Canara District, or in the District of Malabar became" principals within the meaning of the expression in sectionA of the Act.The question that arises in these appeals is : Whether the respondents are liable to be taxed under sectionA of the Act in respect of their turnover on the transactions effected on behalf of their principals residing either in the Kasargod Taluk or in places in the former District of Malabar for the period from 1st November, 1956 to 31st March, 1957.

Reasoning: In our opinion, the argument put forward on behalf of the appellant isd and must be accepted as correct. According to clause 4 of Form V, the licence granted to the respondents does not apply to transactions of the licensee effected on behalf of the principals residing outside the Madras State. According to clause 4 of the Mysore Adaptation of Laws Order, wherever the words "State of Madras" or "Madras State" occur in any Act in force on 1st November, 1956, in those areas which were part of the former State of Madras, the words "Madras Area" (Territory specified in section 7(1)(d) of the States Reorganisation Act, 1956) have to be substituted unless the context otherwise requiresWe are unable to accept the argument of the respondents as correct. We shall assume that the licence already issued to the respondents is not "law" within the meaning of clause 4 of the Mysore Adaptation of Laws Order. Even on that assumption, the word "Madras State" in clause 4 of Form V should be interpreted in the context of clause 4 of the Mysore Adaptation of Laws Order and the adapted provisions of the Act and the Rules framed thereunder. It is not disputed on behalf of the respondents that Form V is a part of the Rules framed and therefore it is "law" as contemplated in section 120 of the States Reorganisation Act, 1956, and that in clause 4 of Form V we must read the words "Madras Area" in place of the word "State"We shall assume that this argument is correct. Even on that assumption the appellant must succeed for as a matter of principle the expression "Madras State" in clause 4 of Form V of the licence must be interpreted in the context of clause 4 of the Mysore Adaptation of Laws Order and in the context of the change of the provisions of the Act and the Rules after the 1st November, 1956. It follows, therefore, that the words "Madras State" in clause 4 of Form V of the licence should be read as meaning "Madras Area" after the 1st November, 1956, and the view expressed by the High Court on this aspect of the case must be overruled.The scheme of sectionA of the Act is that it is really the" principal who is assessed to tax and the agent is deemed to be a dealer in respect of his business, as a convenient representative, for assessment, levy and collection of the tax. The assessment is with reference to the sales on the principals account and the rates of tax are those applicable to the principal. The agent is given a statutory right to retain the moneys of the principal in his hands equivalent to the tax assessed or paid. Under sectionn (ii), the agent is made liable to pay the tax irrespective of the fact whether the amount of turnover of the business was less than the minimum specified in section 3(3) or not. In the case the turnover happens to be less than the minimum specified in section 3(3) the principal is given a right to obtain a refund under section. The reason for the rule excluding the provisions of exemption under section 3(3) while assessing the agent appears to be that it might happen that thet principal would be employing more than one agent and if the agents were allowed to take advantage of the provision as to minimum turnover in section 3(3) the principal would be able to evade taxation by entrusting his sales to several agents each to the limit of a minimum turnoverIf section 8 is read along with clause 4 of Form V, it is plain that no licence can be granted to the commission agent with regard to dealing in goods oft principal. The provisions of section 8, therefore, cannot apply in this case but the respondents are liable to be assessed under sectionA of the Act with regard to transactions effected on behalf of the principals residing either in Kasargod Taluk or in places in the former District of Malabar for the period between 1st November, 1956, and 31st March, 1957.For these reasons, we hold that the judgment of the Mysore High Court in these appeals should be set aside and the cases of the respondents should be remanded to the Commercial Tax Officer, Additional Circle, Mangalore, for ascertaining whether the disputed turnover had been included in the turnover of thet principals of the respective respondents, and thereafter to proceed to make the assessments in accordance with law.