Judgment Case ID: 4270

Judgment:
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. 857/71. 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 U.P. 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. 3	80	000 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. 5	30	000 and the tax payable thereon at Rs. 25	450. On appeal the Assistant Commissioner (Judicial)	 Sales Tax	 Muzaffarnagar by his order dated August 11	 1969 reduced the taxable turnover of purchases by Rs. 1	50	000 and the tax by Rs. 7	500. 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. 3	80	000. 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 2(c) of the Act and that the Sales Tax Officer was not justified in making an assessment to the best of his judgment under section 7(3). It is pointed out that the High Court has completely overlooked Explanation to section 2(c) of the Act which was inserted by the U.P. 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 7(3)	 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	 i.e.	 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 2(c)	 which insofar as material	 reads: "2(c) "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 2(c) 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 C.J. 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 Balia(4) 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 Sheolal(1) 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 2(c) 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 2(c) 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 2(c) 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 2(c) 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 2(c) 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 2(c) 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 C.I.T.	 West Bengal.(2) 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	 i.e.	 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 2(c) 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	 i.e.	 whether the best judgment assessment of the taxable turnover at Rs. 3	80	000 could be sustained. Though the question of the applicability of section 7(3) of the Act was not	 in terms	 referred to the High Court under section 11(4)	 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 7(3). 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. 371.17 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	 i.e.	 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 13(2) 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 7(3) 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 7(3) 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 11(4) 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 7(3) of the Act is restored. There shall be no order as to costs. N.V.K. Appeal allowed.

Summary:
Section 2(c) of the U.P. 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 U.P. 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. 5.3 lacs and taxed it. On appeal the Assistant Commissioner (Judicial)	 Sales Tax reduced the taxable turnover of purchase by Rs. 1.5 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. 3.8 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 2(c) of the Act and that the High Court had completely overlooked the Explanation to section 2(c) which was inserted by the U.P. 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 7(3). Allowing the appeal ^ HELD: 1(i) 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 i.e. 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 2(c) 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 2(c) 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	 L.R. (1926) 53 I.A. 241	 Chowringhee Sales Bureau (P) Ltd. vs C.I.T. West Bengal; 	 	 referred to. 2(i) The High Court should have declined to go into the question of the applicability of section 7(3) 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 7(3) 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 11(4) 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]