Profit-motive test in sales tax law and limits on reference jurisdiction under the Punjab Act

The Supreme Court held that, in a reference under section 22(2)(b) of the Punjab General Sales Tax Act, the High Court could not refuse to call for a reference on an extraneous ground not considered by the taxing authorities or the Tribunal; its jurisdiction was confined to whether a question of law arose from the Tribunal's order. It also held that an organisation carrying on activity without profit motive was not a "dealer" under section 2(d) and was not liable to sales tax. Applying that principle, the Hospitality Organisation was found outside the taxing definition, the assessment for 1963-64 failed, and the assessee's appeal succeeded.

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Issues: (i) Whether the High Court, in proceedings under section 22(2)(b) of the Punjab General Sales Tax Act, 1948, could refuse a reference on a ground not considered by the sales tax authorities or the Tribunal. (ii) Whether the Hospitality Organisation was a "dealer" within section 2(d) of the Punjab General Sales Tax Act, 1948 and liable to sales tax.

Issue (i): Whether the High Court, in proceedings under section 22(2)(b) of the Punjab General Sales Tax Act, 1948, could refuse a reference on a ground not considered by the sales tax authorities or the Tribunal.

Analysis: The scope of the application under section 22(2)(b) was confined to determining whether a question of law arose from the Tribunal's order. The jurisdiction could not be declined on an extraneous ground such as the supposed inter se dispute between Governments, particularly when that issue had not been examined by the taxing authorities or the Tribunal.

Conclusion: The High Court was not justified in rejecting the reference application on that ground and ought to have called for a reference.

Issue (ii): Whether the Hospitality Organisation was a "dealer" within section 2(d) of the Punjab General Sales Tax Act, 1948 and liable to sales tax.

Analysis: The Court applied the settled principle that an organisation carrying on an activity without profit motive does not answer the description of a dealer for sales tax purposes. The earlier decision concerning a Government medical store was treated as governing the present organisation also, because the same absence of profit motive was present.

Conclusion: The Hospitality Organisation was not a dealer under the Act and was not liable to sales tax for the assessment year 1963-64.

Final Conclusion: The assessment could not stand, and the Tribunal's order was set aside; the appeal succeeded for the assessee and the tax liability was negatived.

Ratio Decidendi: For sales tax purposes, an entity lacking profit motive is not a dealer within the meaning of the taxing statute, and a reference jurisdiction confined to questions of law cannot be declined on an unadjudicated extraneous ground.

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