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of <h1>Supreme Court determines distributorship agreement as agency, overturns High Court judgment</h1> The Supreme Court analyzed an appeal concerning distributorship of trisodium phosphate, focusing on whether the firm acted as an agent or purchaser in its ... Whether under the agreement the property in the chemicals was transferred by the company to the firm and by the firm to purchasers thereof? Held that:- Appeal allowed. Neither the agreement nor the practice thereof indicates the transfer of the property in the said chemicals by the company to the firm. Issues:Interpretation of the agreement between the appellant and the company for distributorship of trisodium phosphate. Determination of whether the firm was the agent of the company or a purchaser of the chemicals. Analysis of the clauses in the agreement to establish the nature of the relationship between the parties.Detailed Analysis:The case involved an appeal challenging a judgment of a Division Bench of the High Court in tax revision cases concerning the assessment years 1970-71 to 1973-74. The appellant, a firm, had entered into an agreement with the company for distributorship of trisodium phosphate. The dispute arose when the Deputy Commissioner set aside the assessments, considering the firm as a purchaser rather than an agent of the company. The Tribunal reversed the Deputy Commissioner's order, leading to the tax revision cases filed by the sales tax authorities before the High Court. The High Court allowed the tax reference cases, prompting these appeals to the Supreme Court.The primary issue revolved around the interpretation of the agreement to determine whether the property in the chemicals was transferred from the company to the firm and then to the purchasers. The definition of 'sale' under Section 2(xxi) of the Kerala General Sales Tax Act was crucial in this analysis, particularly Explanation 5, which addresses transfers between a principal, a selling agent, and a purchaser. The Court delved into a detailed analysis of the agreement to decipher the nature of the relationship between the company and the firm.The agreement contained various clauses indicating an agency relationship between the parties, such as appointing the firm as the sole distributor, setting prices, requiring the firm to maintain sales records, collect sales tax, and push sales in the designated territory. Despite some clauses emphasizing the firm's responsibilities like payment terms, collection of goods, and realization of sale proceeds, the overall effect of the agreement suggested an agency relationship rather than a transfer of property from the company to the firm.The Court highlighted the absence of clauses indicating a transfer of property rights to the firm upon lifting the goods, unlike in cases where distributors received goods against payment and guaranteed customer payments. The Tribunal's observations on the company's books of account further supported the agency relationship interpretation. Ultimately, the Court concluded that neither the agreement nor its practice indicated a transfer of property in the chemicals from the company to the firm.In the final judgment, the Court allowed the appeals, setting aside the High Court's judgment and restoring the Tribunal's order, with no specific order as to costs.
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