1967 (3) TMI 93 - HC - VAT and Sales Tax

Lease Sums Not Taxable as Sales: Penalty Quashed, Assessments Prohibited

AV Meiyappan Versus Commissioner of Commercial Taxes, Board of Revenue, Madras and Another

AV Meiyappan Versus Commissioner of Commercial Taxes, Board of Revenue, Madras and Another - [1967] 20 STC 115 (Mad) Issues Involved:1. Validity of the assessment of sales tax on the sums received under lease agreements.2. Legality of the 10% tax levy under the First Schedule to the Madras General Sales Tax Act.3. Imposition of penalty under Section 12(3) of the Act.4. Reopening and revising the completed assessment for the year 1963-64.5. Provisional assessment for the year 1965-66.6. Definition of 'goods' under the Madras General Sales Tax Act and its constitutionality.Issue-Wise Detailed Analysis:1. Validity of the assessment of sales tax on the sums received under lease agreements:The petitioner, a film producer, entered into lease agreements for the exploitation rights of certain films. The Sales Tax Authorities included the sums received under these agreements in the assessable turnover, treating them as sales of films. The petitioner contended that these were not sales of goods but realizations of the rights to exploit the films, which are not corporeal or tangible rights. The court examined the nature of the agreements and concluded that the transactions did not amount to sales of goods. The court emphasized that the agreements conferred only the right to exploit the films and did not transfer the property in the films. Therefore, the sums received under these agreements should not be included in the assessable turnover.2. Legality of the 10% tax levy under the First Schedule to the Madras General Sales Tax Act:The petitioner argued that even if the processed films were regarded as the subject-matter of the sale, they could not be subjected to a tax again under the First Schedule, as the raw films had already been taxed at the time of purchase. The court examined the relevant provisions and concluded that the processed films are different from the raw films but continue to be films. Therefore, the sale of processed films can be taxed under the First Schedule. However, since no element of sale was involved in the transactions, the taxing provisions of the General Sales Tax Act did not apply.3. Imposition of penalty under Section 12(3) of the Act:The assessing authority imposed a penalty for the failure of the petitioner to disclose the sums received under the lease agreements in his returns. The court held that the power to impose a penalty is ancillary to the taxing power and cannot be struck down. However, the court emphasized that the imposition of a penalty requires a finding of wilful non-disclosure of assessable turnover. Given the circumstances, including a previous decision by the Sales Tax Appellate Tribunal and the department's own practice, the court found that the imposition of the penalty was unjustified. Therefore, the penalty was quashed.4. Reopening and revising the completed assessment for the year 1963-64:The assessing authority issued a notice proposing to reopen and revise the completed assessment for the year 1963-64, including a sum received under a similar lease agreement. The court, for reasons similar to those stated above, held that the amount received under the lease agreement was not assessable to tax. Therefore, the proceedings to reopen and revise the assessment were quashed.5. Provisional assessment for the year 1965-66:The assessing authority proposed a provisional assessment for the year 1965-66 based on the assessment for 1964-65. The court, having held that the sums received under the lease agreements were not assessable to tax, quashed the provisional assessment for 1965-66.6. Definition of 'goods' under the Madras General Sales Tax Act and its constitutionality:The petitioner challenged the definition of 'goods' under the Madras General Sales Tax Act, arguing that it was ultra vires the powers of the State Legislature as it went beyond the definition of 'goods' in the Constitution. The court examined the arguments and concluded that the definition of 'goods' in the Constitution is not exhaustive and includes all kinds of movable property. Therefore, the definition in the Sales Tax Act was not ultra vires. However, the court found that the transactions in question did not amount to sales of goods and were outside the scope of the Act.Conclusion:The court held that the sums received under the lease agreements were not assessable to tax as sales of goods, quashed the imposition of the penalty, and prohibited the reopening and revising of the completed assessment for 1963-64. The provisional assessment for 1965-66 was also quashed. The petitioner was entitled to costs.