1971 (8) TMI 93 - SC - Indian Laws

Supreme Court upholds Commissioner's decision on tax imposition for company, clarifies 'carrying on business' criteria

The Supreme Court dismissed the appeals, upholding the Commissioner's decision that the tax had been wrongly imposed on the company. The Court clarified ... Whether on the admitted and undisputed facts any tax could be levied under section 121 of the Adhiniyam on the company whose factory for manufacturing sugar was situate outside the jurisdiction of the Zila Parishad? Held that:- The High Court was of the view (which appears to be unexceptionable) that the word 'operation' covered the purchase of wool as raw material for use in manufacturing carpets and that such a purchase was an operation carried out in the course of its business by a person or firm which manufactured the carpets. We are unable to see how any assistance can be derived from the above case for the purpose of deciding the meaning of the word 'carrying on business' used in section 121(a) of the Adhiniyam. The contention of the Zila Parishad, if accepted, would lead to the astounding and extraordinary result that if a manufacturing concern continuously acquires raw material not only from different parts of India but also from other parts of the world it could be said that it was carrying on business in all those places from where the raw materials were acquired or purchased. We are unable to give any such wide connotation to the words 'carrying on business', employed in section 121(a) of the Adhiniyam. Appeal dismissed. Issues:1. Interpretation of section 121 of the Adhiniyam regarding the levy of tax on circumstances and property.2. Determination of whether the company was carrying on business within the jurisdiction of the Zila Parishad.3. Comparison with relevant case law to establish the definition of 'carrying on business.'Analysis:The Supreme Court judgment involved connected appeals from the Allahabad High Court concerning the levy of a tax under section 121 of the Adhiniyam. The company, engaged in manufacturing sugar, objected to the tax assessment by the Zila Parishad, which was based on the company's purchase of sugarcane in the rural area. The High Court was tasked with determining if the company's activities constituted 'carrying on business' within the Zila Parishad's jurisdiction. The Zila Parishad argued that the continuous purchase of sugarcane for the specified period constituted business activity in the rural area. However, the Court disagreed, emphasizing that the mere acquisition of raw material did not equate to conducting business in the locations where the material was sourced. The Court distinguished this case from precedents under the Income-tax Act, highlighting the need to view the issue from a business perspective.The Zila Parishad relied on a High Court decision involving an American company purchasing raw material in British India, contending that such transactions constituted business operations. However, the Court found this argument inapplicable to the present case, as the definition of 'carrying on business' under section 121(a) of the Adhiniyam differed significantly. The Court referenced another case to illustrate that the purchase of sugarcane did not result in the creation of a separate profit or income stream, aligning with the business test laid down by the previous judgment. Additionally, the Court rejected other cases cited by the Zila Parishad, emphasizing the unique circumstances of each case and the need to establish a direct link between the activity and profit generation.Ultimately, the Supreme Court dismissed the appeals, upholding the Commissioner's decision that the tax had been wrongly imposed on the company. The Court's ruling underscored that the interpretation of 'carrying on business' should not extend to include all locations where raw materials are acquired, highlighting the specific business activities that contribute directly to profit generation. The judgment provided clarity on the application of tax laws in cases involving business operations spanning multiple jurisdictions, setting a precedent for future similar disputes.