TaxTMI 
TaxTMI 
2007 (3) TMI 364
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.... facts in Civil Appeal No. 6459 of 2003 filed by Federal Bank Ltd. v. State of Kerala. By the Kerala Finance Act, 1998 a clause (g) was inserted in section 2(viii) by which the definition of the word "dealer" was expanded to cover a bank or a financial institution which, whether in the course of its business or not, sells any gold or other valuables pledged with it to secure any loan, for the realisation of such loan amount. After the said amendment, the Department called upon Federal Bank to furnish details of the gold auction during the years 1998-1999 and 1999-2000. This was vide notice dated August 31, 1999 issued by the Sales Tax Officer to the assessee. On November 1, 1999, the department called upon the bank to furnish details of the turnover relating to the gold auction sale on and after April 1, 1998; the department also called upon the assessee to pay tax at four per cent on the sale turnover within 15 days. This was vide notice dated November 1, 1999. Federal Bank submitted its reply contending that a Scheduled Bank cannot be compared with a pawn broker and, therefore, it was not a dealer under the 1963 Act. The Federal Bank refused to file its return on the ground that....
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....)(g) of the 1963 Act was not argued. Before us it was urged on behalf of banks (appellants) that although by the Kerala Finance Act, 1998 the definition of the word "dealer" under section 2(viii) of the 1963 Act stood expanded so as to include banks, the said Act was still not applicable to "sale" of pledged ornaments as the said transaction did not take place in the course of banking business in terms of section 2(xxi). It was submitted that the word "sale" is defined in the said section to mean every transfer of the property in goods by one person to another in the course of trade or business for cash, deferred payment or other valuable consideration excluding mortgage, hypothecation charge or pledge. According to the banks (appellants) since the auction sale of pledged ornaments did not fall within the definition of the word "sale" in section 2(xxi), such transaction are not exigible to tax under the said Act, even after the insertion of clause (g) to section 2(viii). On behalf of the banks it was further submitted that even under 1949 Act the word "banking" has been defined under section 5(b) to mean accepting, for the purpose of lending or investment, of deposits of money from....
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....which takes place in the course of banking business in terms of the 1949 Act. In the present case, we are concerned with the situation which arose after enactment of the Kerala Finance Act, 1998. By that amendment the definition of the word "dealer" in section 2(viii) was expressly amended to mean any person who carries on business of buying, selling, supplying or distributing goods for cash or deferred payment or for any other valuable consideration. It is important to note that prior to Kerala Finance Act, 1998 there was litigation. The result of that litigation was that the High Court had taken the view in the earlier rounds that sale of pledged ornaments did not fall "in the course of banking business" and in order to get over the judgments, the Kerala Legislature introduced clause (g) to section 2(viii) by making it clear that even if the sale of pledged ornaments took place, not in the course of business, still such a transaction would make the person (banks/financial institutions) a "dealer" under section 2(viii) of the 1963 Act. Therefore, in deciding the matter we have to keep in mind the object behind the Kerala Finance Act, 1998. In order to answer the controversy in ha....
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....fied period) for cash, deferred payment or other valuable consideration; (5) supplies, by way of or as part of any service or in any other manner whatsoever, goods, being food or any other articles for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration; Explanation.-(1) A society (including a co-operative society, club or firm or an association or body of persons, whether incorporated or not) which whether or not in the course of business, buys, sells, supplies or distributes goods from or to its members for cash or for deferred payment, or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purposes of this Act; Explanation.-(2) The Central Government or a State Government, which, whether or not in the course of business, buy, sell, supply or distribute goods, directly or otherwise, for cash or for deferred payment, or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purposes of this Act. (g) a bank or a financing institution which, whether in the course of its business or not,....
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....for a year is not less than two lakh rupees and every casual trader or agent of a non-resident dealer, the Central Government, the Government of Kerala, the Government of any other State or of any Union Territory or any local authority, whatever be its total turnover for the year, shall pay tax on his taxable turnover for that year in respect of goods included in the Schedule at the rate mentioned against such goods." We also quote hereinbelow the relevant provisions of the 1949 Act: "Section 5. Interpretation.-In this Act, unless there is anything repugnant in the subject or context,- (b) 'banking' means the accepting for the purpose of lending or investment, of deposits, of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise; Section 6. Forms of business in which banking companies may engage.-(1) In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely:- (a) the borrowing, raising, or taking up of money; the lending or advancing of money either upon or without security; the drawing, making, accepting, discounting, buying, selling, collecting and ....
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....ting or aiding in the establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit employees or ex-employees of the company or the dependents or connections of such persons; granting pensions and allowances and making payments towards insurance; subscribing to or guaranteeing moneys for charitable or benevolent objects or for any exhibition or for any public, general or useful object; (k) the acquisition, construction, maintenance and alteration of any building or works necessary or convenient for the purposes of the company; (l) selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company; (m) acquiring and undertaking the whole or any part of the business of any person or company, when such business is of a nature enumerated or described in this sub-section; (n) doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company; (o) any other form of business which the Central Government may, by notification in the Official Gazette, ....
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....ompany, by at least three of those directors, or where there are not more than three directors, by all the directors and (b) in the case of a banking company incorporated outside India by the manager or agent of the principal office of the company in India. (3) Notwithstanding that the balance sheet of a banking company under sub-section (1) required to be prepared in form other than the form set out in Part I of Schedule VI to the Companies Act, 1956 (1 of 1956), the requirements of that Act relating to the balance sheet and profit and loss account of a company shall, in so far as they are not inconsistent with this Act, apply to the balance sheet or profit and loss account, as the case may be, of a banking company. (3-A) Notwithstanding anything to the contrary contained in sub-section (3) of section 210 of the Companies Act, 1956 (1 of 1956), the period to which the profit and loss account relates shall, in the case of a banking company, be the period ending with the last working day of the year immediately preceding the year in which the annual general meeting is held. Explanation. - In sub-section (3A), 'year' means the year or, as the case may be, the period referred to in....
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....r approved securities Other tangible securities From the State Government (a) Short-term loans Of which secured against: Government and other approved securities Other tangible securities (d) Medium term loans Of which secured against: Government and other approved Securities Other tangible securities (c) Long-term loans Of which secured against: Government and other approved securities Other tangible securities Loans from other sources (source and security to be specified rule) 6. BILL FOR COLLECTION BEING BILLS RECEIVATION As per contra 7. BRANCH ADJUSTMENTS 8. OVERDUE INTEREST RESERVE 9. INTEREST PAYABLE 10. OTHER LIABILITIES (i) Bills payable (ii) Unclaimed dividends (iii) Suspense (iv) Sundries 11. PROFIT AND LOSS Profit as per last balance sheet Less appropriations Add profit for the year brought from the Profit and Loss Account Total CONTINGENT LIABILITIES (i) Outstanding liabilities for guarantees issued (ii) Others Total In hand and with Reserve Bank 31[National Bank] State Bank of India, State Co-operative Bank and Central Go-operative Bank. 2. BALANCES WITH OTHER BANKS: (i) Current deposits (ii) Savings bank deposits (iii) Fix....
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.... 5. Law charges 5. Other receipts 6. Postage, telegrams and telephonic charges 6. Loss (if any) 7. Auditor's fees 8. Depreciation on and repairs in property 9. Stationery, printing and advertisement, etc. 10. Loss from sale of or dealing with non-banking assets 11. Other expenditure 12. Balance of profit General instructions. - The corresponding figures to the nearest rupee, if so desired for the year immediately preceding the year to which the profit and loss account relates should be shown in separate columns." Total Total In order to answer the contentions raised on behalf of the banks (appel- lants) it is important to note that we are concerned with the 1963 Act. The said Act is enacted to consolidate and amend the law relating to the levy of tax on sale or purchase of goods in the State of Kerala. In our opinion, the word "sale" in section 2(xxi) of the 1963 Act is very important. The word "sale" is defined to mean transfer of the property in goods in the course of trade or business for cash, deferred payment or for any other valuable consideration. This definition is different from the definition of the word "sale" u....
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.... in goods. However, if one reads section 8 along with Third Schedule to the 1949 Act it is clear that dealing in non-banking assets is a banking business and the exception made in section 8 which allows banks to realise security and which allows banks to engage in trade in order to realise security, falls within the banking business whenever undertaken. When a pledged article is sold in an auction, the bank recovers not only its dues but also recovers interests and its other charges. This realisation falls within the parameters of the Third Schedule to the 1949 Act. In the circumstances, we are of the view that sale of pledged ornaments falls within the course of banking business under the 1949 Act. In the circumstances, such transactions are taxable under section 2(viii)(g) read with section 5 of the 1963 Act. We also find merit in the contention advanced on behalf of the department (respondents herein) that the very object of the Kerala Finance Act, 1998 was to introduce clause (g) in section 2(viii) in order to get over the judgments of the High Court which took the view that sale of pledged goods did not fall in the course of banking business. We have quoted clause (g). That ....