TaxTMI 
TaxTMI 
1954 (4) TMI 30
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....ors. The head office of the company is at Madras but their work-spots are spread over several places in South India. Their business consists mainly of execu- tion of contracts for construction of buildings, bridges, dams, roads and structural contracts of all kinds. The important customers of the com- pany are the Central and State Governments but there are also some private parties. In addition to the said business, they also carry out sanitary engineering contracts and sell sanitary wares and other sundry goods. To facilitate the execution of their works, which are spread all over the State, and to provide amenities to the workmen, they also distri- bute to the workmen food-grains and debit the cost thereof against the wages; which they have to pay to them. They also run canteens for the supply of food-stuffs to their employees at their work-spots but they derive no profit either from the sale of the food-grains or food-stuffs. In the case of most of the contracts, the controlled commodities such as steel and cement are supplied by their employers, while the non- controlled materials and work and labour and technical skill for the cconstruction work are provided by the company. I....
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.... 35,08,153 5 0 The company admitted their liability to items 2 and 3 but disputed the rest. Of these disputed items, items 1 and 5 alone now survive and are the subject-matter of challenge in this revision petition. There was an appeal to the Commercial Tax Officer as provided under the Act, who modified the amount determined by the Deputy Commercial Tax Officer and, on further appeal to the Tribunal, there was further modi- fication. But, as regards items 1 and 5, they were unsuccessful before the department and the Tribunal and, therefore, they have filed this revision petition. The contention as regards item 1, turnover of works contracts, was that the amending Act of 1947 was beyond the legislative competency of the Provincial Legislature as the works contracts executed by the assessees were not contracts of sale of goods and, therefore, the Provincial Legislature had no jurisdiction or power to enact the impugned provi- sions with a view to bring works contracts of such a nature i....
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....med to be the amount payable to the dealer for carrying out such contract, less such portion as may be prescribed of such amount, representing the usual proportion of the cost of labour to the cost of materials used in carrying out such contract." Under rule 4, a new sub-clause (3) was added: "For the purposes of sub-rule (1), the amount for which goods are sold by a dealer shall, in relation to a works contract, be deemed to be the amount payable to the dealer for carrying out such contract less a sum not exceeding such percentage of the amount payable as may be fixed by the Board of Revenue from time to time for different areas, representing the usual proportion in such areas of the cost of labour to the cost of materials used in carrying out such contract, subject to the following maximum percentages." During the assessment year the return made by the assessee showed as many as 47 contracts, most of which were building contracts, which were executed by the assessee. From the total of the amount, which the assessee received in respect of the sanitary contracts and other con- tracts, 20 per cent. and 30 per cent. respectively were deducted for labour and the balance was taken as t....
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....or works in situ and complete in every respect." Then follows a tabular form showing the probable quantity of the work, the description of the work, the rate, the total number of units of work and the total amount for the work. The remark at the end of the schedule shows that cement for all the items should be supplied by the department at a rate specified in the schedule. Schedule B to this agreement gives particulars of the list of drawings relating to the work to be executed by the contractor. Schedule C contains certain special specifications describing the manner and the conditions to be observed in carrying out the work. It also says that the department should supply cement and provides for the disposal of empty cement gunny bags. From the summary of the provisions of the contract, it will be seen that the contract entered into by the assessees with the State Govern- ment was to execute the works specified in the plans and of the quantity, particulars of which were given in the schedule, for which they should get a lump sum payment as per their tender, which was accepted by the Government. Provision is also made for any alteration, omission, deduc- tion or addition to the act....
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....visions, the Court should seek to ascertain the meaning and intention of the Parliament from the language of the Statute itself, but with the motives of the Parliament it has no concern (vide page 36). Adverting to Lord Wright's observations in James v. Commonwealth of Australia(2), the learned Chief Justice points out that "a Constitution is not to be construed in any narrow and pedantic sense. The rules which apply to the interpretation of other statutes apply, it is true, equally to the interpretation of a constitutional enactment, but their application is of necessity conditioned by the subject-matter of the enactment itself." At page 37, it is observed: "I conceive that a broad and liberal spirit should inspire those whose duty it is to interpret it; but I do not imply by this that they are free to stretch or pervert the language of the enactment in the interests of any legal or constitutional theory, or even for the purpose of supplying omissions or of correcting supposed errors. A Federal Court will not strengthen, but only derogate from, its position, if it seeks to do any- thing but declare the law; but it may rightly reflect that a Constitution of Government is a livi....
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....judicial decisions must be taken into consideration. Moreover, there is also a presumption that the legislature did not intend to overthrow legal principles, which have been in existence for a long period of time, in the absence of a contrary intent clearly expressed in the statute. In other words, any statute which requires a construction should be construed to be in harmony with existing law. This is a basic principle of construction." Weaver on Constitutional Law also lays down a similar rule at page 77. While referring to the Constitution of the United States, he lays down the following rule of interpretation: "In interpreting the Constitution, recourse may be had to the com- mon law of England in force in the United States at the time of the Revolution. Many principles of Government were adopted directly from this source and it has been presumed that the statesmen who wrote the Constitution adopted these principles with the fixed technical meaning they had acquired in legal and constitutional history. 'The interpretation of the Constitution', said Justice Brewer, 'is neces- sarily influenced by the fact that its provisions are framed in the language of the English ....
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....mediately at the risk of the purchaser, even though it has not yet been delivered to him. In this description of purchase and sale under Roman Law, stress is not laid on the delivery of the goods. Leage on Roman Private Law, under the caption "emptio venditio", which is a contract of sale, discusses the elements that go to constitute a contract of sale under Roman Law. It is a consensual agreement between a seller and a purchaser with reference to property for a definite and as- certainable price. With the fixation of the price, the contract is treated as complete. There was a difference of opinion between the Sambinians and the Proculians on the question, whether the price should be in money or whether it could be anything valuable, which is given as considera- tion, such as a piece of land or a toga. According to the Proculians, if the price was anything but money, the contract was really one of ex- change and was not emptio venditio, i.e., a contract of sale. The opinion of the Proculians finally prevailed. Some changes were introduced by Justinian, but those are not very relevant for the present discussion. Benjamin on Sale, 8th edition at page 8, adverts to the difference of o....
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.... expression may also be gathered from a decision of the Supreme Court, Poppatlal Shah v. State of Madras(1). At page 193, Mukherjea, J., laid down: "The expression 'sale of goods' is a composite expression consisting of various ingredients or elements. Thus, there are the elements of a bargain or contract of sale, the payment or promise of payment of price, the delivery of goods and the actual passing of title, and each one of them is essential to a transaction of sale though the sale is not completed or concluded unless the purchaser becomes the owner of the property." The transaction denoted by the expression "sale of goods " had a well-defined meaning under law as it existed before the Parliament enacted the Government of India Act, 1935, and even thereafter. There is a definition of "goods" both in the English Sale of Goods Act and also in the Indian Act. The definition in both the Acts is substantially the same. Under the Indian Act, "goods" means every kind of mov- able property other than actionable claims and money; and includes stocks and shares, growing crops, grass and things attached to or forming part of the land, which are agreed to be severed before sale or u....
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....wn as sale of goods. Under the guise of enacting a law in respect of a field open to the Legislature, it is not entitled to transgress the limits and widen the field by enacting an inclusive definition of sale of goods to include what in law is not a transaction of sale. Such transgression may not strictly fall within colourable legislation, which has been declared invalid by the Judicial Committee in more than one case. In the instant case, the question of trenching into the legislative field of the Federal Legislature is not in question. If really the Legislature has no power to levy a tax upon transactions, which do not constitute in law sales of goods, it purports to do something, which is forbidden, and as observed by Lord Atkin in Ladore v. Bennett(1): "It is unnecessary to repeat what has been said many times by courts in Canada and by the Board that the courts will be careful to detect and invalidate any actual violation of constitutional restrictions under pretence of keeping within the statutory field. A colourable devise will not avail." Again in Attorney-General of Alberta v. Attorney-General of Canada(2), the Judicial Committee observed that under the guise or pretence....
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....titute a sale as stated in Benjamin on Sale, and to the obser- vations in Dixon v. Yates(1). It, therefore, follows that the legislative power of the Provincial Legislature to levy a tax on sale of goods is confined and restricted only to the transaction of sale as understood by the Parliament of the United Kingdom in the law relating to the sale of goods and any attempt of the Legislature to tax under the guise of or under the pretence of such a power transactions, which are wholly outside it, will be ultra vires and must be declared invalid. This leads us to the consideration of the question, whether the con- tracts of the assessees, which are mostly building contracts, constitute contracts of sale of goods and contain any element of the nature of the sale of goods to justify the imposition of the tax upon them. Contracts, which involve labour and work, may relate to a chattel, such as building a ship or an engine or painting a picture, or may relate to immovable property, such as building contracts, contracts for the construction of bridges, dams, laying roads and so on. A contract purely for the supply of labour and work is not a contract of sale of goods, as labour and work....
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....t materials provided by the builder and portions of the fabric, whether wholly or partially finished, although intended to be used in the execution of the contract, cannot be regarded as appropriated to the contract, or as 'sold', unless they have been affixed to or in a reasonable sense made part of the corpus. That appears to me to have been matter of direct decision by the Court of Exchequer Chamber in Wood v. Bell(5). In Woods v. (1)[1839] 4 M. & W. 687. (4)[1904] A.C. 223. (2)[1856] 5 E. & B. 772. (5)[1856] 6 E. & B. 355. (3)[1886] 11 App. Cas. 350. Russell(1) the property of a rudder and some cordage which the builder had bought for the ship was held to have passed in property to the purchaser as an accessory of the vessel; but that decision was questioned by Lord Chief Justice Jervis, delivering the judgment of the Court in Wood v. Bell(2), who stated the real question to be 'what is the ship, not what is meant for the ship', and that only the things can pass with the ship 'which have been fitted to the ship and have once formed part of her, although afterwards removed for convenience'. I assent to that rule, 'which appears to me to be in accordan....
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.... Goods Act. Earl of Halsbury, L.C., at page 231 clearly expressed the view that "there was no sale here at all of these materials as distin- guished from a contract of sale of the ship, and that there was no acceptance of these materials in any sense which can be relied upon, except in a sense which, as I have said, is inapplicable for the purpose, viz., the certificate of Lloyd's as to the goodness of the materials. It seems to me, with all respect to the learned Judges who have decided the case in the Court below, that their decision was wrong and ought to be reversed." Lord Davey at page 232 of the same report expressed his view of the contract in these terms: "The learned counsel and also the learned Judges in the Court below seem to me to have proceeded on the supposition or hypothesis that this contract contained, not only a contract for the purchase of the ship, but a separate contract for the purchase of the materials also; and that seems to me to be a complete fallacy. There is only one contract -a contract for the purchase of the ship. There is no contract for the sale or purchase of these materials separatim; and unless you can find a contract for the sale of thes....
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.... to the owner of the premises. The contract was for work, labour and materials and not one of bargain and sale. The labour and the materials became the property of the defendants soon after they were worked into the premises and became part of them. As the plaintiffs stipulated to keep the machinery in repair for two years, they were not entitled to recover anything under the contract unless the whole work was completed, even if the materials had become unalterably fixed to the premises of the defendants. Blackburn, J., at page 659 observes: "It is quite true that materials worked by one into the property of another become part of that property. This is equally true, whether it be fixed or movable property. Bricks built into a wall become part of the house; thread stitched into a coat which is under repair, or planks and nails and pitch worked into a ship under repair, become part of the coat or the ship; and therefore, generally, and in the absence of some- thing to shew a contrary intention, the bricklayer, or tailor, or shipwright, is to be paid for the work and materials he has done and provided, although the whole work it not complete. It is not material whether in such a case....
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....y are affixed passes to the free-holder by the well-known rule quicquid plantatur solo solo cedit. Once the materials therefor are fixed to the soil, they cease to be the materials of the builder and become property of the owner of the land. In Tripp v. Armitage(2), the rule is definitely stated that unil building materials are actually affixed to the building, in the absence of an agreement to pass the pro- perty in the materials on delivery, the property therein remains in law in the builder, notwithstanding that they may have been approved by the employer or his agent or brought on the site. It, therefore, follows that unless there is a contrary intention specifically to pass the property in the materials as and when they are brought to the site, the property in the materials passes only when they are fixed to the building, whether they are bricks, doors or door-frames or other material, and the contract is treated as an entire contract to build, and the price is to be paid either on lump sum basis or the amount ascertained according to the schedule of rates, after measuring the quantities. There is, therefore, no element of sale of the materials in such a contract, as the contr....
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....nd constructing an engine." The learned counsel for the petitioners referred us to Roman Private Law, where the principle of accessio was discussed. Inaedificatio is one branch of the principle of accessio. It is stated therein that where A with B's materials builds a house upon his own ground, A becomes owner of the building and so long as the building stands, B cannot claim his materials, because the XII Tables provide that no one is to be compelled to take out of his building tignum or material, even though (1)[1843] 12 L.J. Ex. 463. (3)[1839] 4 M. & W. 687. (2)1815] 6 Taunt. 322. it belongs to another. But B is not without remedy, for by means of the action de tigno injuncto, perhaps a special form of actio furti, he can recover double damages from A, if he acted in bad faith, and when the building is pulled down can bring an actio ad exhibendum and claim the materials if he has not already obtained damages. But if A acted in good faith, B's only remedy is to claim the materials, in the case the building is dismantled, but he may perhaps have had an actio in factum for their value: See Leage on Roman Private Law, page 153, also the Institutes of Justinian, Book II, Titl....
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....t to build, a person erects a building with labour, work and materials supplied by him upon the land of another. In such a case the principles above discussed will apply. It is clear from the foregoing discussion that there is no element of sale of the materials in a building contract and that the contract is one and entire and is indivisible. Unless the work is completed, the builder is not entitled to the price fixed under the contract or ascertainable under the terms of the contract. It does not imply or involve a contract of sale of the materials for a price stipulated. The property in the materials passes to the owner of the land not by virtue of the delivery of the materials as goods under and in pursuance of an agreement of sale which stipulates a price for the material. The property in the materials passes to the owner of the land because they are fixed in pursuance of the con- tract to build, and along with the corpus, which ultimately results by the erection of the superstructure, the materials also pass to the owner of the land. Bearing these principles in mind, we may now consider the nature of the contracts entered into by the assessee, of which Ex. A is taken as....
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....ideration, and in support of this defi- nition he was not able to cite any authority. It is unnecessary for us to consider the question debated before us, whether the price should be in money and whether it can be any other valuable consideration, for that question does not arise for consideration here. The learned Advocate- General, however, attempted to argue that exchange transactions under Sections 118 and 121 of the Transfer of Property Act are also transac- tions of sale, and that hire-purchase agreements are also treated as sale transactions under certain contingencies as laid down in The Auto Supply Co. v. Raghunatha Chetty(1). But it is unnecessary for us to deal with this. Of the decisions cited by the learned Advocate-General, reference may be made to The Deputy Federal Commissioner of Taxation (Queens- land) v. Stronach(2) and Hornibrook (Pty.) Ltd. v. The Federal Commis- sioner of Taxation(3). In The Deputy Federal Commissioner of Taxation (Queensland) v. Stronach(2) the question was whether granite and freestone, which, in Australia, are cut out of quarries and moved in large blocks and then sawn into sizes suitable for use in the construction of buildings, are goods ....
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....or in some other form, passes under the terms of the contract to some other person. As the requirements of that section were satisfied, it was held that the tax was justified. But for Section 3 (4) of the Act the levy would not have been justified. But the ques- tion of the competency of the Australian Parliament to enact the provi- sion was not in issue as the power to levy sales tax was not restricted as under our Constitution Act of 1935 to a sale transaction. The only question considered in Love v. Norman Wright (Builders) Ltd.(1) was whether under a contract entered into after the Finance (No. 2) Act, 1940, the buyer was under liability to pay the registered seller the pur- chase tax in addition to the agreed purchase price unless the contract so provides. As under Section 22 of the Act, the registered seller is accountable for the tax, there is no obligation imposed, and under Sec- tion 27 of the Act no liability was imposed, on the buyer, and the seller had no right to recoup it from the buyer. The British Parliament is omnipotent and its power of legislation is not restricted in any manner. This case does not help us. It, therefore, follows that the building contracts, w....
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....ould be in the course of trade or business. The words "business" and "trade" are sometimes used as interchangeable, though very often it is stated that the word "business" is of wider import than trade. In the Concise Oxford Dictionary, various meanings of business are given, viz., being busy, task, duty, province, cause of coming, habitual occupa- tion, profession, trade, serious work. A man may be employed in his domestic business, that is, the affairs concerning his home. He may be engaged in political business or social activity and so on. From the intention of the Legislature gatherable from the provisions of the Act, it is obvious that the word is not used in a general sense. Under the Income-tax Act and the Excess Profits Tax Act, it cannot be disputed that the word "business" is used in the sense of carrying on continuous trading operations with a view to earn profit. He may not actually obtain profit and the business may end in loss. The test is not whether he actually gets profit or loss but the object with which the trading activity is carried on. If we omit the expression "who carries on the business of" in the definition of dealer, it would only mean that a dealer is a....
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....al held that the company did carry on trade or busi- ness and was, therefore, liable to be assessed to excess profits duty, under the Finance Act. Lord Sterndale, M.R., at page 272 considered the meaning of the word "business" used in the Finance Act, Section 39, and according to the learned Master of the Rolls, the word denotes trade or business of any description carried on by a company and if a company did, as in that case, acquire concessions and turn them to account, it is impossible to maintain that it was not carrying on any business. The profit element, therefore, was present. In the same case, Atkin, L.J., pointed out that the definition given by Rowlatt, J., in Inland Revenue Commissioners v. Marine Steam Turbine Co.(1), that it must be an active occupation or profession as opposed to passive, was too narrow and that even a holding company, which does not do any active business but only indulges in passively carrying on business, may yet be doing "business" within the meaning of the Finance Act. A. Lewis and Company (Westminster) Ltd. v. Bell Property Trust Ltd.(2) is an interesting case. The question dealt with was concerned with the interpretation of a restrictive coven....