A. Misra, J.
1. The Indal Employees' Co-operative Society Ltd., Hirakud, in this application calls in question the assessment orders for the years 1962-63, 1963-64, 1964-65, 1965-66 and for the quarter ending 30th June, 1966, under the Orissa Sales Tax Act, 1947. The orders of assessment for the years 1962-63, 1963-64 and 1964-65 amount to Rs. 2,172.28, Rs. 2,368.28 and Rs. 3,876.71 respectively, as per orders at annexures B/1 to B/3. The petitioner preferred appeals against these orders of assessment before the Assistant Commissioner of Sales Tax, Sambalpur Range, who, by his order dated 16th November, 1966, as per annexures C/1 to C/3, confirmed the same. While the validity of the aforementioned orders of assessment were under challenge, the Sales Tax Officer, Sambalpur Circle I, issued notices under Section 12(5) for assessment for the subsequent period, and in spite of objection, made assessment of Rs. 13,625.33 and a penalty of Rs. 2,000 for the year 1965-66 and assessed Rs. 2,538.64 and a penalty of Rs. 500 for the quarter ending 30th June, 1966. The total demand so far by the opposite parties on the petitioner thus comes to Rs. 27,071.24.
2. The contentions presented in the writ petition and advanced on behalf of the petitioner at the time of argument are: firstly, that the petitioner is not engaged in any trade or business of selling or supplying goods to any person other than its own members, and as such, the supply of goods by the petitioner-society to its members does not constitute a sale as defined in the Orissa Sales Tax Act, 1947; secondly, even otherwise, the sale or supply to its members is not in the course of business, and as such, the petitioner is not a 'dealer' as defined in Section 2(c) of the Act and lastly, Section 2(c) of the Act, so far it purports to include within the definition of 'dealer' any society, club or association which sells or supplies goods to its members is ultra vires of the Legislature.
3. According to the opposite parties, the contention that the society merely distributes commodities among its members only and there is no element of sale is not correct; that the object of the society being to conduct a store for sale of commodities and there being a profit-motive and actually some profit having been made and distributed among its shareholders, the society must be deemed to be engaged in carrying on business; that the definition of the expression 'dealer' is not ultra vires of the Legislature and that the transactions between the petitioner-society and individual purchasers are sales as defined in the Act.
4. For a proper appreciation of the respective contentions we would refer to some undisputed facts concerning the activities of the petitioner-society. The petitioner is a co-operative society registered in 1959 under the Orissa Co-operative Societies Act of 1951. Under the bye-laws of the society, membership is open only to individuals above the age of 18 who are in the permanent employment of the Indian Aluminium Company Ltd., Hirakud. Paragraph 4 of the bye-laws of the petitioner-society enumerates the objects as follows: (a) primarily to create funds to be lent to members; (b) to provide facilities for the exercise of thrift and savings; (c) to conduct a store for sale of commodities necessary for life, and (d) generally to encourage self-help and mutual aid among members. The correctness of the accounts of the society which also show that the sales have been confined to the members only is not disputed. Each member has been given a card and on the strength of the said cards supplies are made on credit basis and payments are realised from salaries drawn by them.
5. In support of the first contention, it is urged that the petitioner-society is not different from a members' club, an association constituted for catering to the needs of its own members, and all the property that is purchased vests in the joint ownership of all the members and supply of those articles to individual members cannot amount to a sale, because to constitute a sale, there must be two independent parties and there must be transfer of absolute or general ownership in the property from one to the other for a consideration in cash. The expression 'sale' has been defined in Section 2(g) of the Act as follows :
'Sale' means, with all its grammatical variations and cognate expressions, any transfer of property in goods for cash or deferred payment or other valuable consideration....
6. It is not disputed that the Orissa Sales Tax Act was enacted by the State Legislature on the basis of powers conferred on it under Article 246(3) read with Entry 54 of List II of the Seventh Schedule of the Constitution which reads: 'Taxes on the sale or purchase of goods other than newspapers etc.' It is not disputed that the ratio of the decision of the Supreme Court in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. A.I.R. 1958 S.C. 560, will govern the interpretation of the aforementioned Entry 54. It is thus well settled that the term 'sale of goods' occurring in Entry 54 should be understood in the same manner as it is understood in Section 4 of the Sale of Goods Act, 1930. To constitute a valid sale, the following requirements should be satisfied : (1) there must be two parties who are competent to contract; (2) there must be mutual assent; (3) the absolute or general property in the goods is transferred from the seller to the buyer, and (4) a price in money is paid or promised. If it only amounts to a release by a joint owner of his interest in the property in favour of another joint owner even for a price, it cannot be considered a sale. Necessarily, therefore, a transaction of sale of goods to be liable for tax must satisfy the aforementioned elements.
7. Learned counsel for the petitioner contends that in the present case, the transactions between the petitioner-society and its individual members do not satisfy all the aforesaid elements to constitute a sale in the eye of law which will make it liable to be assessed to sales tax. Firstly, it is urged that the society and its individual members are not independent legal persons as the former is only an association of all the individual members. Secondly, it is urged that the right in the properties appertains to the joint ownership of all the members and does not vest exclusively in the society, and as such, the question of transfer of absolute or general property from the society to the individual members under the transactions does not take place. At best, it only amounts to a release of the interest of joint owners in favour of one joint owner. Thirdly, it is contended that the transactions will not amount to a sale, because the price of articles being fixed, the element of bargain is absent.
8. At the outset, learned counsel for the petitioner concedes that he does not dispute that transactions, if any, between the petitioner-society and non-members will amount to sale. He has restricted his contentions to transactions between the petitioner-society and its members. It is not denied that the petitioner-society supplies goods to its members for a price. The contention that there is absence of element of bargain in the transactions between the petitioner-society and its members because the prices of articles are fixed, has no merit. It cannot be disputed that even where transactions are entered into with non-members, the articles are supplied at the fixed price at which the same is supplied to its members. The price, as it appears, is fixed taking into consideration the rate at which the purchase is made leaving a small margin to meet incidental charges, etc. It is open to members as much as it is to non-members where such transactions are entered into with them not to buy or take supply of the goods from the society, in case the price at which they are offered is not agreed to be paid by the person seeking to take them. In that context, it will not be correct to say that the element of bargain is totally absent. The more important contention is that a transaction between the society and its members will not amount to a sale, because of the absence of two parties competent to contract and by mutual assent the absolute or general property is transferred from the society for a price to the members who take supply of articles. The pertinent questions that arise for consideration are : firstly, whether it can be said that a co-operative society and its members are two distinct parties and, secondly, whether while supplying articles the society transfers its absolute or general property in the articles to the members. The answer will necessarily depend on the determination of the question whether the petitioner-society is a distinct legal entity by being a body corporate having an existence independent of its members. Learned counsel for the petitioner has referred to various decisions in support of his contention that an association or a society cannot be a legal entity distinct from its members. We do not consider it necessary to notice all the decisions referred to by the petitioner, as it will be sufficient to refer to the decisions in Board of Trustees v. State of Delhi A.I.R. 1962 S.C. 458, and of the Mysore High Court in Century Club and Ors. v. State of Mysore and Anr. [1965] 16 S.T.C. 38. In the decision in Board of Trustees v. State of Delhi A.I.R. 1962 S.C. 458, the Supreme Court observed :
There is authority of long-standing for saying that the essence of a corporation consists in (1) lawful authority of incorporation, (2) the persons to be incorporated, (3) a name by which the persons are incorporated, (4) a place, and (5) words sufficient in law to show incorporation. No particular words are necessary for the creation of a corporation ; any expression showing an intention to incorporate will be sufficient.
Their Lordships referred to the various provisions of the Societies Registration Act and quoted with approval the following passage at page 59 from the 'Law relating to Unincorporated Associations' (1938 Edn.) by Dennis Lloyd :
Registration does not result in incorporation, but merely entitles the society so registered to enjoy the privileges conferred by the Act. These privileges are of considerable importance and certain of them go a long way towards giving registered societies...a status in many respects analogous to a corporation strictly so-called, but without being technically incorporated. Thus something in the nature of perpetual succession is conceded by the provision that the society's property is to vest in the trustees for the time being of the society for the use and benefit of the society and its members and of all persons claiming through the members according to the society's rules, and further that the property shall pass to succeeding trustees without assignment or transfer. In the same way, though the society being unincorpoiated, is unable to sue and be sued in its own name, it is given the statutory privilege of suing and being sued in the name of its trustees.
9. The point that arose for consideration in the Mysore case was whether supplies made by four different members' clubs, two of them unregistered and the other two either registered or deemed to be registered under the Mysore Societies Registration Act, to its members are sales liable to be assessed to sales tax. So far as the two unregistered clubs are concerned, it was conceded that they were not juridical persons or legal entities and their members being joint owners of all the properties of the clubs, supplies by them to their respective members were not sales. Regarding the two registered clubs, the contention was that they being bodies corporate are distinct legal entities and supplies of articles by them to their members for a price amounted to a sale as thereby absolute or general ownership in the property passed from the clubs to the individual members obtaining the supply. This contention was negatived relying on the observations of the Supreme Court aforementioned. It was held that societies registered under the Societies Registration Act, though may possess a status in many respects analogous to a corporation strictly so-called they cannot be corporate bodies without being technically incorporated. Both these decisions dealt with the question whether societies registered under the Societies Registration Act are corporate bodies, and as such, distinct legal entities. The position of a co-operative society with which we are concerned here, cannot be equated with a registered society, and therefore, the principles applicable to determine the status of registered societies or other registered bodies will not be strictly applicable to a co-operative society.
10. Among other things, two of the essential characteristics of a corporation are lawful authority of incorporation and words sufficient in law to show incorporation. Section 9 of the Orissa Co-operative Societies Act runs as follows :
9. A co-operative society registered under this Act shall be a body corporate by the name under which it is registered having perpetual succession and a common seal, and with power to hold property, enter into contracts, institute and defend suits and other legal proceedings and do all things necessary for the purpose for which it was constituted.
This provision, therefore, clearly indicates incorporation of societies registered under the Act. It is contended for the petitioner that though Section 9 is in the aforementioned terms, it was beyond the competence of the State Legislature to enact a law empowering incorporation. In this connection, referring to entries 43 and 44 of List I of the Seventh Schedule of the Constitution, it is urged that incorporation, regulation and winding up of trading corporations and incorporation, regulation and winding up of corporations whether trading or not with objects not confined to one State are exclusively within the competence of the Central Legislature, and as such, it was ultra vires of State Legislature, to provide in Section 9 for incorporation of co-operative societies. On the other hand, learned counsel for the opposite parties relies on entry 32 of List II of the Seventh Schedule and contends that the State Legislatures are competent to enact a law for incorporation of co-operative societies. On a comparison of these different entries, the contention advanced on behalf of the opposite parties appears to be correct. Entry 44 of List I is not relevant for the present purpose as it is neither party's case that the objects of the Orissa Co-operative Societies Act are not confined to one State. So far as entry 43 of List I is concerned, while providing for incorporation, regulation, etc. of trading corporations, it expressly excludes co-operative societies from its ambit. If it was intended-that a law relating to incorporation of cooperative societies was to be -retained within the exclusive field of the Central Legislature, there was no reason for expressly excluding the same from the ambit of entry 43 of List I. Entry 43 of List I empowers the Central Legislature to make laws for incorporation, regulation and winding up of certain types of corporations. Similarly, the first part of entry 32 of List II refers to incorporation, regulation and winding up of corporations other than those covered by entry 43. The second part refers to unincorporated trading, literary, scientific and religious societies and other associations and the third part is a distinct power relating to co-operative societies which has been expressly excluded from the purview of entry 43 of List I. If, as contended by learned counsel for the petitioner, incorporation of all trading corporations is within the exclusive competence of the Central Legislature and the State Legislature cannot enact a law for their incorporation, it will lead to an absurd situation, because co-operative societies having been expressly excluded from the ambit of entry 43, the Central Legislature cannot provide for their incorporation and it will be outside the competence of the State Legislature. From a reading of entry 32 of List II, the only reasonable conclusion is that this entry consists of three parts : firstly, laws in respect of incorporation, regulation and winding up of corporations other than those specified in List I; secondly, laws in respect of certain unincorporated societies and associations and thirdly, laws in respect of co-operative societies. Therefore, under entry 32 of List II, the State Legislature is competent to make a provision like Section 9 of the Co-operative Societies Act for incorporation. Not a single decision has been cited by learned counsel for the petitioner in support of his contention that a law providing for incorporation of cooperative societies is outside the competence of the State Legislature. The observations of the Supreme Court in a recent decision in Deputy Commercial Tax Officer v. Enfield India Ltd. Co-operative Canteen Ltd. [1968] 21 S.T.C. 317, clearly negative this contention of the learned counsel for the petitioner. That was also a case where the question of liability of a co-operative society registered under the Madras Co-operative Societies Act, 1932, to be assessed to sales tax came up for consideration. The Supreme Court observed :
A registered society is a body corporate with power to hold property and is capable of entering into contracts. It cannot be assumed that property which it holds is property of which its members are owners. The property in law is the property of the society. The members are undoubtedly entitled to compel the society to act according to its constitution and to apply the property for the purposes for which it is held, but on that account the property of the society cannot be treated as the property of the members. The society is a person : the property in the refreshments which it supplies to its members is vested in the society and when refreshments are supplied for a price paid or promised transfer of property in the refreshments results.
Learned counsel for the petitioner sought to distinguish this decision on the ground that it was a co-operative society registered under a pre-Constitution Act and passed by a Legislature competent to enact a law for incorporation of such societies, while the petitioner-society is one created under a post-Constitution enactment where the State Legislature was not competent to enact a law for incorporation of co-operative societies. For the reasons already discussed, we find no merit in this contention. It has again been argued that even assuming that under Section 9 a co-operative society registered under the Act will be a body corporate, the petitioner-society cannot be held to be such a corporate body, because Section 9 will be applicable only to such societies as were registered under the Orissa Cooperative Societies Act, 1962, and not to co-operative societies that existed from before. In this context, reference has been made to Section 133 of the Orissa Co-operative Societies Act which lays down that any society now existing which has been registered under the previous Act shall be deemed to be registered under this Act. A distinction is sought to be made between co-operative societies registered under the 1962 Act and cooperative societies to which the provisions of the Act have been made applicable by virtue of Section 133. We do not find any force in this contention. Section 133 expressly lays down that all existing societies registered under the previous Act shall be deemed to be registered under the 1962 Act. In the eye of law, it will have the same legal status as cooperative societies registered under the said Act. Thus, considered from any point of view, we find no merit in the contentions advanced on behalf of the petitioner and hold that the incorporation of the co-operative societies under Section 9 is valid. The petitioner-society is a distinct legal entity having rights to possess and transfer properties and supply of articles by the society to its members for a price has the effect of transferring the general property in the goods by the society to the members for a consideration. Hence, the sales or supplies by the petitioner-society of the goods to its members will be 'sales' as defined under the Act.
11. The next contention for the petitioner is that the definition of the expression 'dealer' in Section 2(c) of the Act, so far as it purports to include any society, club or association which purchases goods from or sells or supplies goods to its members, is invalid and ultra vires of the Legislature. It is not necessary to consider the merits of this contention so far it relates to societies, clubs or associations in general, as in the present case, the question is confined to a co-operative society. In the aforementioned decision of the Supreme Court, a similar contention was negatived with the observation :
Such a co-operative society which carries on the business of supplying goods to its members for cash or deferred payment falls within the definition of 'dealer' in Section 2(g). We are unable to hold that by the Explanation to Section 2(g), it was intended to overstep the limits of the legislative power. By the Explanation, the State Legislature has merely clarified that a taxable entity will be regarded as a dealer within the meaning of the Act even though it buys, sells, supplies or distributes goods from or to its members.... For the purpose of levying sales tax, it was open to the State Legislature to devise a definition of the word 'dealer' and further to provide that certain bodies shall be deemed to be dealers within the meaning of the Act.
Therefore, we find no merit in this contention as well.
12. The last contention advanced on behalf of the petitioner is that the sales or supplies by a co-operative society, even assuming it to be a separate legal entity, to its members cannot be said to be in the course of business to bring it within the ambit of the definition of 'dealer' in Section 2(c) of the Act. The expression 'dealer' has been defined as follows :
'Dealer' means any person who carries on the business of purchasing or selling or supplying goods in Orissa, whether for commission, remuneration or otherwise and includes a department of Government which carries on such business and any firm or Hindu joint family, and any society, club or association which purchases goods from or sells or supplies goods to its members and also includes a casual dealer as hereinbefore defined.
According to the petitioner, imposition of sales tax can be made only on sales of goods in the course of trade or business. Transactions between the co-operative society and its members cannot be treated as sales in the course of business in its commercial sense, inasmuch as, in pursuing the activity engaged in by the co-operative society, the profit-motive does not exist. In support of this contention, reliance has been placed on the decisions in Young Men's Indian Association (Regd.), Madras v. Joint Commercial Tax Officer A.I.R. 1964 Mad. 63, Nizam Sugar Factory Ltd. v. Commissioner of Sales Tax, Hyderabad [1957] 8 S.T.C. 61 and Southern Railway Co-operative Canteen Ltd. v. Commercial Tax Officer [1967] 20 S.T.C. 96. It is argued that although an activity may involve the occupation of time, attention and labour and may also involve the person carrying on that activity in a liability to other persons, so long as the purpose of that activity is not to make a profit or a gain out of it, it would not be a business as ordinarily understood. Learned Standing Counsel appearing for the opposite parties refers to certain provisions contained in the bye-laws of the petitioner-society and contends that the profit-motive is not totally absent in the activity engaged in by the petitioner, and therefore, it cannot be said that they are not engaged in a business in the commercial sense. He refers to certain bye-laws which make provision for disposal of the profit by way of contribution to the reserve fund and grant of dividend to its members and urges that these bye-laws indicate a profit-motive in carrying on the activity or business of the society. This aspect was also considered by the Supreme Court in the decision in Deputy Commercial Tax Officer v. Enfield India Ltd. Co-operative Canteen Ltd. [1968] 21 S.T.C. 317 and it was observed :
A scheme for supplying goods to its members by a society for price may partake of the activity of the nature of adventure or concern in the nature of trade, even if the activity is not actuated by a profit-motive. The respondent-society which had according to its object of incorporation made arrangements for the supply and distribution of refreshments to its members without a profit-motive might be regarded as carrying on trade and would on that account fall within the definition of a 'dealer' within the meaning of Section 2(g).
For the petitioner, it was contended that in the Madras Act, the expression 'business' had been defined as meaning any trade, commerce or manufacture whether or not any profit accrued from such trade, etc., but in the absence of such definition in the Orissa Act, the observations of the Supreme Court will not govern the present case. Here also, we are unable to agree with the petitioner's contention. It is true that the expression 'business' has not been defined in the Orissa Act, but the question is whether to satisfy the definition of 'dealer', the profit-motive in the activity is essential. In the aforementioned decision, the Supreme Court were interpreting Section 2(g) of the Madras Act defining the expression 'dealer' and in that context held that even in the absence of a profit-motive an activity by a society of supplying goods to its members for a price may be in the nature of trade. Therefore, existence of profit-motive is not essential for creation of a taxable entity. In this view, of the matter, we are unable to accept the contention of the learned counsel for the petitioner that in the absence of a motive for profit or gain, by pursuing a particular activity of sale or supplying goods to its members for a price, the co-operative society will not be a dealer as defined and liable to sales tax.
13. For the reasons discussed above, we find that the sale or supply of goods by the petitioner-society to its members amounts to sale of goods and the petitioner-society being a dealer as defined in the Act is liable to be assessed to sales tax. The petition is accordingly dismissed, but in the circumstances without costs.
S. Barman, C.J.
14. I agree.