J.B. Mehta, J.
1. The question which has been referred to in this case is as follows :
'Whether, on the facts and in the circumstances of the case, the transactions of sale of the groundnuts of the members made by the society by auction are sales liable to tax under the Bombay Sales Tax Act, 1959 ?'
2. The society in question is registered under the Bombay Co-operative Societies Act, 1925, and it was assessed for the period from 1st January, 1960, to 6th June, 1961, to sales tax on its turnover of sales of groundnuts to the tune of Rs. 75,081. As this liability has been upheld even by the Tribunal, the society asked for this reference. At an earlier stage when this matter was taken up, the relevant bye-laws were considered along with the modus operandi of this business of the society. It was pointed by our learned brother A. D. Desai, J., speaking for the Division Bench that the object of the society was to advance loans at cheap rates to the members and to sell on commission their products. Bye-law 2(2) enabled the society to raise funds to advance loans at cheap rates especially for the needs of farming to the members. Bye-law 2(3) provided for the activity of purchasing on commission of agricultural implements, household goods, etc., for the members of the society, non-members and others working in the area of the operation of the society and to sell the same to them through shops. Bye-law 2(4), which is material, authorised the society to sell on commission the crops of members and of members of other co-operative societies functioning in the area of the society and to sell products of village industries. Bye-law 8 provides that every member was bound to sell his crop in excess of the needs of his family through the society and that a failure to observe the rule made him liable to fine up to Rs. 50. Bye-law 44(2) authorised the managing committee to take up goods for sale and if necessary and possible to grade the same. Bye-law 54(6) provided that every member obtaining such loan should sell all his agricultural produce through the institution nominated or selected by the society for the purpose. The society recovers these loans and outstandings from the sale proceeds. It was also pointed out that at that time the modus operandi of the business of the society as found by the Tribunal was to provide for short term credit to the members and the money advanced was realised from the crop sold through the society. The society maintains two sets of books of account, one for money-lending and the other for sales and stores. The member whose farming activity was thus financed by the society was bound to sell the crop through the society. The society held a public auction for the total available groundnuts of all the members and the highest bid was accepted by a resolution of the managing committee. The total crop was sold to the highest bidder. The purchaser paid the entire consideration to the society. The purchaser treated this as a purchase from the society and credited the society with full consideration. The society debited an equal amount to the purchaser. The society after deducting one paisa for market yard charges, five paise as commission charges per maund, credited the realisation to the individual member's account towards principal, advance, interest, etc., and the balance, if any, as deposit in the money-lending account. On these facts, it was held that the society was not acting as a broker but as a commission agent and the modus operandi of this business demonstrated that it did business acting on itself. There was no privity of contract between the members and the purchasers. It was also held that even though the society was not the owner of the goods and was entrusted with these goods for the purpose of sale, it was the society which fixed the sale price. Therefore, the society was a commission agent on these facts and not a broker. It was further held that the definition of the word 'dealer' in section 2(11) of the Bombay Sales Tax Act, 1959, hereinafter referred to as the 'Act', which defines the dealer as a person who for commission, remuneration or otherwise carried on the business of buying or selling goods in the State would cover such a society which was a commission agent provided it was found that it carried on the business of selling goods in this particular case. As it was found that the Tribunal had drawn the inference about the business activity merely on the basis of the bye-laws, an additional statement was called for by this court from the Tribunal. It was pointed out that in order to determine whether this was a business activity, the Tribunal must give a finding relating to the volume, frequency, continuity and regularity of the transactions. It was also pointed out that it was necessary for the Tribunal to determine the question as to whether the society was making any profit by the sale of the goods of the members. Therefore, additional statement of facts was called for relating to the volume, frequency, continuity and regularity of the transaction of sale and as to whether the society was making profit. Accordingly the Tribunal has furnished the additional statement of facts by pointing out that the groundnut crop in the year of assessment was supplied by 137 members which had been sold by auction in the year of assessment. Once the auction was held after due public notice but the price offered for both the types of groundnuts being not upto the mark, no final sale was made in the first auction. In the second auction, the sale price in question was realised. Therefore, there was only one sale transaction of groundnuts in the assessment year effected by the society. The total commission charged from the members was Rs. 470 at the rate of five paise per maund. The price of one maund of groundnut in the year of assessment was about Rs. 12. The commission thus charged was less than half per cent on the sale proceeds. Against that the society had spent Rs. 548 by way of expenditure for making the sale. Therefore, the Tribunal recorded a finding that the society had not made any profit out of the sale made on groundnuts supplied by the members in question. The commission was charged simply to meet expenses incurred for the same which even was less than half per cent. Therefore, looking to the facts of the case and also the amount of commission and the expenses for effecting a sale of groundnuts, it was found by the Tribunal that the society had no profit-motive when the groundnuts were supplied by the members and when they were sold. Therefore, there was no course of dealing, either actually continued or contemplated to be continued, with a profit-motive by the society. The Tribunal found that the groundnuts were stocked and sold simply for the purpose of securing the amounts of loans advanced to the members and not by way of making any profit and in fact no profit was realised by the society in the sale of groundnuts in the assessment year.
3. On the basis of this finding of facts Mr. Mody vehemently argued that in the absence of any profit-motive, the society could not be held to have been engaged in any business activity so as to be made liable to sales tax. The inference of profit-motive is a legal inference which has to be made from the aforesaid facts and, therefore, the question will have to be considered whether profit-motive could be inferred even though there may be no actual profit in this particular auction sale.
4. The definition of the term 'dealer' in section 2(11) of the Act clearly covers such a person like the society which for a commission or remuneration carries on the business of buying or selling goods in the State. That is why section 16 makes such commission agent liable with the principal for sales tax. A society need not sell its own goods and may sell the members' goods. What is material for section 2(11) is that the society must be carrying on its business of selling goods and it is wholly immaterial whether these goods were of the members which had been sold as a commission agent through the society. In Chowringhee Sales Bureau v. Commissioner of Income-tax, West Bengal ([1973] 31 S.T.C. 254 (S.C.); 87 I.T.R. 542 (S.C.); A.I.R. 1973 S.C. 376), their Lordships upheld the definition of 'dealer' in section 2(c) of the Bengal Finance (Sales Tax) Act, 1941, in so far as it included an auctioneer. At page 259 their Lordships pointed out that an auction sale, in view of the provisions of section 4 read with section 64 of the Sale of Goods Act, would have to be considered to be a sale for the purpose of the Sale of Goods Act. There is nothing in entry 48 of List II of the Seventh Schedule of the Government of India Act and entry 54 of List II of the Seventh Schedule of the Constitution which restricted the power of the legislature in the matter of the imposition of sales tax to the levy of such tax on the owner of the goods on whose behalf they are sold or the purchaser only. Their Lordships in terms held that where the transaction is one of sale of goods as known to law, the power of the legislature to impose a tax thereon, was plenary and unrestricted, subject only to any limitation which might have been imposed by the Government of India Act or the Constitution. In view of the wide amplitude of the power of the State or Provincial Legislature to impose tax on transactions of sale of goods, it would be impermissible to read a restriction in entry 48 on the power of the State Legislature as would prevent the said legislature from imposing tax on an auctioneer who carries on the business of selling goods and who has, in the customary course of business, authority to sell goods belonging to the principal. What was sought to be taxed was the transaction of sale of goods. If there was a close and direct connection between the transaction of sale and the person made liable for the payment of sales tax, the statutory provisions providing for such levy of sales tax would not offend entry 48. Their Lordships held that there was a close and direct connection between an auctioneer and the transaction of auction sale. Therefore, vires of the section in the definition of 'dealer' in the West Bengal Act was upheld even though the auctioneer was made liable to sales tax because it was open to the Provincial Legislature to include within the definition of the word 'dealer' auctioneers, who carried on business of selling goods and who are authorised to sell goods belonging to the members. Therefore, even though the goods may be belonging to the members and ultimately the sale proceeds after deducting the loans for financing the crop of groundnuts are returned to the members by the society and the society is merely a commission agent, the society would be liable as a dealer, under the wide definition under section 2(11) provided it is held that it carried on the business of selling goods, of course the goods of the members, under the relevant bye-laws.
5. Mr. Mody in this connection vehemently relied upon the decision of their Lordships in Khedut Sahakari Ginning and Pressing Society Ltd. v. State of Gujarat ([1972] 29 S.T.C. 105 (S.C.)). There the question was regarding the purchase tax from such producers' society. The society was of course formed under the same Bombay Co-operative Society Act, 1925, primarily with the object of selling produce of its members as their collective produce. As the preamble of the Act enacted, the object of the Act was to facilitate the formation and working of co-operative societies for the promotion of thrift, self-help and mutual aid among agriculturists and other persons with common economic needs so as to bring about better living, better business and better methods of production, and for that purpose to consolidate and amend the law relating to co-operative societies in the Presidency of Bombay. Therefore, the twofold objective of that Act was to provide for self-help for members of the society and for the mutual help to its members. Their Lordships considered the various bye-laws and pointed out that they clearly indicated that the society was selling produce of others and not its own goods. Its duty is to arrange to sell the agricultural produce of its members. The members were only entrusting the goods to the society and not selling them to the society. Therefore, the bye-laws were interpreted as an agency agreement under which the goods came into the hands of the society for sale or for their management through the society. The members had authorised the society to pool their goods, grade them if necessary, and sell them after ginning or without ginning. The price fetched was then distributed among the members whose goods were sold. It was, therefore, held that, in these circumstances, the society was the agent of its members. Because of the various bye-laws, several members must be deemed to have appointed the common agent, the society, for disposing of the goods in a manner most advantageous to them. To achieve that object they must be held to have empowered the society to pool their goods, grade them if necessary, either after ginning or without ginning, and sell them. Therefore, that decision merely interpreted the true relation in such a case between the members and the society and found that when the members pool their goods for sale through the society as the common agent, which graded and sold the goods, the society was only an agent and it had not become the purchaser of the goods so as to be liable to purchase tax. This decision can never help Mr. Modi because this court has also held in the present case, as earlier pointed out, that the society was only a commission agent. There is no purchase or sale as between the members and the society. But if the goods are sold through the society and if they are sold in the course of the society's business as a commission agent, the society would be dealer liable to pay sales tax under section 2(11) of the Act. Therefore, once the authority of the society from its members is found from the bye-laws for the sale of the goods in question, the material question as pointed out by their Lordship in Chowringhee's case ([1973] 31 S.T.C. 254 (S.C.); 87 I.T.R. 542 (S.C.); A.I.R. 1973 S.C. 376) is whether the society was undertaking a business activity of sale of such goods.
6. It is in that context that the additional statement of facts was called upon from the Tribunal because the business activity can be inferred after the aforesaid facts were ascertained as to the activity being systematic trade activity as distinguished from casual incidental activity as decided in the case of State of Gujarat v. Raipur . ([1967] 19 S.T.C. 1 (S.C.)), and whether it was with profit-motive. In that case at page 5, their Lordships in terms held that in taxing statutes, the term 'business' was used in the sense of an occupation or profession which occupies the time, attention and labour of a person, normally with the object of making profit. Therefore, in a business activity, there must be a course of dealings, either actual continued or contemplated to be continued with a profit-motive and not for sport or pleasure. Their Lordships pointed out that whether a person carried on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of the transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit-motive. By the use of the expression 'profit-motive', it was not intended that profit must in fact be earned. Nor did not expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. It predicted a motive which pervaded the whole series of transactions effected by the person in the course of his activity. In actual practice, the profit-motive might be easily discernible in some transactions; in others, it would have to be inferred from a review of the circumstances attendant upon the transaction. To infer from a course of transactions that it was intended thereby to carry on business, ordinarily the characteristics of volume, frequency, continuity and regularity indicating an intention to continue the activity of carrying on the transactions must exist. Their Lordships pointed out that no test was decisive of the intention to carry on the business. Such an inference could not be ordinarily raised when the mill was selling fixed assets or discarded goods acquired in the course of business which were surplus or unserviceable. Therefore, that inference was not raised in the Raipur Mill's case ([1967] 19 S.T.C. 1 (S.C.)), when the mill discarded unserviceable items of stores or machinery, iron scrap, etc. Same was the case in the next decision relied upon by Mr. Mody in the case of State of Gujarat v. Vivekanand Mills ([1967] 19 S.T.C. 103 at 112 (S.C.)), where the mill had sold surplus cotton. In the present case, however, there can be not doubt as to the commercial or business activity of the society. The society is formed for the purpose of business by its members. The society first finances its members for production of the goods in question and thereafter the goods are pooled together and sold at an advantage through the society so that its agriculturist-members would not be exploited if left to their own resources. The whole arrangement of formation of this society as per its bye-laws is pure and simple business arrangement so that these independent agriculturists are not exploited in business dealings if they try to rest on their own shoulders. In such a commercial business arrangement, it can hardly be contended that this is not a business activity which is carried on with a profit-motive, for even Mr. Mody does not say that it is a charitable activity. His only argument is that the society was only serving the members. Probably, the analogy of self-serving, non-profit making institutions like members' club was in the mind of Mr. Mody. The analogy is misconceived. The society provides initial necessary finance and after pooling and grading the goods, if necessary, it sells them to the best advantage of the members. This is purely a business transaction, where capital is invested with a profit-motive and the goods so financed and produced are ultimately sold thorough the society. Therefore, the society satisfies all the ingredients of carrying on business activity. It may be that in a particular transaction of auction sale, the commission amount may not be adequate to yield substantial profit to the society. But when the integrated activity of the society is considered as a whole on these undisputed facts, it could hardly lie in the mouth of the society to contend that it is not a selling organisation and its activity is not a business activity carried on with a profit-motive. The Tribunal has ignored this crucial aspect while drawing inference that there was no profit-motive. The Tribunal ignored all the crucial relevant facts which are to be considered in such an integrated activity for drawing proper legal inference as to whether this was a business activity carried on with a profit-motive or not. Therefore, Mr. Mody could hardly characterise this perverse additional finding as a finding of fact for this purpose.
7. Mr. Mody next argued that the society's business was primarily of money-lending. In advancing this contention Mr. Mody ignores the whole scheme of the Co-operative Societies Act. The society is not a money-lending institution in the sense in which Mr. Mody use the term. The society is a financing institution which finances its own members for raising crops so that those crops could be conveniently and economically sold at an advantage by the society as common agent. The sale transaction, which is ultimately entered into by the society, is on its own behalf and it is wholly irrelevant that ultimately the balance of the sale proceeds may be distributed among the members who had brought their goods in the common pool. The society may return the surplus sale proceeds to the members but that does not mean that the transaction of sale was without any profit-motive. The profit-motive is inherent in such business arrangement when the society is the constituted agent for selling the members' goods which have been pooled together in such a co-operative venture. The learned Government pleader rightly relied upon the decision of the Division Bench of the Madras High Court in Indian Coffee Board v. State of Madras ([1954] 5 S.T.C. 292). In that case the Indian Coffee Board was held liable to sales tax on its turnover as a dealer within the meaning of section 2(b) of the Madras General Sales Tax Act, 1939, which is in pari materia with section 2(11) of the Act. It wa found that the Board was not a constituted representative of the producer and it did not hold the goods on behalf of the producer. After the goods entered the pool after delivery, they became the absolute property of the Board and the producer, a registered owner, had no right or claim to the goods except to share in the sale proceeds after the goods were sold in accordance with the provisions of the Act. The function of the Board and its legal position were those of a seller of goods which were owned by it and which were vested in it absolutely. It was held in that decision that the term 'business' in the definition of 'dealer' was used in the commercial sense, the integral part of which was the motive to make profit by sales or purchases, but the profit need not necessarily accrue to the dealer who carried on the business of buying or selling goods as in the case of commission agents. The Board when it sold the coffee of the pool did aim to make a profit, though not for itself. Therefore, the profit-motive might always be inferred in such commercial transactions under such a business arrangement and it is wholly immaterial that such society which acted as commission agent of the members aimed to make profit for the members and not necessarily for itself. In Berhampur Silk Weavers Co-operative Society Ltd. v. State of Orissa ([1972] 29 S.T.C. 359), the Division Bench had also interpreted the definition of 'dealer' in the corresponding section 2(c) of the Orissa Sales Tax Act, 1947, which is in similar terms. In that case, the yarn, before and after it was converted into finished goods, remained the property of the co-operative society which had absolute control over the yarn till it was sold. The entire transaction of sale was arranged and carried on by the society and it was the society which was held to make profit on the sale on the ground that it was wholly irrelevant how the society dealt with the profit because it distributed the profit amongst the members in accordance with the bye-laws. Therefore, in the facts and circumstances of the case, the society was held to be a dealer in that case. We are in complete agreement with this view which is in accordance with the settled law that in such a case the profit-motive could be inferred from the commercial or business character of the integrated activity of the society. It would be ignoring all realities to treat the activity of the society as a separate money-lending activity when it was with the sole aim to finance the business of sale of groundnuts with the necessary profit-motive.
8. Mr. Mody rightly did not argue that this was a case of casual sale. Mr. Mody merely argued that the selling activity was only an incidental activity, which was not the business of the society, for, according to him, the business of the society was the money-lending activity. As earlier pointed out, the whole contention is founded on a complete misconception as to the total or integrated activity of the society and ignoring the basic nature of such co-operative business ventures. In that view of the matter, our answer to the reference must be in the affirmative. The petitioner shall pay the costs of the respondent in this reference.
9. Reference answered in the affirmative.