United India Insurance Co. Ltd. Vs. Commissioner of Commercial Taxes, Bangalore and anr. - Court Judgment

S. Rajendra Babu, J.

1. This appeal is by United India Insurance Company which is carrying on the business in general insurance - insuring goods, motor vehicles, machinery and cattle against risks of thefts, accidents, injuries and the like. In the course of carrying on its business the appellant comes into possession of insured goods including motor vehicles, etc., in a damaged condition, which may be usable or unusable but most of the time sold as scrap by way of salvage.

2. In the year 1977-78, the appellant had entered into a contract of insurance with M/s. Plascom Industries insuring certain plastic goods against risks in transit. In the course of transit of the goods that were insured by the appellant, the goods were damaged and became useless to the insured. After paying compensation to the insured the appellant took possession of the said goods and disposed of them at a price of Rs. 58,800. In respect of this sale the Revenue took the view that the sale by the appellant was covered by the Karnataka Sales Tax Act, 1957 (hereinafter referred to as 'the Act') and, therefore, called upon the appellant to register itself as a dealer under the Act. The appellant contended that it was not carrying on the business of buying and selling of goods and as such it was not liable to register itself as a dealer under the Act. In spite of the appellant and its officers explaining their stand, the second respondent made an order on January 28, 1983, holding that the activity carried on by the appellant called for registration. That order, along with certain other proceedings, was challenged by the appellant in the writ petition claiming that the appellant was not liable to pay any sales tax and as such was not required to be registered as a dealer. The learned single Judge who heard the writ petition held that the sale of salvaged goods by the appellant was part of the business of the appellant and in any view of the matter the sale effected under such circumstances was incidental and ancillary to the appellant's main transaction and that the activity carried on by the appellant was business for the purposes of the Act. Aggrieved by the said order the present appeal is filed.

3. It was contended by the learned counsel for the appellant that in order to attract the provisions of the Act a person should be carrying on a trade or commerce or manufacture involving buying, selling or distribution of goods. It was submitted that every commercial activity will not attract the provisions of the Act, but only an activity of buying and selling in the course of business that attracts the provisions of the Act. The appellant being engaged in the insurance business is neither a dealer not a casual trader and therefore the view taken by the learned single Judge was not correct. It was also submitted that even though the activity of the appellant may be construed as one of business and the sale effected may be casual or incidental to that activity, inasmuch as the main activity of the appellant being only one of service and not of any business of buying and selling goods, the provisions of the Act are not attracted.

4. In our view the contentions raised on behalf of the appellant are plainly untenable and deserve to be rejected.

5. In order to appreciate the contentions raised by the appellant it is necessary to refer to a few relevant provisions of the Act. Section 2(f-2) of the Act defines 'business' as follows :

'2(f-2) 'business' includes, -

(i) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern; and

(ii) any transaction in connection with, or incidental or ancillary to such trade, commerce, manufacture, adventure or concern'.

This definition of the expression 'business' is an inclusive, definition and covers all trading, commercial or manufacturing activities irrespective of the fact that such activities result in profit or not, and also any transaction in connection with or incidental or ancillary to such trade, commerce, manufacture, adventure or concern. It is necessary to have a look at the expression 'casual trader' as well, which is defined to mean a person who occasionally enters into transactions of a business involving buying, selling, supply or distribution of goods within the State. 'Dealer' is defined to mean a person who carries on the business of buying, selling, supplying or distributing goods. If we bear these aspects in mind the resultant position would be (i) that to constitute business the existence of profit-motive is not relevant, (ii) that any transaction in connection with, or incidental or ancillary to the main business, also constitutes 'business' for the purposes of levy of tax; and (iii) that the concept of 'business' takes within its sweep not only the main activity but also any transaction which may be incidental or ancillary to the main business. Therefore, any transaction which is incidental or ancillary to the main business also constitutes a business. Indeed, such provisions are available under the Bengal Finance (Sales Tax) Act, as amended from time to time, which was the subject matter of consideration by the Supreme Court in Member, Board of Revenue, West Bengal v. Controller of Stores, Eastern Railway, Calcutta : [1989]2SCR777 . The Supreme Court in that decision summed up the law on the point as to who may be regarded as a dealer in these words :

'In these appeals the question is whether the assesses-railway in each case is a 'dealer' for the purpose of assessment under the Bengal Finance (Sales Tax) Act, 1941. In the case of the assessee, South Eastern Railway, what were sold were unclaimed goods. The railway was a carrier of the goods and if at the stage of delivery, goods remained unclaimed for a period the railway was entitled to dispose them of. There can be no doubt that the activity of so disposing of the goods was adjunctive to the principal activity of the carriage of goods by the railway. It is an activity which may be regarded as necessarily incidental or ancillary to its business as carrier of the goods. It seems to us that the assessee, South Eastern Railway, was a 'dealer' for the purposes of the Bengal Finance (Sales Tax) Act, 1941.'

In the same way as disposal of unclaimed goods by the railways was regarded as ancillary or incidental to its business as carrier of goods, it must be held that the disposal of salvaged goods by the appellant in this case as necessarily incidental or ancillary to the business of insurance. Therefore, the conclusion is irresistible that the appellant becomes a dealer for purposes of the Act which includes a casual trader who also carries on an activity which is business.

6. However, the learned counsel for the appellant relied upon three decisions, two of the Madras High Court and one of the Allahabad High Court, in New India Assurance Co. Ltd. v. Deputy Commercial Tax Officer [1972] 29 STC 539 (Mad.), Indian Insurance Companies' Association Pool v. Deputy Commercial Tax Officer [1969] 24 STC 79 (Mad.) and Oriental Fire and General Insurance Co. Ltd. v. Commissioner of Sales Tax [1986] 63 STC 246 (All.) and sought to contend that generally an insurance company does not carry on the business of buying and selling goods in the course of insurance business. It has to settle the claims of the insurers and thus comes into possession of damaged vehicles or other materials and it sells such materials and such sales are not made in the course of buying or selling goods but in the course of insurance business and the insurance company does not become dealer for making such sales. But this contention based on the aforesaid decisions of the two High Courts runs counter to what has been held by the Supreme Court in the decision referred to above. The Supreme Court is categorical in its view that railways may not be engaged in buying or selling of goods, but selling unclaimed goods as a carrier being part of its business it is a dealer and therefore the view of the Madras and Allahabad High Courts, in our opinion, is not in accord with the aforesaid decision of the Supreme Court. Therefore, with great respect, we cannot subscribe to the view of the two High Courts.

7. The reference to certain other decisions of other High Courts and the etymological meaning of the term 'trade and commerce' put across by the learned counsel for the appellant, cannot have any bearing on the concept of business because the expression 'business' has been defined and explained under the statute and such expression has been subject of scrutiny by the Supreme Court. Even though the activities carried on by the appellant may be one of service which may not involve buying and selling as such, by no stretch of imagination can it be said that the activities carried on by the appellant in salvaging the damaged goods in respect of which it had entered into contracts and then recover as much money as possible by sale of the same is not business. Therefore, one of the incidental activities of the appellant being to sell salvaged goods and that activity being incidental to the main business of the appellant, it is clear that it is a dealer under the Act.

8. In the circumstances, we affirm the order of the learned single Judge, and dismiss the appeal.

9. Appeal dismissed.