A. vs. THOMAS & CO. LTD. versus DEPUTY COMMISSIONER OF AGRICULTURAL INCOME TAX

CIVIL APPEAL No. 628/1961Supreme Court1962 INSC 35130 November 1962Bench: 5 JudgesAuthor: S.K. DAS, J.L. KAPUR, A.K. SARKAR, M. HIDAYATULLAH, RAGHUBAR DAYAL8 pages
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What did the Supreme Court hold?

The Supreme Court held that the property in the goods passed when the contract was accepted on the fall of the hammer in Fort Cochin. Article 286(1)(a) of the Constitution, as interpreted by this Court in Indian Copper Corporation Ltd. v. State of Bihar, fastens taxability on the 'passing of property within the State'. The Explanation to Article 286(1)(a) creates a fiction where delivery for consumption in a state is deemed the situs, overriding the place where property passes. However, this Explanation does not apply here as there was no delivery for consumption in Travancore Cochin. Since the property passed in Fort Cochin (Madras State), the sales were considered 'outside sales' with respect to Travancore Cochin. Therefore, the High Court erred in holding the sales taxable in Travancore Cochin. The appeal was allowed, and the High Court's judgment was set aside. The issue of goods exported out of India was also considered an 'outside sale' for Travancore Cochin.

What were the facts?

The assessee, A. V. Thomas & Co. Ltd., is appealing a decision by the High Court of Kerala concerning sales tax for the assessment year 1952-53. The dispute involves a turnover of Rs. 3,77,644/- on which a tax of Rs. 5,900/11/- was levied. The sales involved teas stored at Willingdon Island in Travancore Cochin State. Samples were taken to Fort Cochin (Madras State) where auctions were conducted. The price was paid in Fort Cochin, and delivery orders were issued there for goods to be collected from Willingdon Island. The goods were then sent for consumption in other Indian states or exported. The Sales Tax Officer initially assessed the escaped turnover, and the Sales Tax Appellate Tribunal remanded the case, holding that sales of 'full lots' were outside the State. The High Court, however, reversed this, holding the sales taxable.

What were the issues?

1. Whether sales of tea, where property passed in Fort Cochin (Madras State) and physical delivery occurred in Willingdon Island (Travancore Cochin State), are taxable in Travancore Cochin State under the Travancore Cochin General Sales Tax Act and Article 286(1)(a) of the Constitution of India. Assessee's contentions: The sales were effected at Fort Cochin, which was outside the territory of Travancore Cochin. Therefore, these sales were not liable to tax due to the prohibition under Article 286(1)(a) of the Constitution. The assessee relied on the principle that the passing of property determines the situs of the sale for tax purposes. Revenue's contentions: The High Court held that the words 'outside the State' in Article 286(1)(a) do not solely mean transfer of ownership as per the Sale of Goods Act, but rather the situs of the goods determines taxability. The revenue argued that ownership is transferred according to the law of the place where the goods are situated, making the sale taxable in Travancore Cochin.

Which sections of the Income-tax Act were involved?

Article 286(1)(a), Sale of Goods Act

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1962 608 SUPREME COURT REPORTS [1963]SUPP. A. V. THOMAS & CO. LTD. v. DEPUTY COMMISSIONER OF AGRICULTURAL INCOME TAX (S. K. DAB, J. L. KAPUR, A. K. SARKAR, M. HIDAYATULLAH AND RAGHUBAR DAYAL, JJ.)

Sales Te1x-GoodB stored in Travanwre-Sale by auction ill Madras by aamples-Delirery in Trai·ancore-Oonsumption neitl1er in Madras nor in Travancore-IVkether sales taxable i11 J.'ravancore-Oonstitution of India, Art. 286 (1).

The sales of teas were by auction which was conducted in Fort Cochin in Madras State. The price was paid in Fort Cr,chin and delivery orders were also given there for goods which were at Willingdon Island in Travancore Cochin State.

From Willingdon Islands the goods were acnt for consumption to other States and to foreign countries. The State of Travan- core Cochin sought to tax theac transactions for sales tax.

Held, that the property in the goods passed when the contract was accepted on the fall of the hammer in Fort Cochin.

Under Art. 286(1) it was the "passing of the property within the State" that was intended to be fastened on for the purpose of determining whether the ~ale was "inside'' or "outside" the State. Subject to the operation of

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