Judgement

GROVER, J.: This is an appeal by special leave is which the sole question for decision is whether the respondent company was liable to pay sales tax on an amount of Rs. 4,20,000 being the sale price of two arc furnaces which had been purchased in 1952 and sold in 1958.

2. The respondent company carried on business at 38, Mount Road , Madras, its main business being the manufacture and sale of machinery and parts of machinery and accessories. For manufacturing parts of the machinery, the company, maintained a foundry and in 1952 in purchased two arc furnaces for a sum of Rs. 2,13,512.81 for the purpose of using the same in its foundry. In the account books and the balance sheet of the company these furnaces were shown under the heading "workshop equipment". According to the company the furnaces were found to be unsuitable for the purpose for which they had been purchased and therefore they were disposed of in 1958 to a purchaser in Calcutta for a sum of Rs. 4,20,000. For the assessment year 1958-59 the assessing authorities sought to include the amount of Rs. 4,20,000 in the turnover of the company although it was maintained by the company that the sale represented an isolate sale of its fixed capital assets. The appeal before the Sales Tax Appellate Tribunal, Madras also failed. The view of the tribunal may be stated in its own words:-

"It is not denied that the appellant comes within the scope of the definition of "dealer". It has to be seen whether the sale of the two arc furnaces had a reasonable connection with the normal course of business of the assessee. The fact that the appellant could not use them or that they are surplus machinery cannot take it out of the ambit of the appellant s business of sales of machinery or part of machinery. The necessity to dispose of unwanted machinery is ingrained in the very nature of business of sale of machiery which the assessee was carrying on and it had to effect sales of such surplus materials." A revision petition was presented to the High Court of Madras under Section 38 of the Madras General Sales Tax Act (Act I of 1959) read with Section 9 (3) of the Central Sales Tax Act 1956 (Act LXXIV of 1956), hereinafter called the Madras Act and the Central Act respectively. Before the High Court it was argued on behalf of the assessee that the furnaces were purchased for the purpose of being installed in the factory. It was therefore to be used as capital asset and not as a part of the stock-in-trade. At the time of purchase the assessee had no idea of selling the furnaces and there was no intention of making any profit. The business which was carried on by the assessee was entirely different, namely production of machinery and parts and the sale of the furnaces, when they were found to be unserviceable, was not made in the course of the normal business activity of the assessee. The position taken up on behalf of the State was that when the assessee carried on the business of selling machinery of various kinds the sale of arc furnaces must be regarded as sale of machinery in the normal course of its business activity. The learned Judges of the High Court referred to a large number of decided cases including the decision of this court in State of Andhra Pradesh v. Abdul Bakshi and Bros., 1964 - 15 STC 644. Reliance was finally placed on the observations in Ambica Mills Ltd. v. State of Gujarat, 1964-15 STC 367 (Guj) in which it was observed inter alia at the machinery which had been disposed of had been obviously purchased and installed for use for production of textile goods. The view taken in that decision was that a person could not be said to be carrying on business of selling assets of that business when sale of such assets had been made only because they had become useless and unserviceable by usual wear and tear or because of the necessity for substituting modern machinery. In the present case the learned Madras Judges were of the opinion that it was impossible to hold that