Judgment

HEGDE J. :- This is an appeal by special leave. It arises from the decision of the High Court of Gujarat in a Reference under Section 61 (1) of the Bombay Sales Tax Act, 1959. That Reference was made by the Gujarat Sales Tax Tribunal at Ahmedabad. After stating the case, the Tribunal submitted the question.

"Whether on the facts and in the circumstances of the case, the transactions are purchases of cotton by the Society from its members" to the High Court for its opinion.

2. The High Court has answered that question in the affirmative. Aggrieved by that decision, the assessee has brought this appeal.

3. The material facts are these:- The assessee is a Co-operative Society registered under the Bombay Co-operative Societies Act. 1925 (to be hereinafter referred to as the Act.) The assessee will hereinafter be referred to as the Society . It carries on the business of ginning and pressing cotton brought by its members. During the assessment period viz. November 1, 1960 to October 31, 1961, the assessee received large quantity of cotton from its members and the same was sold by it either after ginning and pressing or without ginning and pressing. The Society is a registered dealer under the Bombay Sales Tax Act, 1959. It filed its return for sales tax for the year in question. But therein it did not show any purchase turnover. The Sales Tax Officer accepted the return submitted by it and assessed it on the basis of that return as per his order dated May 1, 1963. He did not levy and purchase tax on the Society. The Assistant Commissioner of Sales Tax, Range III, Baroda, however, issued a notice dated August 6, 1963 under Section 57 of the Bombay Sales Tax Act 1959 proposing to revise the assessment of the Society by levying purchase tax in respect of 200 bales of cotton sent by the society to Bombay for sale and also in respect of cotton and cotton seeds worth Rs. 3,56,105/-, sold after six months from the date on which the cotton was received by the Society on the ground that the Society purchased the said cotton from its members.

4. Aggrieved by that order the Society moved the Gujarat Sales Tax Tribunal in revision. The Tribunal by its judgment dated July 1, 1964, dismissed the revision petition. Relying on the bye-laws of the Society particularly on bye-laws Nos. 37 (7), 37(18). 37(19), 48, 49, 52, 53 and 55, the Tribunal came to the conclusion that Society had purchased the cotton and cotton seeds in question from its members. It rejected the contention of the Society that it was merely functioning as the agent of its members while selling the cotton and cotton seeds referred to earlier. At the Instance of the Society the Tribunal submitted the question referred to earlier to the High Court for its opinion.

5. Whether a particular agreement is an agency agreement or an agreement of sale depends upon the terms of the agreement. For deciding that question, the terms of the agreement have got to be examined. The true nature of transaction evidenced by a written agreement has to be ascertained from the covenants and not merely from what the parties choose to call it. The terms of the agreement must be carefully scrutinised in the light of the surrounding circumstances - see the decision of this Court in Rohtas Industries Ltd. v. State of Bihar (1961) 12 STC 615 (SC). In that decision, this Court further held that for considering whether a particular transaction is a sale or not, what the court has to consider is whether as a result of the transaction, the property in the goods passed to the assessee in return for price and whether the assessee sold those goods as its own. Bearing in mind these principles we shall now proceed to examine the provisions the Act as well as the relevant bye-laws which take the place of agreement between the parties. It is not the case of the State that the Society had in any manner acted in contravention of the bye-laws. Therefore all that we have to find out is the true effect of the bye-laws.

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