Sales of capital assets are liable to be included in gross turnover even as incidental or ancillary transaction.

V. RAMASWAMI, J.

In these two tax revision cases, a common point is raised though the facts are slightly different. In the first case, Thermo Electrics is the assessee. It is a sole proprietary concern. The assessee was a dealer in heating mantles and was dealing in the purchase and sale of those articles. She was also manufacturing and selling standard cells (Toshnival Brand). Under an agreement Dt. 1st July, 1970, she agreed to give the standard cells to Thermo Electricals Madras Manufacturing, hereinafter referred to as TEMM, a firm of partnership, in consideration of a 10 per cent royalty on the net sale prices marketed by TEMM. Under the agreement, TEMM was given the exclusive right to manufacture and sell the standard cells in four States, namely Madras, Andhra, Kerala and Mysore. If TEMM wants to market the goods in other States, it would have to enter into a separate agreement with the assessee. As part of the agreement, the assessee sold all the raw materials which she had as listed in Appendix A to the agreement for the prices mentioned therein. Similarly, she sold to semi-finished products and finished products listed in Appendix B for the prices mentioned in that Appendix. The finished products included in this Appendix did not exhaust the stocks which she held, but only a portion of it was given to TEMM and the remaining was retained by her for the purpose of sale in the areas other than four States in respect of which TEMM was given the exclusive right. Under the agreement, the assessee also transferred also the tools, jigs, fixtures, furnitures and other items as listed in Appendix C on their book value which is also mentioned in that Appendix. For the asst. yr. 1970-71, the assessee returned a total and taxable turnover of Rs. 1, 746-09 and Rs. 1, 528/- respectively. On the ground that the raw material as listed in Appendix A to the agreement and the semi-finished products listed in Appendix B thereto were sold by the assessee during the assessment year, the assessing officer sought to include a sum of Rs. 1, 59, 753-85 in the taxable turnover. The assessing officer did not propose to include the value of the books mentioned in Appendix C which was valued at Rs. 250/-. The assessee objected to the proposal to include the sum of Rs. 1, 59, 753-85 on the ground that they were realisations on the sale of the business as a whole and that the sale was also not in the course of carrying on her business, but it was a case of winding up of the manufacturing unit. The assessing officer did not accept this contention and included the turnover as proposed in the pre-assessment notice. On appeal, however, the AAC held that so far as the raw materials were concerned, it could not be said to be a sale in the regular course of business activity of the assessee and that, therefore, it is not liable to be included in the turnover, but confirmed the assessment so far as it related to the value of semi-finished products and finished products. The assessee preferred a further appeal to the Tribunal in respect of the semi-finished products and finished products and the Revenue filed an enhancement petition in respect of the raw materials. Before the Tribunal, the Revenue relied strongly on the decision of the Supreme Court in State of Tamil Nadu vs. Burmah Shell Co. Ltd. 1. In support of its contention that the entire turnover was liable to be taxed. The Tribunal held that the sale of capital assets or sterlized assets could not be considered to be a sale in the course of business or in connection with or incidental or auxiliary to the business carried on by the assessee and that, therefore, the sale of the materials mentioned in Appendix A and Appendix B were not liable to be taxed. According to the Tribunal, the decision in State of Tamil Nadu vs. Burmah Shell Co. Ltd. did not dispense with the basic necessity that the assessee must be carrying on the business at the time when the transaction took place and the necessi