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HIGH COURT OF ORISSA
Panigrahi, C. J. And Narsimham, J.
RAMAKRISHNA DEO - Appellant
Versus
COLLECTOR OF SALES TAX - Respondent
Special Jurisdiction Case 59 Of 1950
Decided On : April 12, 1955
ORISSA SALES TAX ACT - SECTION 2(C) - DEALER - SALE OF GOODS - FOREST PRODUCE - ROYALTY - INCOME - TAXABILITY: 1. The Maharaja of Jeypore, by entering into an agreement with Messrs. Dear and Co. Ltd. permitting them to cut Sal trees in his forests, make them into sleepers, and sell them to various railways, is not a 'dealer' carrying on the business of selling goods in Orissa as defined in Clause (c) of Section 2, Orissa Sales Tax Act, 1947. 2. The royalty payable under the agreement constitutes 'income' and not 'sale price' of the goods sold.
Fact of the Case:
The Maharaja of Jeypore, the owner of extensive forest areas, entered into an agreement with Messrs. Dear and Co. Ltd. permitting them to cut Sal trees in his forests, make them into sleepers, and sell them to various railways. The Maharaja received a royalty for this permission. The Sales Tax authorities sought to assess the Maharaja to sales tax on the ground that he was a 'dealer' carrying on the business of selling goods in Orissa. The Maharaja disputed his liability to taxation and the matter was referred to the Orissa High Court for its opinion.
Finding of the Court:
The Orissa High Court held that the Maharaja was not a 'dealer' carrying on the business of selling goods in Orissa as defined in Clause (c) of Section 2, Orissa Sales Tax Act, 1947. The Court found that the Maharaja did not purchase the sleepers from some other person nor did he manufacture them himself or through his agent. The Court also held that the royalty payable under the agreement constituted 'income' and not 'sale price' of the goods sold.
Issues: 1. Whether the Maharaja of Jeypore is a 'dealer' under Clause (c) of Section 2, Orissa Sales Tax Act? 2. Whether the transactions evidenced by the agreement amount to a sale of goods? 3. Whether the royalty payable under the agreement constitutes 'rent' or 'price'? 4. Whether the trees and forest produce is movable property coming under the definition of 'goods' under the Orissa Sales Tax Act or is immovable property?
Ratio Decidendi: 1. The definition of 'dealer' in Clause (c) of Section 2, Orissa Sales Tax Act, 1947, requires the person to be carrying on the business of selling goods in Orissa. The Court found that the Maharaja did not purchase the sleepers from some other person nor did he manufacture them himself or through his agent. Therefore, he was not carrying on the business of selling goods. 2. The Court held that the transactions evidenced by the agreement did not amount to a sale of goods because the Maharaja did not sell the standing trees to the contractor. The contractor was only granted the right and privilege of felling Sal trees and extracting sleepers therefrom. The property in the sleepers so extracted was conveyed to the contractor and a proportionate amount of the sale price was paid as royalty for the permission granted for such extraction. 3. The Court held that the royalty payable under the agreement constituted 'income' and not 'sale price' of the goods sold. The Court relied on the decision in Kamakshya Narain Singh v. Commr. of Income-tax, B. and O., AIR 1943 PC 153, where the Privy Council held that royalties derived from working a coal mine are income and not capital.
Final Decision: The Court answered the questions referred to it as follows: 1. The Maharaja of Jeypore is not a dealer under Clause (c) of Section 2, Orissa Sales Tax Act. 2. The royalty payable under the agreement constitutes 'income' and not 'sale price' of the goods sold. Questions (3) and (4) referred to the Court did not call for decision and the Court offered no opinion on them.
PANIGRAHI, C. J.
( 1 ) THIS application comes before us on a reference made by, the Revenue commissioner under Section 24, Orissa Sales Tax Act (Act 14 of 1947 ). The questions referred to us for opinion are the following:
" (1) Whether the Maharaja of Jeypore in leasing out the right 'to cut and remove timber and collect forest produce is a 'dealer' under Clause (c) of section 2, Orissa Sales Tax Act? (2) Whether the transactions evidenced by leases, a copy of which is oh record, of the right to cut and remove timber and collect forest produce, amount in law to lease of immovable property? (3) Whether the royalty and seigniorage payable under the lease constitute 'rent' or 'price'? (4) Whether the trees and forest produce is moveable property coming under the definition of 'goods' under the Orissa Sales Tax Act or is immovable property?"
( 2 ) THE Maharaja of Jeyppre owns extensive forest areas and gets a large income from forest produce. He keeps a depot where timber and other forest produce are sold, and this business is run by the Chief Forest Officer of the Jeypore samasthanam. The officer holds a Dealer's Registration Certificate, No. KO--434 and pays sales tax under the Act. In addition he has also entered into certain contracts with businessmen for the extraction and manufacture of Railway sleepers. He was called upon to get himself registered as a dealer by the Sales Tax authorities in respect of these contracts entered into by the Samasthanam with sleeper contractors. The Chief Forest Officer disputed his liability to taxation in respect of these transactions and, under protest, took out a Registration Certificate No. KO--960. For the assessment quarter ending 31-12-19. 47 he has been taxed on a taxable turnover of Rs. 30,584-8-3, and for the quarter ending 31-3-1948, his gross turnover has been determined by the Department at Rs. 2,492,22-6-5 and the proportionate taxable turnover has been determined by the Department as amounting to Rs. 2,44,257-8-0. The petitioner went up in appeal to the Cot-lector and thereafter in revision to the revenue Commissioner, but without success. The Revenue Commissioner has made the above reference to this Court, as the points of law involved are of far-reaching not only to the petitioner, but also to the Sales Tax authorities themselves.
( 3 ) THE liability of the petitioner depends upon the true construction to be put on the contracts entered into with the numerous, sleeper contractors permitting the latter to use his forest and timber for extracting and manufacturing sleepers. A copy of one such agreement entered into by the Maharaja with Messrs. Dear and co. , Ltd. , is on the record and it would be necessary to set out a few of the important clauses of the agreement for a better appreciation of the nature of the transactions.
( 4 ) THE agreement purports to be an agreement "for extraction and sale of Sal wood from the Kotpad, Umarkote and Nowrangpur range forests. " Clause 1 states that for and in consideration of sums of money to be paid by the Company in the manner and at the times and rates hereinafter specified and subject to the terms and conditions hereinafter appearing, the Maharaja agrees to sell, and the company agrees to buy, all the Sal trees for the manufacture of sleepers and scantlings which may be marked by the Forest Department for felling in the reserved, protected and unreserved lands of the Umerkote, Nowrangpur and part of Kotpad ranges, marked out as the leased areas. Clause 2 says that the Company shall have the right and liberty within the said area to fell all Sal trees so marked as aforesaid, and convert the same into sleepers in the leased area and to export the timber so converted therefrom during a period of six years. The clause contains a provision for renewal, for a further period of five years. A further stipulation contained therein is to the effect that only the sleepers and scantlings referred to in Clause 5 extracted from Sal trees and passed
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