TIRUMALA VENKATESWARA TIMBER AND BAMBOO FIRM versus COMMERCIAL TAX OFFICER, RAJAHMUNDRY

Citation: [1968] 2 S.C.R. 476 · Decided: 28-11-1967 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Cited by 2 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

TIRUMALA VENKATESWARA TIMBER AND 
BAMBOO FIRM 
v. 
COMMERCIAL TAX OFFICER, RAJAHMUNDRY 
November 28. 1967 
(J. C. SHAH, V. RAMASWAMI AND V. BHARGAVA, JJ.] 
Andhra Pradesh General Sales Tax Act 6 of 1957, Explanation III to 
s. 2(1) (n)-Whetlzer ultra vires-Whether enlarges scope of 'safe' to in-
clude transactions which are not sales-Whether discriminato_r;y. 
The appellant firm carried on business in Andhra Pradesh and was 
registerecl as a dealer under the Andhra Pradesh General Sales Tax Act 
1957. 
In its return for the assessment year 1962-63 the firm 
claimed 
exemption of certain turnover on the ground that it had sent the goods to 
its commission agents and under the contract of agency the commission 
agents were empowered to pay sales-tax and had paid the same directly to 
the Sales Tax Department. When the Commercial Tax Officer sought to 
assess the appellant firm on the aforesaid turnover the appellant filed a 
writ petition in the High Court which was dismissed. 
In appeal before 
this Court by certificate it was contended : 
(i) that Expianation III to 
s. 2( 1 )(n) of the Act enlarged the scope of the word 'sale' by treating 
mere entrustment to an agent as a sale ancl therefore the Explanation was 
ultra vires; (ii) that the commission agents to whom the appellant had 
sent the goods for sale had already paid the tax and the appellant could 
not be taxed again on the same transaction as there was only one sale; 
(iii) that the Explanation was violative of Art. 14 of the Constitution as 
it made an arbitrary classification. 
HELD : (i) The real effect of the third Explanation is to impose the 
tax only when there was a transfer of title to the goods and not where 
there is a mere contract of agency. 
The Explanation says in effect that 
when there is in reality a transfer of property by the principal to the agent 
and by the agent in his turn to the buyer there are two transactions of 
sale. The phrase "when the goods are transferred'' in els. (I) and (2) of 
Explanation III on a proper construction means "when title to the goods 
is transferred" and so construecl it is impossible to say that the Explana-
tion enlarges the scope of the main section. Explanation III is not. there-
fore ultra vires. [480 B-E] 
State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. 9 S.T.C. 
353, referred to. 
(ii) As a matter of law there is a distinction between a contract of 
sale and a contract of agency by w1hich the agent is authorised to sell or 
buy on behalf of the principal and make over either the sale proceeds or 
the goods to the principal. The essence of a contract of sale is the trans-
A 
.• 
B 
c 
D 
, 
E 
F 
G 
fer of title to the goods for a price paid or promised to be paid. 
The 
• 
transferee in such a case is liable to the transferor as a debtor for the 
price to' be paid and not as agent for the proceed• of the 
sale. 
The 
essence of agency to sell is the delivery of the goods to a person who is 
H 
to sell them, not as his own propertv but as the property of the principal 
who continues to be the owner of the goods. and will therefore be liable 
to account for the sale proceeds. 
The true relationship of the parties in 
B 
c 
D 
E 
F 
G 
H 
VENKATESWARA FIRM I'. C.T.O. (IWmaswami, J.) 
477 
each case has to be gathered from the nature of the contract, its terms and 
conoitions, and the terminology used by the parties is not <ieoisive of the 
legal relationship. [ 480 G--481 Bl 
Whether the transactions in the present case were sales or contracts of 
agency 'Was a mixed question of law and fact and must be investigated 
with reference to the material which lhe appellant might be able to place 
before the appropriate authority. 
The question was not one· which could 
be properlv determined in an application under Art. 226 of the Constitu-
tion. 
[482 BJ . 
W.T. Lamb and Sons v. GorinR Brick Company, Limited (1932] K.B. 
7i0, and Hutton v. Lippert [1883] 8 A.C. 309, referred to. 
(iii) The classification contemplated by the Explanation bet\Veen sales 
through commission agents who account fully for all coJlections made and 
-;ales through commission agents \\·ho do- not account for coJlections is 
based upon an in·elJigible differentia and it has a rational relationship 
with the object sought to be achieved by the statute. It did not therefore, 
violate Art. 14. [482 C-D] 
C1v1L APPELLATE JuRISDICTIO}I : Civil Appeal No. 2176 of 
1966. 
Appeal from the judgment and order dated April 16, 1964 of 
lh

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