Commissioner Of Income v. Udaipur Shahkari Tax Undiapur. Upbhokta Thok Bhandar Ltd. Udaipur

Reportable IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANAT JODHPUR J U D G M E N T Commissioner of Income Vs. Udaipur Shahkari Tax Undiapur. Upbhokta Thok Bhandar Ltd. Udaipur. D.B. INCOME TAX APPEAL NO.45/2002 D.B. INCOME TAX APPEAL NO.46/2002D.B. INCOME TAX APPEAL NO.49/2002D.B. INCOME TAX APPEAL NO.50/2002D.B. INCOME TAX APPEAL NO.51/2002D.B. INCOME TAX APPEAL NO.53/2002against the order dated 17.9.2001 passed in ITA Nos. 937/JP/97 , 936/JP/97, 935/JP/97 , 131/JU/99,-480/JP/95 & 132/JU/99 for assessment year 199192 to-19951996 :2[nd] November 2006 Date of Judgment PRESENT HON'BLE MR. JUSTICE RAJESH BALIAHON'BLE MR. JUSTICE GOPAL KRISHAN VYAS Mr. K.K.Bissa, for the appellant. Mr. N.M.Ranka)Mr.R.K.Yadav)Mr.Sanjeev Johri), for the respondents. ------ -'BY THE COURT: (PER HONBLE RAJESH BALIA J.) In all these appeals relating to differentassessment years from 1991-1992 to 1996-97, the following common question has been raised. Since thematter has been decided by the Tribunal by commonorder, all the appeals are decided by this commonorder. “Whether on the facts & in thecircumstances of the case the tribunal wasjustified in holding that the assesee Societyis entitled to deductions u/s 80P (2) (e) ofthe Income Tax Act in respect of the incomederived from Commission/margin withoutletting out godown of warehouse contraryto the income derived from letting ofgodown or warehouse and such incomebeing deductible u/s 80P (2) (e) of the act?” The respondent – assesseeis an Co-operative Society and engaged in running a ConsumerCo-operative Store and having 30 branches in the cityof Udaipur itself. It is dealing in non-controlledcommodities as well as in controlled commodities. Inthe present case, we are concerned with amountincluded in the computation of taxable income arisingfrom commission earned by the Assessee Society aswholesale dealer of the controlled commodities viz.wheat, rice and sugar. The commodities in questionswere declared as essential commodities and becamepart of regulated trade through public distributionsystem in terms of Orders issued by Appropriate Govt. under Essential Commodities Act. The assessee has its own godowns as wellas hired godowns for the purpose of his businessincluding dealing in the essential commodities. Thefood grains Wheat and Rice are included in Schedule Iof the Rajasthan Food Grains and Other EssentialArticles (Regulation of Distribution) Order, 1976 andother commodity viz 'Sugar' is also included inSchedule II of the said order. The assessee held the licence of'authorized wholesaler' under the provisions of theaforesaid Order of 1976. In respect of the essentialcommodities in question the price at which thecommodity concern was to be made available toconsumer was fixed by the competent authority underthe provisions of the Order 1976 and such priceincluded commission to be charged by an authorisedwholesale dealer as part of consideration at which hewere to sell such commodities to retail authorised dealerat fair price shop. The assessee held the licence of'authorized wholesaler' under the provisions of theaforesaid Order of 1976. In respect of the essentialcommodities in question the price at which thecommodity concern was to be made available toconsumer was fixed by the competent authority underthe provisions of the Order 1976 and such priceincluded commission to be charged by an authorisedwholesale dealer as part of consideration at which hewere to sell such commodities to retail authorised dealerat fair price shop. The present dispute had arisen out of thiscommission retained by the Assessee CooperativeSociety in respect of essential commodity viz wheat,rice & sugar sold by it to the retailers. There is nodispute that the commodities were to be supplied bythe Food Corporation of India to the respondents-assessee. He was to pay the price of the essentialcommodities received by him and he was entitled toearn profit at fixed rate as part of the price at which hewas required to sell the said commodities to the retailer,as per directions of the Govt. Apparently, since thegoods were received as essential commodities by theassessee, it was to be stored in the godown until thesame was transported to the retailer on the basis of theauthorisation issued by the competent authority. Thesupply was to be distributed ultimately as an essentialcommodity in a particular area during the particularperiod through Authorised retailer as fair priceshopkeeper. Initially, the assessee has claimed thecommission, part of the price fixation, to be retained byhim as its income arising from business of sale andpurchase of the commodities. However, subsequently the revised return was filed claiming that entire amountof the commission received by the assessee asexempted under Section 80P (2)(e) of the Income TaxAct, 1961 as income arising from leasing outgodowns. It was claimed that the assessee was onlyacting as agent of the State Government for storing theessential commodities for facilitating the publicdistribution of such commodities by the StateGovernment and commission was paid to the assesseeonly for the purpose of storage of the essentialcommodities at its godowns. The receiving of essentialcommodities was on the payment of price and itstransportation to retailer in consideration of the pricethereof was only an incidental service rendered by theassessee for facilitating the marketing, processing anddistribution of essential commodities for the public.Therefore, the entire commission must be consideredas income of society from letting out godowns orwarehouses for the purpose of storage of essentialcommodities in question for facilitating the publicdistribution of such essential commodities by the StateGovernment. Buttressing the contention, it was urged onbehalf of the assessee that stocks of the essentialcommodities which were supplied to the Assessee bythe Food Corporation of India was only as its agent forcarrying it to the public distribution system hadremained throughout the property of the FoodCorporation of India/State and whatever was allowedto be retained by the assessee was only for the purposeof storing of such essential commodities duringtransition period and providing incidental services oftransportation to retailer for its distribution to theconsumer at the fixed price as determined from time totime by the competent authority under the Order of 1976and other relevant orders. In support of this contention,reliance was placed on the decision of Bombay HighCourt in ( Commissioner of Income-Tax Vs. BhandaraZilla Sahakari Kharedi Vikri Sangh LTD.) 212 ITR 124and the decision of Apex Court in CIT Vs. South ArcotDistrict Cooperative Marketing Society case (1989) 176ITR 117. The Assessing Officer had not acceptedthe contention and rejected the claim of the assesseeto deduction under Section 80P(2)(e). However, the The Assessing Officer had not acceptedthe contention and rejected the claim of the assesseeto deduction under Section 80P(2)(e). However, the contention urged by learned counsel for the assesseehad been accepted by the CIT(A) and tribunal. Hencethese appeals are preferred by Revenue. The learned counsel for Revenue hascontended that godowns/warehouses owned or hiredby the assessee for storing of the goods were as apart of its business of selling and purchasing of thecommodities both essential and non-essential. He wasnot a mere storing agent on behalf of the StateGovernment for the essential commodities but was dulyauthorised licence holder for the essential commoditiesas a wholesale dealer, albeit the area of its freedom inthe matter of carrying on business was circumscribedby the statutory Orders issued in respect of EssentialCommodities under the Essential Commodities Act byappropriate authorities. The exemption/deduction underSection 80P (2)(e) is not available to any cooperativesociety in all spheres of activity which may be using thegodowns as a part of its own regular business activity.The deduction under Section 80P (2)(e) is availableonly in respect of such income derived from the use ofthe godwons leased out for the purpose of facilitatingthe business which is anterior to actual trading. Since the assessee was having licence for dealing inEssential Commodities so declared under the Order of1976 as a wholesaler and was receiving supplies of theessential commodities as a part of its wholesale trade,he having obtained the licence/authorisation of thewholesaler on his own volition, he was required to tradeas per the terms and conditions imposed under thelicence and after he received the essential commoditiesfrom Food Corporation of India and other agencies onpayment of price fixed for such supplies he was to sellcommodities to other authorised retailer/Fair Priceshopkeeper at a price fixed for such sale by the StateGovernment or other competent authority authorised inthis behalf. In such event difference in price paid onsupplies and price received on sale to retailer couldproperly be gross profit of such transaction andnothing else. In this connection, storage of theessential commodities by the assessee from the date ofreceipt of supplies to date of disposal was not as arecipient of the commodities for the storage on behalf ofState but as a part of its own stock in trade. Merelybecause the stock in trade is in storage at a godown,which is integral feature of any trading activity in thecommodities, the assessee cannot be said to be rendering services of leasing out godown/warehousesfor storing of essential commodities and receivingconsideration for leasing one godown on rent or for usefor incidental activities. That being the case, the nature of income embedded in the price at which assessee wasrequired to sell the essential commodities to the retailerwas not a remuneration received from the lessee foruse of godown for the purpose of storing and facilitatingmarketing of that commodities. Learned counsel for the appellant placesreliance on the decision of Karnataka High Court inUdupi Taluk Agricultrual Produce Co-operativeMarketing Society Ltd. Vs. CIT 1987)166 ITR 365: In that case the tribunal recorded its findingthat no income was earned by the assessee from lettingout the godowns or warehouses for the purposes ofstorage, processing or facilitating the marketing ofcommodities. It is in the aforesaid backdrop, the HighCourt came to the conclusion that Section 80P(2)(e) was not attracted and observed that the tribunal incoming to these conclusions had noticed the decisionof Madras High Court in South District CorporativeMarketing Society Ltd. (1973) 92 ITR 371 later onaffirmed by Supreme Court and said:- Learned counsel for the appellant placesreliance on the decision of Karnataka High Court inUdupi Taluk Agricultrual Produce Co-operativeMarketing Society Ltd. Vs. CIT 1987)166 ITR 365: In that case the tribunal recorded its findingthat no income was earned by the assessee from lettingout the godowns or warehouses for the purposes ofstorage, processing or facilitating the marketing ofcommodities. It is in the aforesaid backdrop, the HighCourt came to the conclusion that Section 80P(2)(e) was not attracted and observed that the tribunal incoming to these conclusions had noticed the decisionof Madras High Court in South District CorporativeMarketing Society Ltd. (1973) 92 ITR 371 later onaffirmed by Supreme Court and said:- “This is a liberal construction of clause (e).But, nonetheless, it seems to us that theincome derived by the cooperative societyfor the purpose of exemption under clause(e) must be relatable to the letting out orthe use of its godowns or warehouses. Anyincome derived by the societyunconnected with such letting out or use ofthe godowns or warehouses will not fallunder clause (e).” It will be apposite here to notice Section80P(2) which reads as under:- (2)The sums referred to in sub-section(1) shall be the following namely:- (a) in the case of a co-operative society engagedin-in- (i) carrying on the business of banking orproviding credit facilities to its members, orproviding credit facilities to its members, or (ii) a cottage industry, or [(iii) the marketing of agricultural produce grownby its members, or] (iv) the purchase of agricultural implements,seeds, livestock or other articles intended foragriculture for the purpose of supplying them toits members, or (v) the processing, without the aid of power, ofthe agricultural produce of its members,[or] [(vi) the collective disposal of the labour of itsmembers, or (vii) fishing or allied activities, that is to say, thecatching, curing, processing, preserving, storingor marketing of fish or the purchase of materialsand equipment in connection therewith for thepurpose of supplying them to its members,]the whole of the amount of profits and gains ofbusiness attributable to any one or more of suchactivities : [Provided that in the case of a co-operativesociety falling under sub-clause (vi), or sub-clause (vii),the rules and bye-laws of the society restrict the votingrights to the following classes of its members, namely:- (1)the individuals who contribute their labour or, asthe case may be, carry on the fishing or alliedactivities;the case may be, carry on the fishing or alliedactivities; (2)the co-operative credit societies which providefinancial assistance to the society;financial assistance to the society; (3)the State Government;] [(b) in the case of co-operative society, being aprimary society engaged in supplying milk, oilseeds,fruits or vegetables raised or grown by its members to- (i) a federal co-operative society, being a societyengaged in the business of supplying milk,oilseeds, fruits, or vegetables, as the case maybe; orengaged in the business of supplying milk,oilseeds, fruits, or vegetables, as the case maybe; or (ii)the Government or a local authority; or (iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or acorporation established by or under a Central,State or Provincial Act (being a company orcorporation engaged in supplying milk, oilseeds,fruits or vegetables, as the case may be, to thepublic), the whole of the amount of profits and gains ofsuch business;] (c) in the case of a co-operative society engagedin activities other than those specified in clause(a) or clause (b) (either independently of, or inaddition to, all or any of the activities sospecified), so much of its profits and gainsattributable to such activities as [ does notexceed,- (ii)the Government or a local authority; or (iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or acorporation established by or under a Central,State or Provincial Act (being a company orcorporation engaged in supplying milk, oilseeds,fruits or vegetables, as the case may be, to thepublic), the whole of the amount of profits and gains ofsuch business;] (c) in the case of a co-operative society engagedin activities other than those specified in clause(a) or clause (b) (either independently of, or inaddition to, all or any of the activities sospecified), so much of its profits and gainsattributable to such activities as [ does notexceed,- (i) where such co-operative society is aconsumers' co-operative society, [one hundred]thousand rupees; and (ii) in any other case, [fifty] thousand rupees. (d) in respect of any income by way of interest ordividends derived by the co-operative societyfrom its investments with any other co-operativesociety, the whole of such income; (e) in respect of any income derived by the co-operative society from the letting of godowns orwarehouses for storage, processing or facilitatingthe marketing of commodities, the whole of suchincome; (f) in the case of a co-operative society, notbeing a housing society or an urban consumers'society or a society carrying on transportbusiness or a society engaged in theperformance of any manufacturing operationswith the aid of power, where the gross totalincome does not exceed twenty thousandrupees, the amount of any income by way ofinterest on securities [..........] or any incomefrom house property chargeable under section22. From the perusal of the aforesaid provisionit is apparent that while the cooperative society hasbeen treated by the Act of 1961 as an assessee forextending certain concession in computing taxableincome but at the same time, it has not exempted theincome of cooperative society in its entirety. It hasclassified the cooperative societies on the basis ofvarious activities carried out by the cooperativesocieties. The cooperative society which is a consumercooperative society has been treated differently thanother types of cooperative society namely thecooperative society engaged in business of banking orproviding facilities for industrial or marketing, in thematter of grant of tax exemption or benefit ofdeduction in respect of its income from differentsources. In the case of consumer cooperativesociety engaged in activities other than the cooperativesociety prescribed under clause (a) or (b )of SubSection (2), the entire income has not been exemptedbut only the minimum limit of taxable income has beenmade higher than other assessees under the Act. A consumer cooperative society is entitledto get deduction of 1,00,000/- out right from its totalincome from whatever source to the extent theconsumer cooperative society has a taxable income upto 2,00,000/-. The income earned by it vary accordingto its business as a consumer cooperative society. Theincome of other cooperative societies, which do not fallwithin the purview of Sub Clause (a) and (b) of SubSection 2 of Section 80 (2)(P) becomes taxable. Thelimit during the relevant period up to which anycooperative society would not become taxable wasRs.20,000/- and thereafter it has been enhanced to Rs.1,00,000/-. It is significant to notice Explanation toClause (e) of Sub Section (2) of 80(P), which defines,the Consumer cooperative society. While clauses (a)(b) & (c) deal with the case of the cooperative societyfor the purpose of granting certain tax exemption inrespect of the total income, Clauses (d) (e) and (f) ofSub Section 80P(2) deal with the types of incomeearned by such cooperative society to be deducted fromits total income for the purpose of computing its It is significant to notice Explanation toClause (e) of Sub Section (2) of 80(P), which defines,the Consumer cooperative society. While clauses (a)(b) & (c) deal with the case of the cooperative societyfor the purpose of granting certain tax exemption inrespect of the total income, Clauses (d) (e) and (f) ofSub Section 80P(2) deal with the types of incomeearned by such cooperative society to be deducted fromits total income for the purpose of computing its taxable income. Clause (d) deals with income derivedby way of interest and Clause (e) deals with incomederived by the cooperative society from letting out thegodowns or warehouses and clause (f) deals with theincome earned as interest on securities or incomefrom use of warehouse in respect of specificcooperative society whose gross total income comes toRs. 20,00,000/-. It is with two fold view that the issue is tobe examined. Firstly, that the assessee is a consumercooperative society and secondly, it owns godown aswell as hires godown for storing its merchandiseincluding essential commodities in which it is tradingunder an authorisation but is not a Society engaged inthe activity of the constructing warehouses for thepurpose of earning income therefrom. Despite ourquerry, the constitution and by-laws of the cooperativesociety in question was not furnished to us. However, itcan safely be inferred that earning income from leasingout warehouses is not the primary activity of theassessee society but it is only incidental to its activityof dealing in consumer articles. We may not be takento have expressed opinion that benefit of Clause (e) of sub Section 2 of Section 80P (2) is available only to thecooperative society whose object is to constructionwarehouse and then earn from storing the commoditiesfor the purpose of processing and facilitating themarketing of the commodities. For that matter any othercooperative society, if it has godown or warehouse at itsdisposal owned or hired, and earns any income byleasing out and allowing its use for storage ofprocessing or commodities for facilitating the marketingof such commodities, income derived from suchactivities by such cooperative society will also be fallingwithin the ambit Clause (e) of Section 80P (2). Clause(e) of Section 80P (2) in that sense is generic in itsapplication to where nature of income derived by it canbe considered from letting out or from use of suchgodown or warehouse for facilitating the marketing ofcommodities. Therefore, the core question would bewhether the assessee was storing the commodities inquestion in his godown or warehouse for the purposeof storage, processing and facilitating marketing ofsuch commodities or was using his godown for thepurpose of its own business of trading for holding We are of the opinion that storing ofcommodities by a trader or for that matter theconsumer cooperative society of its 'stock in trade'during the course of carrying of its business of tradingdoes not fall within the ambit of the scheme of Clause(e) of Section 80P (2). If that were so the separateprovision would have been redundant and the entireincome of the Consumer Cooperative Society wouldhave been deductible. Without keeping stocks, wherever stored,the trading activity by a trader cannot be conceived.Use of different phraseology for facilitating themarketing of commodities under Clause (e) can onlymean storage of the commodities either for thepurpose of processing of the commodities storedtherein making them marketable or for providing suchother services before its marketing. But where anycommodity is stored there only as traders 'stock intrade', whether in godowns or warehouse owned by it orat such premises hired by it, It cannot be considered asactivity of storage for facilitating and marketing. In other Without keeping stocks, wherever stored,the trading activity by a trader cannot be conceived.Use of different phraseology for facilitating themarketing of commodities under Clause (e) can onlymean storage of the commodities either for thepurpose of processing of the commodities storedtherein making them marketable or for providing suchother services before its marketing. But where anycommodity is stored there only as traders 'stock intrade', whether in godowns or warehouse owned by it orat such premises hired by it, It cannot be considered asactivity of storage for facilitating and marketing. In other words, the activity for which remuneration is charged byassessee cooperative society for use of thewarehouses and godown is for the user, which mustrelate to a period anterior to its coming to marketablestage. Wholesaler as well as retailer both are tradersengaged in sale and purchase of the commodities inwhich they trade. Taking any other view will mean that everywholesaler who passes on commodities to a retailer,before the commodities reach end consumer, will onlybe treated as provider of service for facilitatingmarketing. In other words except the end stage sellerall middleman will be considered as storing commoditiesonly for the purpose of facilitating marketing ofcommodities. That will be subverting the very objectand purpose of the provision itself. 'Marketing' cannotbe confined only to the end stage trading activity of saleby retailer and purchase by end consumer. To answer the question whether assesseewas only storing the essential commodities in questionat his godown on behalf of the State before it ismarketed for a temporary period and the commission of the wholesaler would be charged in the ultimate priceto be charged from the consumer is only for thepurpose of providing storage facilities by the assesseeto the Government or other authority entrusted with thetask of providing essential commodities or was actuallyholding the commodities as part of its trading stockalbeit then under regulatory provision, the Order of1976 promulgated for declaring and regulating trade incommodities as essential commodities and the termsand conditions of the licence issued thereunder needsattention. The key factor on which emphasis was laidby the assessee before us is that the cooperativesociety was only authorised to store the commoditieson behalf of the State Government and it had no morerole to play. This contention has been accepted bythe tribunal by referring to the terms of the agreement.However no separate agreement in respect of differentcommodities has been placed before us despite the factthat we directed during the course of hearing of appealsto the revenue as well as the assessee to place onrecord the documents on the basis of which thetribunal has reached the conclusion and read the terms of agreement. The copy of the wholesale authorizationplaced before us shows that it was in terms with FormB appended to the Order of the 1976 containing termsand conditions under which the authorization is madefor acting as a wholesaler in respect of the essentialcommodities mentioned in the licence. In these circumstances, one must examinethe scheme of the Order under which such licenceauthorisation was issued, the Essential CommoditiesAct under which the Orders are issued and differentconsequences that follow depending upon prevalentrules in the State at the relevant time in respect of thecommodities in question. The preface of the Order of 1976 says that“this is necessary so to do for maintaining supplies ofthe foodgrains in essential commodities and securingits equitable distribution and availability of fair priceshops. With this aim in view, if we look at sub In these circumstances, one must examinethe scheme of the Order under which such licenceauthorisation was issued, the Essential CommoditiesAct under which the Orders are issued and differentconsequences that follow depending upon prevalentrules in the State at the relevant time in respect of thecommodities in question. The preface of the Order of 1976 says that“this is necessary so to do for maintaining supplies ofthe foodgrains in essential commodities and securingits equitable distribution and availability of fair priceshops. With this aim in view, if we look at sub clause [c] of clause 2 of the Order defining 'AuthorizedFair Price Shop keeper' it means a retail dealer, inchange of a shop, authorized under Clause 3 and itincludes a person in charge of the shop wherefoodgrains and other essential articles are sold underthe control of the State Government. This definitionshows that the distribution of Essential Commoditiesmay be directly by the State Government through ashop maintained under its control or it may be donethrough a private retailer/dealer who is duly authorizedto sell such Essential Commodities under Clause 3. Similarly 'Authorized Wholesaler' isdefined in sub clause (f) of Clause 2 to mean aperson, a firm, an association of persons or a co-operative society or any other institution authorised orappointed as an agent under clause 3 of this Order bythe State Government or the Collector. Under Sub clause (b) of Clause 2“Authorization” means an authorisation issued underclause 3 of this Order. This takes us to Clause 3 of the order whichenvisages that the Collector or any other officerauthorised by the State Government may issue anauthorisation to any person being an 'authorisedwholesaler/fair price shopkeeper' to obtain andsupply foodgrains and other Essential Articles in thearea specified therein. Sub clause (2) of clause 3 significantlyemphasise that no person other than an authorisationholder shall sell any of the foodgrains or any otheressential articles supplied by the Government fordistribution under this Order or any other Order. Thusthe activity of authorised Fair Price Shop Keeper orWholesaler is not merely holding stocks on behalf of theGovernment but is of sale and purchase of essentialcommodities, if such persons are other than State/Every application for the authorisation is required to besubmitted to the Collector in Form 'A'. EveryAuthorisation issued under this Order is required to bein Form 'B'. The form 'B' under which the authorizationhas to be issued reveals the terms and conditions under which the Authorised Holder has to carry on histrade of selling such commodities. It says that no Authorization Holder shallstore Foodgrains & other essential articles at any placeother than those specified in this authorisation withoutprior permission in writing of the Collector. Noauthorisation holder shall refuse to sell Foodgrainsand other essential articles during business hourson the presentation to him of a valid permit/indent/rationcard to the extent of the amount of Foodgrains or otheressential articles due on the permit/indent/ration card.No authorization holder shall sell Foodgrains at aprice in excess of that fixed by the StateGovernment or the Collector or shall sell any otheressential articles at a price in excess of that fixedby the Central Government or the State Governmentor any authority or Officer of such Government or themanufacture, as the case may be, in that behalf. Clause (4) provides that no authorisationholder shall sell or hold in stock for sale anycommodities similar to Foodgrains and other essentialarticles except with the permission of the State Clause (4) provides that no authorisationholder shall sell or hold in stock for sale anycommodities similar to Foodgrains and other essentialarticles except with the permission of the State Government or the Collector. This is apart from otherconditions of maintenance of stock periodically so asto make control over the trade of the essentialcommodities, namely food grains or other articles,within the effective control of the State Government. The purpose for which the order was made was that there may be equitable distribution ofessential commodities, which may other wise be inshort supply, at fair price shop. It aims on controllingthe distribution of the short supply of the essentialcommodities by keeping a control on the quantity of thestocks that can be held by the individual or thewholesaler on the one hand to keep a check onhoarding and on the other hand selling commodities atall levels at a price fixed by the State Governmentcontrolling the margin of profit of middleman trading inthe essential commodities within the specific limits.The object of the order is to maintain the continuedsupply of the essential commodities in equitablemanner and to limit the profit margins in the essentialcommodities trade and vouch against creating supplyscarcity by unethical hoarding of essential commodities.However, all these conditions do not disclose any intention on the part of the legislation, primary ordelegated, to exclude the trading in essentialcommodities altogether by private business. Itemphasise on the other hand trading in essentialcommodities through the private hands by permitting amiddle man like wholesaler and retailer carrying ontrade in these commodities, limiting profit margin forboth, before the commodities reach the commonconsumer. If the stocks were to remain property ofthe State all levels, and there were to be no privatetrading, there was no purpose for bringing / limit onholding of stocks by Authorised Holders, because thecontention of assessee is to be accepted in this regardall stocks wherever lying remain property of State whichstoring too is only on behalf of State, who has no limitof holding. The regulation also exclude multi layersare of middle men. Though the trading in essentialcommodities is strenuously regulated, still is not takenout from voluntary activity of trade nor there is anywarrant to assume that trading in Essential Commodities by the private hands is excludedaltogether. The fact is that while definition of AuthorisedFair Price Shopkeeper as well as Authorised wholesaleremphasise a private dealer both as retailer andwholesale to be essential chain in regulating trade inEssential Commodities. Frequent and independent use of expression 'Sale of the essential commodities by theAuthorisation Holder'- whether as authorised wholesaleror authorised Fair Price Shopkeeper further goes toshow that authorisation holders are to indulge in saleand purchase of the Essential Commodities and arenot merely acting as agent of the State Government orthey are subordinate to the State Government in allrespects. The provisions of the order no where revealsthat when essential commodities are supplied to thewholesaler, the property in them does not pass on tothe wholesaler and it remains with the Stategovernment, notwithstanding regulatory control by theState the property in the goods passes to theauthorised wholesaler. The constituents that goes infixation of the price also goes to show that when thegoods go out of the godowns of Food Corporation of India, the price includes the issue price plus octroipaid thereon and significantly it also includes 'thesales tax chargeable on such issue price' andsurcharge on sales tax. This also shows that itenvisages passing of property in the commodity fromFood Corporation of India to Authorised Holder onpayment of sales consideration which is an essentialingredients of activity of sale. The passing of theproperty in the goods to the buyer is essentialingredient of sale of goods to attract sales tax. Without transaction being a sale, chargingof sales tax cannot be permitted on principleenunciated by the Supreme Court in a catena ofdecision. It is well established that before levy of salestax, it must fulfil all ingredients essential forconstituently a transaction to be a sale under the Saleof Goods Act. One of the essential ingredients of thesale is that property in goods must pass on the buyerfor consideration fixed under the agreement. Thecontention that any regulated commodity excludesthe voluntarily nature of transaction of assessee tobe considered as sale, was negatived. In this connection, we may refer to earliestdecision of Supreme Court in AIR 1954 SC 459 SalesTax Appellate Tribunal Vs. M/s BudhprakashJaiprakash which arose under the U.P. Sales Tax Act,1948. In this case the question had arisen about levyof tax by the Assessing Authority in respect of theturnover relating to forward contract. The assessee hadchallenged that the imposition of sales tax on forwardcontracts was ultra virus the powers of the StateLegislature. The UP Sales Tax Act, 1948 has beenenacted by the provincial legislature in terms of thelegislative power conferred on the ProvincialLegislature under the Government of India Act, 1935under Entry 48 in List II of the VIIth Schedule of thesaid Act. Under Sec. 2(h) of the U.P. Act, Sales wasdefined to include forward contracts. The SupremeCourt upheld the challenge by holding that the powerconferred under Entry 48 to impose tax on the sale ofgoods can be exercised only when there is a saleunder which there is a transfer of property in thegoods, and not when there is a mere agreement tosell. The State Legislature cannot, by enlarging thedefinition of 'sale' by including forward contracts arrogate to itself a power which is not conferred upon it by the Govt. of India Act, or for that matter byConstitution of India and the definition of “sale” in Sec.2(h) of the Act XV of 1948 must, to that extent, bedeclared 'ultra vires'. It was further said: “it would be proper to interpret theexpression”sale of goods” in Entry 48 in thesense in which it was used in legislationboth in England and India and to hold that itauthorises the imposition of a tax only whenthere is a completed sale involving transferof title.” The principal was reiterated in AIR 1958SC 560 State of Madras Vs. Gannon Dunkerley &Company wherein the court approved that:- “Hence it follows that to constitute avalid sale, there must be a occurrenceof the following elements viz. (i) theparties competent to contract (2) mutualassent; (3) thing of sale transfer fromseller to buyer and; (iv) a price in moneypaid or promised.” With this premise the contention about theeffect of regulatory statute on element of voluntary agreement was considered in the case of M/s VishnuAgencies Pvt. Ltd. (AIR 1978 SC 449), whereina sevenJudges Bench of the Supreme Court considered thequestion whether compulsory sale under any statute isexigible to Sales Tax. Adverting to the essentialelements of sale of goods for the purpose of levy ofSales Tax, the Court referring to settled principle thatsubject of tax is a contract of sale of goods, held thatso long as mutual consent is not totally excluded inany dealing in law it is a contract. With this premise the contention about theeffect of regulatory statute on element of voluntary agreement was considered in the case of M/s VishnuAgencies Pvt. Ltd. (AIR 1978 SC 449), whereina sevenJudges Bench of the Supreme Court considered thequestion whether compulsory sale under any statute isexigible to Sales Tax. Adverting to the essentialelements of sale of goods for the purpose of levy ofSales Tax, the Court referring to settled principle thatsubject of tax is a contract of sale of goods, held thatso long as mutual consent is not totally excluded inany dealing in law it is a contract. The court approved opinion of Hon'bleHidayatulla, J., as his lordships then was whodelivered a dissenting opinion in M/s New India SugarMills Ltd. Vs. Commissioner of Sales Tax, Bihar AIR1963 SC 1207 and quoted with approval the following: “ though it was true that consent makes acontract of sale, such consent “may beexpress or implied” and it cannot be saidthat unless the offer and acceptance arethere in an elementary form, there can beno taxable sale”. The court further saidthat the learned Judge thus summed uppithily 'so long as the parties trade underthe controls at fixed price and accept theseas any other law of the realm because theymust, the contract is at the fixed price both sides having or deemed to haveagreed to such a price. Consent under thelaw of contract need not be expressed, itcan be implied.” In AIR 1981 SC 2001 Madhya PradeshRation Vikereta Sangh Socity & Ors. State of M.P. &Ors., the contention was raised before the SupremeCourt in slightly different perspective in relation to theCooperative Societies of Madhya Pradesh. Thequestion before the Madhya Pradesh High Court waswhether the M.P.(Foodstuffs) Civil Supplies PublicDistribution Scheme, 1981, formulated by the StateGovernment under sub-clause (d) of Clause 2 of theM.P. Foodstuffs (Distribution) Control Order, 1961,introducing a new scheme for running of Governmentfair price shops by agents to be appointed under aGovernment scheme giving preference to cooperativesocieties, in replacement of the earlier scheme ofrunning such fair price shops through retail dealersappointed under Clause 3 of the Order, is violative ofArticles 14 and 19 (1) (g) of the Constitution. The courtrepelled contention on both counts. Countering the challenge under Article 14on the ground of hostile discrimination between anordinary retailer and a cooperative society for thepurpose of giving preference in the matter of grant oflicence the court said:- “There is an intelligible differentiabetween the retail dealers who are nothingbut traders and consumers' co-operativesocieties. The position would have beendifferent if there was a monopoly created infavour of the latter. The scheme onlyenvisages a rule of preference. Theformulation of the scheme does not excludethe retail traders from making anapplication for appointment as agents. Itcannot be said that the State Governmentwas not actuated with the best of intentionsin bringing about a change in the system ofdistribution of foodstuffs through fair priceshops.” Negativing the charge of impugnedprovision violating Article 19 (1) (g), the court opinedthat the scheme is also not violative of Article 19 (1) (g)of the Constitution as it in no way infringes thepetitioners' right to carry on their trade offoodgrains. They are free to carry on business aswholesale or retail dealers in foodgrains by takingout licences under the M.P. Foodgrains (Licensing) Negativing the charge of impugnedprovision violating Article 19 (1) (g), the court opinedthat the scheme is also not violative of Article 19 (1) (g)of the Constitution as it in no way infringes thepetitioners' right to carry on their trade offoodgrains. They are free to carry on business aswholesale or retail dealers in foodgrains by takingout licences under the M.P. Foodgrains (Licensing) Order 1964. There is no fundamental right in any oneto be appointed as an agent of a fair price shop undera Government Scheme. Further, the question whetherfair price shops in the State of Madhya Pradesh under aGovernment Scheme should be directly run by theGovernment through the instrumentality of consumers'co-operative societies as its agents or by retail dealersto be appointed by the Collector under Clause.3 of theControl Order, is essentially a matter of policy withwhich the Court is not concerned. However, by theexpression “co-operative societies”, and if by mistakethere was a wrong allotment made to a 'co-operativesociety' which was not a “consumers” co-operativesociety”, the Government would take steps to cancelthe allotment. In other words in respect of the essentialcommodities the order issued by M.P. FoodstuffsControl Order did not exclude the element of trading bythe authorisation issued in favour of any person underthe Control Order.” Thus the Apex Court affirmed the positionof licence holders under Food Stuff Control Order as atraders and not mere stockholder on behalf of State. A five judges bench of the Calcutta HighCourt in Ghasiram Agarwalla Vs. The State AIR 1967Cal. 568 considered the question whether the propertyin stock of wheat received by the appellant underagreement pass in him, and if so when. It alsoconsidered 'whether authorisation resulting in'Agreement of the distribution of the wheat through FairPrice Shops' had agreed to sell wheat during shop-hours to consumers within his zone at a certain retailrate fixed by the Government, makes him agent ofGovt. The wheat was delivered by the Government to the retailer on his deposit of price ofwheat at the agreed wholesale rate. At one stage, bynight-time the retailer removed some bags of wheatfrom the shop and thereafter possibly apprehensive ofadverse consequences brought them back to hisshop. The court held that retailer received wheat fromthe Government could not be regarded as an agent ofthe Government and that the property in that wheat didpass to him. Learned Chief Justice speaking for themajority held that “I am unable to agree that the legal position of a license under a Food Procurement Orderis that of a servant under Government who is themaster. Simply because the law enables certainrestrictions to be put on transactions, it does not meanthat the relationship of master and servant is createdbetween the Government and the licensee. As towhether some kind of fiduciary relationship is created,will depend on the terms of the statutory provisionunder which the license has been issued or upon theterms of agreement between the parties.” He also concluded that the transaction between the Govt. and retailer is one of sale andpurchase and is not of agency . In other words theproperty in goods passes to the