The State of Mysore Vs. S.V. Pagadi - Court Judgment

Excerpt:

- income tax act,1961[c.a.no.43/1961] -- sections 21 (1) & 31(1): [k.l. manjunath & a.s. bopanna, jj] change of sound system in a theater whether to be treated as capital expenditure or a revenue expenditure? held, it has to be seen that whether the change of sound system has increased the revenue or not. admittedly the old sound system was in existence for several years and due to use of the very same sound system for several years, the old system was worn out. if the assessee has provided certain amenities to its customers by replacing the old system with a better sound system, it cannot be said that the assessee has increased its income. instead of repairing the old stereo system, the assessee has installed the dolby stereo system. this has not benefited the assessee in any way with regard to its total income since there is no change in the seating capacity of the theatre or increase in the tariff rate of the ticket. it is a revenue expenditure and not a capital expenditure......therefore, penalty cannot be levied. this court derived support for its view from the decision of the supreme court in state of u.p. v. a. b. manufacturing co. : [1973]3scr987 4. it was argued by sri chandrakantaraj urs, the learned senior high court government advocate, that the observation in s. s. dhundushi's case ([1975] 35 s.t.c. 411 at 412; (1973) 2 mys, l.j. 445 at 446) that the provisions of section 29-a of the u.p. sales tax act, which came up before the supreme court are in pari materia with those of section 18(1) of the act is not correct. the ratio of the decision does not rest on the fact whether the two provisions are in pari materia or not. the ratio of the decision is based on the dicta of the supreme court in ashoka marketing ltd. v. state of bihar : [1970]3scr455 . an extract form the judgment in the said case was relied upon in the case of a. b. . : [1970]3scr455 : 'the state legislature may under entry 54, list ii, be competent to enact a law in respect of matters necessarily incidental to 'tax on the sale and purchase of goods'. but a provision compelling a dealer who has deliberately or erroneously recovered an amount from the purchaser on a.....

Judgment:

ORDER

Govinda Bhat, C.J.

1. This revision petition under section 23(1) of the Karnataka Sales Tax Act, 1957, preferred by the State relates to the assessment year 21st March, 1967, to 20th November, 1967, and it is directed against the order dated 22nd November, 1972, in S.T.A. No. 222 of 1972, on the file of the Mysore Sales Tax Appellate Tribunal, Bangalore.

2. The matter arises this way : The respondent is a dealer under the Karnataka Sales Tax Act, 1957, hereinafter called the 'Act'. The dealer had collected sales tax amounting to Rs. 565.80 on the sales of iron and steel rails, although he was the second dealer in the said goods. Under the Act, it is only the first or earliest of the successive dealers in the State that is liable to tax and, therefore, the dealer is admittedly not liable to tax on the said sales. However, the dealer had collected sales tax when the transactions were not exigible to tax. On the ground that the dealer had contravened section 18(1) of the Act, the commercial tax authorities levied a penalty of Rs. 565.80, which is equivalent to the amount collected by the dealer. That order was affirmed by the Deputy Commissioner of Commercial Taxes, Dharwar, but was reversed by the Tribunal following the decision of this court in Hindustan Drug House v. State of Mysore ([1970] 25 S.T.C. 182). The correctness of the said decision has been challenged in this revision petition by the State.

3. In State of Mysore v. S. S. Dhundushi ([1975] 35 S.T.C. 411 at 412; (1973) 2 Mys. L.J. 445 at 446), this court held that the amendment of section 18(1) of the Act which came into force on 1st April, 1966, has not made any difference in the position of law as laid down earlier in V. P. Patil v. Commercial Tax Officer ([1970] 25 S.T.C. 449) and, therefore, penalty cannot be levied. This court derived support for its view from the decision of the Supreme Court in State of U.P. v. A. B. Manufacturing Co. : [1973]3SCR987

4. It was argued by Sri Chandrakantaraj Urs, the learned Senior High Court Government Advocate, that the observation in S. S. Dhundushi's case ([1975] 35 S.T.C. 411 at 412; (1973) 2 Mys, L.J. 445 at 446) that the provisions of section 29-A of the U.P. Sales Tax Act, which came up before the Supreme Court are in pari materia with those of section 18(1) of the Act is not correct. The ratio of the decision does not rest on the fact whether the two provisions are in pari materia or not. The ratio of the decision is based on the dicta of the Supreme Court in Ashoka Marketing Ltd. v. State of Bihar : [1970]3SCR455 . An extract form the judgment in the said case was relied upon in the case of A. B. . : [1970]3SCR455 :

'The State Legislature may under entry 54, List II, be competent to enact a law in respect of matters necessarily incidental to 'tax on the sale and purchase of goods'. But a provision compelling a dealer who has deliberately or erroneously recovered an amount from the purchaser on a representation that he is entitled to recover it to recoup himself for payment of tax, to pay over that amount to the State cannot, in our judgment, be regarded as necessarily incidental to entry 54, List II. In effect the provision is one for levying an amount as tax which the State is incompetent to levy. A mere device cannot be permitted to defeat the provisions of the Constitution by clothing the claim in the form of a demand for depositing the money with the State which the dealer has collected, but which he was not entitled to collect.'

5. The law settled by the Supreme Court is that there cannot be a provision in any Sales Tax Act to compel a dealer who has deliberately or erroneously recovered an amount from the purchaser on a representation that he is entitled to recover or recoup himself for payment of tax to pay that amount to the State when there is not levy of tax on the sale or purchase of the goods. Therefore, the view taken by this court in Dhundushi's case ([1975] 35 S.T.C. 411 at 412; (1973) 2 Mys. L.J. 445 at 446) is right and, accordingly, the Tribunal was right in reversing the order of the authorities below and setting aside the order levying penalty.

6. Accordingly, this revision petition fails and is dismissed with costs. Advocate's fee Rs. 50.

7. Petition dismissed.