STATE OF MADRAS Vs. M/S.K.C.P. LTD.

 
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New Delhi: JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 731 of 1966. 779 Appeal by special leave from the judgment and order dated October 22, 1964 of the Madras High Court in Tax Case No. 197 of 1963 (Revision No. 126). A.K. Sen and A.V. Rangam, for the appellant.S.T. Desai and T.A. Ramachandran, for the respondent.The Judgment of the Court was delivered by Grover, J. This is an appeal by special leave in which the sole question for decision is whether the respondent company was liable to pay sales tax on an amount of Rs. 4,20,000 being the sale-price of two arc furnaces which 'had been purchased in 1952 and sold in 1958. The respondent company carried on business at 38, Mount ROad, Madras. its main business 'being the. manufacture and sale of machinery and parts of machinery. ,and accessories.For manufacturing parts of the machinery, the company maintained a foundry and in 1952 it purchased two arc furnaces for a sum of Rs. 2,13,512.81 for the purpose of using the same in its foundry. In the account books and the balance sheet of the company these furnaces were shown under the heading "workshop equipment". According to the company.the furnaces were found to be unsuitable for the purpose for which they had been purchased and therefore they were disposed of in 1958 to a purchaser in Calcutta for a sum of Rs. 4,20,000. For the assessment year 1958-59 the assessing authorities sought to include the amount of Rs. 4,20,000 in the turnover of the company although it was maintained by the company that the sale represented an isolated sale of its fixed capital assets. The appeal before the Sales Tax Appellate Tribunal, Madras, also failed. The view of the tribunal may be stated in its own words :'- "It is not denied that the appellant comes within the scope of the definition of "dealer". It has to be seen whether the sale of the two arc' furnaces had a reasonable connection with the normal course of business of the assessee. The fact that the appellant could, not use them or that they are surplus machinery cannot take it out of the ambit of the appellant's business of sales of machinery or part of machinery.. The necessity to dispose of unwanted machinery is ingrained in the very nature of business of sale of machinery which the assessee was carrying on and it had to effect sales of such surplus materials". A revision petition was presented to the High Court of Madras under s. 38 of the Madras General Sales Tax Act (Act 1 of 1959) read with s. 9(3) of the Central Sale Tax Act, 1956 (Act LXXIV of 1956), hereinafter called the Madras Act and the Central Act 780 respectively. 'Before the High Court it was argued on behalf of the assessee that the furnaces were purchased for the purpose of being installed in the factory. It was therefore to be used as capital asset and not as a part of the stock- in-trade. At the time of purchase the assessee had no idea of selling...

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