The Hindu Business Line : It is not best that we should all think alike

WHEN Bombay thought of a motorbus service in the early 20th century, there were two main objections: One, the service would be expensive; and two, the accident rate would go up. "Even in a city like London, with the orderly ways of its pedestrians and its vehicular traffic, the accident rate for buses is comparatively very high. It would be much higher in Mumbai," was how detractors argued, as one learns from www.bestundertaking.com about a slice of BEST history.

Once the buses started plying, there were protests from `Victoria-drivers and taxi-drivers', who petitioned the Commissioner of Police asking for protection against this fresh encroachment into their field of activity. "They complained that the cheap bus fares and the proximity of the bus stops to the taxi stands were depriving them of their income, and argued that the spread of the bus service to all the parts of the city would ruin the taxi trade, and also vest in the Tramway Company the practical monopoly on vehicular communication in the city."

Like the tram, the Mumbai bus established several `firsts', notes the site. "For the first time in the country, the city had a bus running on diesel oil, a double-decker bus and an eight-foot wide bus. In the early days, the bus fare used to be from two annas to six annas. There were no half fares for children till 1928. For some time return tickets used to be issued." Another interesting feature was that between 1928 and 1930, each bus carried a letterbox to provide postal service to the passengers!

Thus, buses of BEST, or Brihan Mumbai Electric Supply & Transport Undertaking, the great granny of Mumbai, used to glide past and nobody asked: "Who are you? What's your name? What do you do?" Except, perhaps, the taxman, who towed the bus company to the High Court to resolve some equally fundamental questions: Is BEST a `dealer' under Section 2(11) of the Bombay Sales Tax Act, 1959? Is BEST carrying on `business' as per Section 2(5A)? Was there no profit-motive in BEST's activity?

Scrap scrape

BEST argued that it was not a `dealer' as far as its activity of providing transport facilities to the public was concerned. It had, however, registered as a `dealer' for the purpose of the activity of generation and distribution of electricity. Under the provisions of the Bombay Municipal Corporation Act, the undertaking was bound to provide transport facilities to the people within the municipal limits of Greater Bombay, said BEST, arguing that it was not a profit-making activity. It purchased buses and other vehicles; and after certain number of years, when the buses became unserviceable, they were disposed of as scrap, said BEST.

"Neither the activity of providing transport services nor the sale of scrap arising out of that activity is undertaken for profit-motive which was necessary at the relevant time to make an activity a business. Therefore, such sale of the scrap of unserviceable vehicles and other materials does not constitute a business," contended BEST.

But the taxman argued that the profit-motive was irrelevant, and that for the sale of scrap, BEST had to be treated as a dealer and assessed to sales tax. The Department also `vehemently contended' that BEST had `voluntarily registered itself as a `dealer'' and was, therefore, liable to assessment for sales tax for all the activities, including transport and disposal of unserviceable and scrap material.

Precedents cited

BEST placed reliance on an apex court decision, Government Medical Store Depot vs State of Haryana, that the medical depots were not `dealers' because there was no profit-motive as contemplated in the Sales Tax Act applicable to them. Another case BEST relied on was Commissioner of Income-tax vs Andhra Pradesh State Road Transport Corporation, where the apex court held that the activity does not give rise to the profit-motive.

BEST betted on the apex court's observations in the State of Gujarat vs Raipur Manufacturing Co Ltd — that whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit-motive.

"An attempt to realise price by sale of surplus unserviceable or discarded goods does not necessarily lead to an inference that business is intended to be carried on in those goods, and the fact that unserviceable goods are sold and not stored so that badly needed space is available for the business of the assessee also does not lead to the inference that `business' is intended to be carried on in selling those goods," the court had said then.

The taxman, on his part, referred to the Member, Board of Revenue, West Bengal vs Controller of Stores, Eastern Railways case, to support the contention that the transport activity and sale of unclaimed goods, and unserviceable material and scrap amounted to business and was liable to be taxed under the Sales Tax Act. However, there, the Railways was carrying on commercial activity of transportation of goods for profit, reasoned the court, to differentiate with the case on hand, where BEST was not engaged in any transportation of goods.

The Department cited the Himachal Pradesh Road Transport Corporation vs. Assessing Authority, Simla case, where it was held that "sales of old spares and vehicles, which were unserviceable for State Road Transport Corporation but were useful to others amounted to business".

Profit or not

Justices S. Radhakrishnan and J. H. Bhatia studied the definition of `business' in the Sales Tax Act thus: Business includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern and any transaction in connection with, or incidental or ancillary to, the commencement or closure of such trade, commerce, manufacture, adventure or concern.

The judges pointed out that the clause about profit was inserted in the original definition of `business' by way of a 1985 amendment. Before August 16, 1985, however, the profit-motive was relevant and necessary for carrying on business, observed the court. And the dispute pertained to the returns for the period from April 1, 1983 to March 31, 1984.

The explanation to `dealer' has omitted `transport', said the court. "The applicant which is providing transport facilities to the people in the city without profit-motive cannot be discriminated against when the private transport companies are given the benefit of provisions of law discussed above. It could not be even the intention of the Legislature," said the court.

"The applicant is not actually carrying on business of purchase and sale of vehicles or the new spare parts for providing transport facilities to the people within the city. It has to operate a fleet of buses and, for that purpose, it has to purchase spare parts, tyres, tubes and other materials necessary for maintenance of the buses. With the lapse of time, certain parts and vehicles become unserviceable and they have to dispose of the old and unserviceable buses about 10-15 years after purchase of the same. Therefore, it cannot be stated that the sale of such unserviceable vehicles, spares and other scrap materials is carried on with such frequency, continuity and regularity that it should amount to carrying on of a business in such material," reads the text of the judgment.

The court noted that BEST has to operate buses even where it may be making losses; and that the bus fare is also controlled so that travel is affordable to the common people of the city.

Thus, BEST was not carrying on business qua its transport activities during the relevant period, and was not a `dealer' within the meaning of Section 2(11) of the Bombay Sales Tax Act, ruled the court, putting some cheer back into the transport undertaking.

I'm sure the granny isn't annoyed with the Department, because, as Mark Twain said, "It is not best that we should all think alike; it is a difference of opinion that makes horse races." And tax cases, too.

Tailpiece

"As if to compound my problem with flood waters... "

"All your records got washed out?"

"No, only the number 2 accounts!"

Detaxification@TheHindu.co.in

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