Govinda Menon, J.
1. The judgment which my learned brother is about to deliver, which I have, with advantage and pleasure read before-hand, deals with adequate particularity of detail the questions in issue and therefore I propose to add only a few words as regards the legal question arising in the case.
2. Though fiscal statutes resembling the Madras General Sales Tax Act of 1939, had been in vogue in at least three of the Nations constituting the British Commonwealth before the enactment of the Act in question by the Madras Legislature, and General Sales Tax Acts were in force in about 25 States of the U. S. A. as well as in various European countries, our attention has not been drawn to any provision of an enactment similar to Section 8 of the Statute which we have to interpret. Such being the case, the decision on the point should rest solely on the interpretation of the words of the section unhampered and uninfluenced by any notions of things prevalent in other countries.
3. A strict grammatical and etymological interpretation of the word ' dealer ' as denned in Section 2(b) of Act IX of 1939 would include persons like the plaintiffs in the present action even if they had merely acted as commission agents, because either as agents for buying goods on behalf of a known principal or as a selling agent on behalf of a known principal, they should be deemed to be persons who carry on the business of buying or selling goods. If such a person is a ' dealer ' then Section 3 of the Act says that subject to the provisions of the Act every dealer shall pay, in each year, a tax in accordance with the scale specified. There are also various provisos to the section with which we are not actually concerned at this stage. It is only by a later section, viz., Section 8, that an agent is excluded. Had it not been for the incorporation of Section 8, even a person who, for an agreed commission or brokerage, buys or sells goods on behalf of known principals, specified In his accounts in respect of each transaction, will be a ' dealer ' within the meaning of the Act and hence liable to be taxed. Therefore the question is how far the exemption contained in the last mentioned section absolves the present plaintiffs from liability to pay the tax in regard to the dealings mentioned in the suit. The real nature of a commission agency in relation to the dominion over goods is defined by Blackburn, J., in Ireland v. Livingston (1871) L.R. 5 H.L. 395. The discussion arose there, as a result of the question put to the Judges by Lord Chelmsford, L.G., for which the Judges responded with the answer. At page 408, Blackburn, J., observes as follows:
It is quite true that the agent who in thus executing an order, ships goods to his principal, is in contemplation of law a vendor to him. The persons who supply goods to a commission merchant sell them to him, and not to his unknown foreign correspondent, and the commission merchant has no authority to pledge the credit of his correspondent for them. There is no more privity between the person supplying the goods to the commission agent and the foreign correspondent than there is between the brickmaker who supplies bricks to a person building a house, and the owner of that house. The property in the bricks passes from the brickmaker to the builder, and when they arc built into the wall, to the owner of that wall; and just so does the property in the goods pass from the country producer to the commission merchant; and then, when the goods are shipped, from the commission merchant to his consignee. And the legal effect of the transaction between the commission merchant and the consignee, who has given him the order, is a contract of sale passing the property from the one to the other; and consequently the commission merchant is a vendor, and has the right of one as to stoppage in transitu.
Again at page 409, the learned Judge observes as follows:
My opinion is, for the reasons I have indicated, that when the order was accepted by the plaintiffs there was a contract of agency by which the plaintiffs undertook to use reasonable skill and diligence to procure the goods ordered at or below the limit given, to be followed up by a transfer of the property at the actual cost, with the addition of the commission; but that this super-added sale is not in any way inconsistent with the contract of agency existing between the parties, by virtue of which the plaintiffs were under the obligation to make reasonable exertions to procure the goods ordered as much below the limit as they could.... A commission merchant using reasonable exertions to get the goods as cheap as possible, ought to buy them in small parcels if the state of the market in the country is such that it is the reasonable way to get them. If the merchant, would get the goods cheaper by giving a wholesale order to the manufacturer, which probably would be the case in England, where Manchester goods are ordered from a London or Liverpool commission agent, he ought to give the wholesale order.
This dictum of Blackburn, J., has been considered by the Court of Appeal in Cassaboglou v. Gibb (1883) L.R. 11 Q.B.D. 797, but for the purpose of the present case it is unnecessary to deal with the criticisms or discussions either by the Master of the Rolls or by the Lord justices in that case.
4. In the three categories in which the learned District Judge has divided the buying transactions of the plaintiffs, I can find no difficulty whatever in the first of them, viz., where the plaintiffs acting as buying agents, in addition to what appears in their accounts as an agreed commission, had already paid the rusum to the person from whom they purchased the goods and collected such rusum from the principal who entrusted them with the task of purchasing goods. In the second category where only a part of the rusum collected from the buying principal had been paid over to the person from whom the commission agent purchased the goods, it may be that the transaction may not be strictly exempt by the operation of Section 8. But as the learned District Judge observes:
there is no reason to think that the difference in rusum charged to the principal did not form Part of the commission agreed upon.
With this finding it is difficult to disagree, on the evidence let in, and therefore it cannot be said that even in the second category the exemption provided for in Section 8 cannot be invoked or availed of.
5. As regards the third category, viz., instances of rusum which the plaintiffs charged to their principal even in cases where they did not have to pay rusum to the dealers from whom they bought the goods, which in this case amounted to a sum of Rs. 360-6-6 over a turnover of Rs. 45,797-5-6, it is a matter to be decided on the evidence. The learned Judge found that the plaintiffs' principals being experienced business-men knew, or must have known, that the plaintiffs were collecting the rusum which they had not had to incur in purchasing the goods; and on the materials before the lower Court the learned Judge was justified in concluding that the rusum was an additional agreed commission.
6. Before considering the real import of Section 8, we have to see what is really meant by this word ' rusum.' It is an Urdu word and is the plural of ' rasam ' meaning custom; settled mode or fees; duties; taxes; perquisites; commission, etc., e.g., the word rusum-i-circar meaning stamp duties and the word rusum-i-adalat meaning court-fee. It is therefore clear that in collecting an amount designated ' rusum' the commission agents were really collecting a commission and as my learned brother has pointed out, it was done at a time when the mercantile community, especially in the mofussil, were not fully alive to or conversant with the nature of the General Sales Tax Act. If rusum therefore is a commission or a perquisite, can it be said to be an agreed one That depends upon the nature of the business and the contract between the principal and agent. It is not disputed that the plaintiffs are licensed agents possessing licences as evidenced by Exs. P-19 and P-20. What the section requires is that the agent should have a licence which allows him to transact business in that capacity. In doing so, if he mentions in his account books what each of the transactions is, whether it is buying or selling on behalf of a known principal who has agreed to pay a commission, then the Provincial Government can exempt him from the tax or taxes. There are also provisos to the section but we are not concerned with them in this case. In any particular transaction, whether it be of buying or selling, the agent can act only on behalf of one principal and his name should be mentioned in the account as also the agreed commission. In cases where dealing with one and the same goods, at the time of purchase, he acts as the agent of the seller and then as I he agent of the buyer in selling the goods it may be difficult to say whether the exemption under Section 8 can be availed of. In order to make my position clear,. I would like to give the following illustration : Supposing the plaintiffs had been commissioned by certain wholesale merchants to sell 100 bags of gingelly seed for an agreed commission, in selling these bags the plaintiffs act as the agent of the seller and get a commission. Suppose at the same time the plaintiffs were commissioned as buying agents by someone else to purchase 100 bags of gingelly seed, and the plaintiffs sell the same 100 bags of gingelly seeds on which they, as agents of the seller, had already got a commission, to the buyer and get another commission from him. Can it be said that they can claim the exemption under Section 8 If they keep each of these transactions separate and specify in their accounts the known principal on whose behalf they act and the agreed commission thereof, then, there will be two transactions even though the goods dealt with are the same. In such a case they can invoke the exemption under Section 8 but not where both the transactions are simultaneous as it were and the agent gets one commission for selling and another commission for purchasing. In this case there is no evidence that the plaintiffs have acted at the same time on behalf of two principals
7. The real point on which the learned Advocate-General wanted us to hold that the plaintiffs cannot claim the exemption under Section 8 is that if the agent takes anything other than the agreed commission he will immediately lose the benefits which he would have got if Section 8 were applicable. As we have already found that the rusums in this case was in the nature of agreed commissions, it cannot be said that there was anything other than an agreed commission which the plaintiffs had collected. If, on the other hand, acting as a buying or selling agent, the plaintiffs had collected any sum of money clandestinely without disclosing its nature to their principal, on such transactions they cannot claim the benefit of Section 8. The point of distinction is not that the agent has taken something more than the so-called agreed commission; but the point is whether the amount taken can be brought within the ambit of the term ' agreed commission ' by the principal acquiescing in it or allowing the agent to take the money. It is unnecessary, as the section stands, that the agreement should be beforehand. It would be quite sufficient if the agreement comes into existence after the purchase or sale.
8. Any clandestine profit made by a commission agent other than the agreed commission will, in my opinion, disentitle him to the benefits of Section 8. If an agent acting on behalf of a buying principal for an agreed commission, purchases goods in the open market at a particular price and sells the same to his buying principal at a higher price and at the same collects a commission also, then he cannot claim the advantage of Section 8, unless the buying principal knows that his agent had, in the open market, paid a lower sum for the same goods and either explicitly or by action or deed from which consent can be implied, acquiesces in it. The real import of Section 8 is that the agent should act only as a medium for the transfer of goods from one party to another and for acting as such a medium, intermediary, or agent, he should be paid a remuneration or commission. Such transactions might sometimes result in the medium, intermediary, or agent, acting as vendor or purchaser himself, as understood in law. But even then he is only an agent and he should strictly conform to the mandatory provisions of Section 8 in order to get exemption.
9. In cases where the plaintiffs have acted as agents for selling goods, the matter was not seriously pressed before the lower Court. In such cases where the plaintiffs,. without paying rusum to the dealers from whom they got the goods, collected such rusum from their purchasers, from them who in fact were their principals, the exemption under Section 8 cannot be invoked.
10. In these circumstances the decision of the learned District Judge is correct and I agree with the judgment about to be delivered by my learned brother.
11. The appellant is the Provincial Government of Madras who were sued by a firm of commission agents doing business at Ellore and Tadepalligudam in the West Godavari District, for the recovery of Rs. 6508-9-0, sales tax, alleged to have been illegally collected from it. The firm was granted licences (Exs. D-19 and D-20) under Section 8 of the Madras Sales Tax Act, 1939, to do business in both these places. Under Section 8 and the conditions of the licence a person is exempt from sales tax in respect of transactions if he:
for an agreed commission ok brokerage buys or sells on behalf of known principals specified in his accounts in respect of each transaction.
The firm did both a buying and selling agency business. The learned District Judge held that no sales tax was leviable on their buying agency turnover, but; that it was rightly levied on the turnover of the selling agency business in respect of which the plaintiffs were given a decree for Rs. 4,922-2-9. The Government appeals against this decree. A memorandum of cross-objections has been filed by the plaintiffs against the dismissal of their claim for a refund of sales tax on their selling agency turnover amounting to Rs. 1,060-1-0.
12. The main ground on which the learned Advocate-General presses for sales tax on both the buying and selling businesses is that the plaintiff firm collected in addition to the agreed and customary commission of one per cent, and some other necessary charges such as cart hire, loading charges, etc., incurred on behalf of their principals, a charge of quarter per cent, which was called rusum. It is common ground that this charge was made for the first time in 1940 and followed closely on the Sales Tax Act which was enacted in 1939; it corresponded with the sales tax payable. The plaintiff firm did not collect it in all cases. The practice appears to have originated in dealers billing for these rusum charges as a provision for the anticipated sales tax demand being made against them. The learned District Judge differentiated the buying and selling agency business according to the manner in which this rusum was dealt with in these lines of business.
13. To take up first the buying agency business with which the main appeal is concerned its salient characteristics are these. The rusum was not collected in all cases; in fact, on a turnover of Rs. 1,54,371-11-3 no rusum at all was charged by the plaintiff firm to the buyer's principals on whose behalf they bought. According to another category, of transactions listed in Ex. P-13 (c) showing a total turnover of Rs. 174,927 rusum. was collected from the buyers principals and paid over 1.0 the sellers except for a small sum of only Rs. 49-2-8. In a third category of cases listed in Ex. P-13 (d) with a turnover of Rs. 45,797-5-6, the plaintiff firm charged their buyers with rusum, but did not pay it to their sellers apparently because the latter did not include this charge in their respective bills or pattis. A total sum collected as rusum of Rs. 360-6-6, which remained undisbursed was appropriated though not in the circumstances perhaps intentionally by the plaintiff firm.
14. The learned District Judge was inclined to place this charge of rusum in the circumstances in the buying agency business as a little additional commission, the principals on behalf of whom they bought, were prepared and Willing to pay.
15. There can be no doubt, nor is it disputed, that this charge of rusum was a new practice which arose out of the Sales Tax Act, 1939. It appears to have originated from prudent sellers making this charge and ensuring against a sales tax levy being made on their total turnover. The precise incidence of sales tax immediately after this novel Act came in was then in doubt particularly in its application to commission agents like the plaintiff firm who did both a buying and selling agency and daily put through transactions of sale with a heavy total turnover. Doubts have been set at rest as regards the responsibility for collecting and paying sales tax by an additional Section 8-B in the Sales Tax Act enacted In 1947 which lays down that no person who is not a registered dealer shall collect any amount by way of tax subject to exemptions the Provincial Government may grant till 1st April, 1948; but during the years immediately succeeding the Act, there was obviously considerable doubt as to the respective liability of the seller and the buyer to pay such tax to the authorities. Under Section 3, the dealer, that is, the seller, has normally to pay tax on his total turnover and would naturally seek to pass the incidence of this tax on to the buyer. The charge, therefore, of rusum by the seller to the commission agent is in order, and so is the collection of rusum by the commission agent from his buyer principal in order to meet the charge of Rusum in the seller's bill to him. Sales by persons who are themselves agriculturists-producers are exempt from sales tax, and cases in this category appear to account mainly for no rusum being charged by the sellers or collected at all by the commission agent from his buyer principals on a substantial portion of the turnover of the buying agency business. We are, therefore, unable to accept the learned Advocate-General's contention that rusum is in the circumstances something charged by the commission agent in addition to the agreed or customary commission of one per cent.; and that the collection of rusum would expose the commission agent to sales tax on his entire turnover as a violation of Section 8 and the conditions of his licence.
16. We have had the advantage of an argument on the scope of Section 8 of the Act and the precise meaning of the words:
buys or sells on behalf of known principals specified in his accounts in respect of each transaction.
Some decisions on commission agencies both in Indian and English law long prior to the Sales Tax Act, have been placed before us to which we need not refer. The language of the section appears to us plain and to present no difficulty. Nor is any nice question of breach of contract or agency liability involved, the point for determination being merely whether within the scope of Section 8 there is a liability to pay sales tax. The section clearly exempts from sales tax in the first place a commission agent, who buys for a known principal specified in his accounts, for an agreed commission or brokerage. It may be that the commission agent buys on behalf of his principal in the open market. The section does not require that the seller be disclosed to the buyer, before the purchase is effected; and it is . a sufficient compliance with Section 8 if the buyer principal and the seller to the commission agent are specified in the latter's accounts. For instance, if the commission agent purchases goods for his buyer principal from some shops or dealers, he must show in his accounts the names of the shops or dealers and charge the buyer principal only the precise price he actually paid. Similarly in a selling agency business the accounts of the commission agency should specify the names of the seller and the buyer with one sole transaction put through at one price. The section presents no real difficulty even in the case of commission agents, who, like the present plaintiffs, do both a buying and selling agency business. Each sale they put through will necessarily be liable to sales tax to be normally paid by the seller unless it is exempt under the Act, and the seller will pass on the incidence of the tax to the buyer. The commission agent has nothing to do with the collection of any sum towards the sales tax, but, if and when charged by the sellers to him as will invariably be the case, it can and in fact should be included by the commission agent in his bill to his buyer principal as a legitimate charge in the same category as other items such as cartage, loading charges, and other expenses actually incurred which the Advocate-General concedes the commission agent can legitimately charge without exposing his whole turnover to a levy of sales tax The simple criterion is as we read Section 8 that the commission agent cannot make any profit for himself other than his agreed commission or brokerage. If he does not make this perfectly clear from his accounts, he will do so at the peril, of becoming disentitled to exemption from sales tax on his entire turnover.
17. We are quite satisfied on a careful scrutiny of the accounts exhibited that both the buying and the selling transactions were on behalf of known principals specified in the plaintiff's accounts. To take only one concrete ease, L.S.M. Kandaswami Pillai of Tanjore (P.W. 2) placed an order for 251 bags of gmgelly with the plaintiff firm. The patti Ex. P-17 (a) for Rs. 9,764-4-0 recites that these bags were purchased by him in person and includes several miscellaneous charges including rusum These purchases were made from three other firms whose pattis. are exhibited as Ex. P-21 (a), P-21 (b) and P-21 (c) which include charges for rusum. The plaintiffs' firm paid this charge and included it in the bill to Kandaswami Pillai a perfectly legitimate charge, the rusum in such cases being clearly no profit whatever to the commission agency. A business man and a commission agent will not ordinarily volunteer to pay anything to anybody unless billed for. This doubtless accounts for the three different categories of cases referred to supra in the buying agency, business. Rusum was probably charged to buyers by this commission agency from sellers who were considered not exempt from sales tax, but who did not take the precaution of including rusum in their own bills to the commission agency. It will therefore be seen that in the buying agency business, the great bulk of the rusum was charged by the sellers to the commission agency and legitimately passed on to the buyers. We are in agreement with the learned Subordinate Judge that so far as the buying business is concerned the mere fact that the plaintiff firm did not actually pay to the sellers all the rusum collected from the buyers, will not make the entire turnover of the buying agency liable for the full sales tax.
18. So far as the selling agency business is concerned the position is entirely different, the accounts showing that the plaintiffs collected rusum as sellers from the dealers who bought from them, and their accounts nowhere show that they paid this rusum to the principals on whose behalf they sold, presumably because the latter made no demand for rusum on them. It may be that the seller principals for whom they acted were agriculturist producers, sales by whom were exempt from sales tax. In such cases, the plaintiff firm were clearly not entitled to collect any rusum at all from the buyers and pocket it for themselves without passing it on to the sellers. We would emphasise again that the commission agent exposes himself to liability to sales tax on the transactions of sale he puts through if he charges as a seller for a known principal, rusum to the buyer without this being charged to him by the principal on behalf of whom he sells and if he pockets it himself. Vice-versa where a commission agent buys on behalf of a known principal he can only charge that principal with rusum only if it has been charged and collected from him by the seller from whom he, purchased. In view of there being no evidence or material to show that the sellers' principals even agreed to such rusum being collected from the buyers and being appropriated by this commission agency, the charge and appropriation of rusum cannot be held to be either an addition to agreed commission or an item of expenditure legitimately incurred by the commission agent on behalt of the principal for whom he sold as such as cart hire, loading charges and so on. As the accounts stand, the collection of rusum merely swelled the profits of the commission agency. Had the plaintiffs' selling agency business showed as in the case of the buying agency business that as a general rule they passed on the rusum they collected without appropriating it for themselves, we should have been inclined to have placed the selling agency business in the same category as the buying agency business, and to have exempted it also from sales tax on the total turnover. Even this not having been established by the plaintiff firm, we think that the learned District Judge was quite correct in his finding that the sales tax was legally and correctly levied on the entire turnover of the selling agency business.
19. The Appeal and the Memorandum of Cross-objections are both dismissed with costs.