DR. FARRUKH ANSARI, ACCOUNT ANT MEMBER .----These appeals have been filed by the Department for the tax years 2012 to 2017 against the common order of the learned Commissioner (Appeals), Hyderabad dated 20.04.2018 and are hence decided through this common order . The appeals involve the following common grounds:- "1. That the order passed by the learned Commissioner Inland Revenue (Appeals), Hyderabad is bad in law and not based on the facts of the case.
2. The Commissioner Inland Revenue (Appeals), Hyderabad was not justified to hold that the taxpayer produced sales tax / commercial invoice showing "distribution margin" allowed to the distributor / taxpayer on the sale of their products by the company .
3. The Commissioner Inland Revenue (Appeals), Hyderabad failed to examine that the company issued sales invoices showing value of goods and amount of sales tax charged thereupon.
4. The Commissioner Inland Revenue (Appeals), Hyderabad failed to appreciate the fact that the value of goods declared in the sales invoice was the "turnover" of the taxpayer for charge of minimum tax under section 113(1) read with section 133(3)(a) of the Income T ax Ordinance, 2001.
5. The Commissioner Inland Revenue (Appeals), Hyderabad failed to discuss the terms and conditions of the distribution agreement, which contained all ingredients bf "sales" as per the Sale of Goods Act, 1930 i.e. offer from the buyer or seller , consideration, acceptance, delivery of goods etc.
6. The Commissioner Inland Revenue (Appeals), Hyderabad also failed to take notice that the company recorded transaction with the distributor / taxpayer as sales and tax was deducted under section 236G of the Income Tax Ordinance, 2001 on the sales made to their distributors.
7. The Commissioner Inland-Revenue (Appeals), Hyderabad also failed to discu ss that the tax deducted under section 236G of the Income T ax Ordinance, 2001 has been claimed in the return of income filed by the taxpayer .
6. The Commissioner Inland Revenue (Appeals), Hyderabad has wrongly placed reliance on the Case Laws, wherein facts of the cases were not properly appreciated and relationship of the taxpayer with the company was that of a principal and agent."
2. Briefly the facts of the case are that the appellant is an individual and is deriving income from business that is allegedly described by the taxpayer as a "distribution business", i.e. the taxpayer allegedly distributes the products of M/s Tapal Tea (Pvt.) Ltd. and Continental Biscuits, (Pvt.) Ltd., for which he allegedly receives only commission / distribution margin. However the Department did not agree with this contention during the proceedings initiated under subsection (5A) of section 122 of the Income Tax Ordinance, 2001 and alleged that the taxpayer was engaged in the business of buying and selling the products of the Tapal Tea (Pvt.) Ltd. It therefore amended the orders under that subsectio n and charged the minimum tax at the reduced rate of 0.2% on the entire amount of the sales of the products, inste ad of charging the same only on commiss ion, as insisted by the taxpayer .
The taxpayer filed appeals before the Commissioner (Appeals), Hyderabad who annulled the orders due to the following reasons:- "The arguments advanced by the A/R of the appellant as well as departmental representative are considered in the light of the case record. Perusal of the record reveals that the. Additional Commissioner Inland Revenue found that the deemed orders passed under section 120(1) ibid for all the impugned years were erroneous in so far as prejudicial to the interest of revenue on the following grounds for tax year 2013 and similar grounds for remaining years.
"As per return of income, tax chargeable was declared at Rs.35,000/- on the basis of taxable income declared at Rs.750,000/- for tax year 2013. Perusal of monthly sales tax returns filed for the period from July 2012 to June 2013 revealed total sales at Rs.263,951,583/-. The above sales were liable for charge of minimum tax at Rs.527,903/- @ 0.2% under section 113(1) of Income Tax Ordinance, 2001, which was higher than the tax chargeable on the taxable income. Non-payment of minimum tax under sections 113(1) and (2) ibid has rendered the assessment order erroneous and prejudicial to the interest of revenue and warranted amendment of assessment under section 122(5A) ibid for the T ax year 2013."
The Additional Commissioner issued show-cause notice and in response thereo f the A/R of the appellant filed explanation and contended that the appellant being a distributor of M/s. Tapal Tea (Pvt.) Limited was selling their products on the price structure provided by them. He also contended that the appellant earned "Distributor Margin" on sale of the company's products. The Additional Commissioner rejected the contention of the appellant and passed the orders under section 122(5A) ibid for all the above tax years. Further perusal of the record shows that the Additional Commissioner while passing the impugned orders has failed to appreciate the facts of the case that the appellant being a distributor of M/s. Tapal Tea (Pvt.) Ltd. had declared distribution margin on sale of company products as per distributor agreement.
It is learnt from the distribution agreement executed between the appellant and the company that the "Distributor Margin" was allowed as per price structure provided from time to time and the distributor could not change the brand name or packing. The distributor is bound to sale company products of their printed price structure. It is further noted that the company after sending the stock does not relinquish control over the stock till its disposal to the end consumer . The A/R also filed a copy of the price structure and sales tax / commercial invoice issued by the company . From which it is evident that the company allowed 'distribution margin' to the distributor on sale of their products. The A/R of the appellant relied on the reported judgment of Honorable Inland Revenue Appellate Tribunal duly reported as 2015 PTD (T rib) 1926 , wherein their Lordship have held that: " S. 113----Minimum Tax---Assessee, a distributor -- Issue requiring consideration and adjudication was as to whether commission/margin of profit was amenable to the minimum tax or turnover in the case of distributor --- Marginal profit/commission as "turnover" in case of a "distributor" was amenable to minimum tax under S. 113 of Income Tax Ordinance, 2001---Right of sale of goods by distributor was limited, restricted and controlled by the principal, which could not be treated as "normal business / sales--For the services rendered by the distributor , principal / manufacturer would allow him remuneration in the form of discount at a fixed percentage of the value of goods distributed--Ordinary trader , having purchased the goods had the right to sell to any person, at any rate and in any manner he could choose, but in the case of distribution, the price, the customer and the manner of sale were prescribed by the principal / manufacturer and the distributor had no choice in the matter--Ordinary trader in the case of rise and fall of the market, would make a profit or loss in respect of the stocks held by him, whereas in the distribution, the principal would increase the prices of its products the distributor was obliged, to distribute the product on the price fixed by the principal when the principal would reduce the prices, the distributor had to sell the goods on the reduced price and the principal would compensate him, so that he could get the stipulated remuneration -- Principal would not relinquish control over the goods till its disposal to the end consumer --No opening and closing stock had been declared by the taxpayer , even in his original return -- Action of Adjudicating Authority in treating the sales mentioned in the original return as turnover for the purpose of Section 113 of the Income Tax Ordinance, 2001 was unjustified and against the facts and circumstan ces of the case, for the reason that the taxpayer owned only margin profit / commission which could be treated turnover for the purpose of Section 113 of the Income Tax Ordinance, 2001 -While charging and confirming the issue of minimum tax, both the authorities below had not appreciated the true and correct facts of the case -- Margin of profit / commission as declared by the taxpayer in the revised return was amenable to minimum tax under Section 113 of Income Tax Ordinance, 2001, if exceeded the minimum threshold of charging turnover tax. The A/R of the appellant also invited my attention towards another decision of a case having same nature of the instant case duly reported as ((2015)
111 TAX 270 (T rib)) of Honorable Appellate T ribunal Inland Revenue, wherein their Lordship held that: "(13) It is an admitted fact that the taxpayer is a distributor of M/s. Unilever Pakistan (Pvt.) Limited and sells the products of the principal company under an agreement on fixed margin allowed by the said principal company in fixed / assigned territorial jurisdiction under the terms and condition laid down in the agreement. The taxpayer has rightly declared Margin of Profit / Receipts in the return.
(14) It was contention of the learned Additional Commissioner Inland Revenue, while issuing the notice under subsection (9) of Section 122(9) of the Income Tax Ordinance, 2001, that the taxpayer himself declared sales in the returns of sales tax. It is an established fact that the provisions of Sales Tax Act, 1990 are different from the provision of Income Tax Ordinance, 2001 being two different laws covering the different aspect of the transactions connected with the business of the taxpayer . Admittedly , the sales declared by the taxpayer are covered under the 3rd Schedule of the Sales Tax Act, 1990, meaning thereby Sales Tax upto the retail price has been charged by the principal company no further sales tax makes sufficient that the taxpayer's sales are on behalf of its principal company being selling agent and its margin of profit / receipts are the turnover of the taxpayer/appellant.
(15) Keeping in view the nature of business as well as declared version of the taxpayer in the previous years, the taxpayer , under the circumstances, is required to pay turnover tax on its margin of profit/receipts ids 113 under section applicable. The 'Turnover' is defin ed in subsection (3) of Section 113 of the Income Tax Ordinance, 2001 which read as under:- Section 1 13(1)
(3) TURNOVER MEANS:-
(a) the gross sales of Gross Receipts, exclusive of Sales Tax and Federal Excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods, and also excluding any amount taken as deemed income and is assessed as final discharge of tax liability for which tax is already paid or payable;
(16) Taking into consideration, the above definition of turnover which includes 'RECEIPTS' where applicable, liable to turnover tax if exceeds the required threshold limit. So I consider that deemed assessment framed under section 120 of the Income Tax Ordinance, 2001 is not prejudicial to the interest of revenue as the provisions of Section 113 of the Income Tax Ordinance, 2001 are not attracted in the present case. It is clear from the definition of turnover , the receipts are not subjected to Turnover Tax being distributor of the Principal Company . In support thereto the learned authorized representative relied upon two decision of the Honorable Lahore High Court Reference No. I.T.A. 71/999 in the case of C.I.T. v. M/s. Mehniood and Company and Tax Reference No.22/2007 dated 02.04.2008 in the case of M/s. Abul Wafa and Sons wherein Honorable High Court decided the matter in favour of the taxpayer ."
Keeping in view the above facts and case laws referred by the A/R of the appellant which apply in all four corners in the instant case, the minimum tax charged on the basis of turnover declared in the Sales Tax Return is not legally sustainable being declared under two different laws covering the different aspects of the transactions connected with the business. However , the orders passed for all the impugned years by the Additional Commissioner under section 122(5A) of the Income T ax Ordinance, 2001 are hereby annulled."
The instant Departmental appeals are filed against this order .
3. The cases were fixed for hearing on 27.02.2020 and in response to the notices, Mr. Rizwan Ali Memon, Departmental Representative appeared for the appellant while Mr. Aleem Khan, Advocate appeared for the respondent. Both the learned representatives were heard.
4. The learned Departmental Representative submitted that the respondent in the present appeals was the distributor of the Tapal Tea (Pvt.) Ltd. The respondent had shown his sales in the Income Tax returns at the amounts that were less than the amounts shown in the Sales Tax returns on accou nt of which the impugned action was initiated. The respondent had taken the plea during the proceedings that he was a distributor earning commission income and should be subjec ted to minimum tax under section 113 of the Income Tax Ordinance, 2001 on the basis of the commission and not on sales. During the proceedings, it was discovered that tax was being deducted under section 236G of the Ordinance on the sales made by the respondent, which showed that the respondent was making sales and was not receiving commission. Referring to the dealership agreement between the respondent and the Tapal Tea (Pvt.) Ltd., he submitted that the stipulations of the agreement also suggested that the respondent was making sales and not receiving commission.
5. The learned Authorised Representative of the respondent, referring to Page No. 6 of the order of the learned Commissioner (Appeals), submitted that the respondent was dealing in the tea, which item did not figure in section 236G of the Ordinance and hence any reference to that section was incorrect. The respondent showed the sales and purchases at an identical figure in his Sales Tax returns. The invoice issued in his line of business was known as a "commercial invoice" and was different from the regular invoice. The respondent was not authorised to fix the sales price of the products on his own, but this was done by the principal Company . Similarly he was not authorised to fix the distribution margin on his own. The respondent made his payments at the time he received the same from the ultimate buyers. Referring to the last two clauses on Page No. 1 of the dealership agreement, he submitted that the product did not belong to him, but to his principal. He referred to the Clause No.4 on page No.2 of the agreement, Clauses Nos. 6 and 8 on page No. 3, Clauses 9, 10, 12, 15, 16, 21, 23 and 24 of the agreement as well as to the addendum to the agreement to bring home his point that the respondent was only an agent receiving his commission from the principal. He relied upon the decisions of this Tribunal in ITA No. 4469/LB/2002 dated 06.05.2006, ITA No.2381/LB/2003, 2003 PTD (Trib) 869, 2009 PTD (Trib) 1004 , 2015 PTD (Trib) 1926 and (2015)
111 Tax 270 (T rib) in support of his contention.
6. The learned Departmental Representative in his counter rebuttal submitted that the clauses referred to by the learned Authorised Representative did not prove that there was a principal and agent relationship between the respondent and the Tapal Tea (Pvt.) Ltd. He referred to the Clauses Nos. 1 to 7 as well as to Clauses Nos. 17 and 18 of the agreement and iterated that the goods were purchased by the respondent along with the payment and with a corresponding transfer of the title.
7. I have given due consideration to the arguments of both the learned representat ives and have gone through the orders of both the officers below as well as through the documents submitted before this Bench and the case law relied upon by the learned representatives. The controversy that needs to be resolved involves two questions. A question that has to be resolved on the legal plane is whether the entire sales receipts are taken as the turnover for the purpose of charge of tax under section 113 of the Income Tax Ordinance, 2001 or only the amount of commission received by the distributor has to be taken. However on the factual plane, the question that has to be answered is whether under the facts and circumstances of the present case, the taxpayer was acting as an agent for the principal Company or was himself involved in the buying and selling of the product. This latter question would seek answers to certain legal questions involving the concept of agency and the sale of goods as well. It would be in the fitness of the things that these questions should be answered separately and for this purpose, I shall take up the matter on the legal plane first.
8. On the legal plane, the learned counse l of the taxpayer placed his reliance upon the decisions of this Tribunal in ITA No. 4469/LB/2002 dated 06.05.2006, ITA No. 2381 /LB/2003, 2003 PTD (Trib) 869, 2009 PTD (Trib.) 1004, 2015 PTD (Trib.) 1926 and (2015) 111 Tax 270 (Trib.) to bfing home his point that the minimum tax was only chargeable on the commission received by the taxpayer and not upon the entire value of sales, which were allegedly made on behalf of the principal Company . Since the cases relied upon by the learned counsel relate both to section 80D of the repealed Income Tax Ordinance, 1979 as well as to section 113 of the Income Tax Ordinance, 2001; it would be in the fitness of the things to go through both the statutory provisions. Section 80D was inserted vide Finance Act, 1991 and for the purposes of assessment of income and determination of tax thereon, it took effect from the assessment year commencing on or after the first day of July , 1991. The section read as under:- "80D. Minimum tax on income of certain companies.--(1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where no tax is payable by a Company resident in Pakistan or the tax payable is less than one-half per cent of the amount representing its turnover from all sources, the aggregate of the declared turnover shall be deemed to be the income of the said Company and tax thereon shall be charged in the manner specified in subsection (2).
(2) The Company referred to in subsection (2) shall pay as income tax-- (a) an amount, where no tax is payable, equal to one-half per cent of the said turnover; and
(b) an amount, where tax payable is less than one-half per cent of the said turnover , equal to the difference between the tax payable and the amount calculated in accordance with clause (a).
Explanation.-- For the removal of doubt it is declared that "turnover" means the gross receipts, exclusive of trade discount shown on invoices or bills, derived from sale of goods or from rendering , giving or supplying services or benefits or from execution of contracts."
The term "turnover" was defined in the explanation to subsection (2) of the section and as can be discerned from the above reproduction, it only made reference to the "gross receipts" and the word "commission" was not specifically mentioned in the provision. The controversy as to what constituted "turnover" in the case of a distributor arose before a Division Bench of this Tribunal for the assessment years 1993-94 and 1994-95 in the case reported as 2003 PTD (Trib.) 869, which has been cited by the learned counsel of the taxpayer in the instant appeals. In this case, the honourable Division Bench decided the issue as under:- "The result of the above discussion, therefore, is obvious. In the present case assessee is a distributor of "items, which pertains to its principal". The rates of the items are fixed by the principal Company and the assessee does not have any role to play in it. He does not make payments on purchase of the items as he is not a buyer and that he is not selling it to a third party on his own behalf. Any problem with regard to the weight, quality at the times of sale is to be solved by principal Company , i.e. Ittehad Chemicals. The role of this assessee is of a mediator whom we technically call as distributor . Moreover , the assessee relationship with the Company i.e. of principal, and agent is subject to whims of the Company . This dealership can be terminated at any stage as per terms of the contract, which also explains the actual role of the assessee, under discussion. His receipt or turnover is his commission and as such he cannot be put to charge under section 80D on the amount paid by the Buyer to the Ittehad Chemicals.
The amount of commission declared by him stands further certified by the principal. On this under section 80D the requirement of law is that if the assessee tax otherwise falls less than 1/2% of this amount, he is liable to pay the balance. In this case, therefore, if the amount paid by the assessee falls short of his commission, he shall make good the deficiency . If otherwise tax paid by him is already in excess of 1/2% of his commission amount he shall not be asked to pay the balance.
The result is obvious. The order of the IAC to cancel the assessment by invocation of 66A is not justified, hence cancelled. The assessee appeal is allowed."
Similar principle was held by this Tribunal in the order in ITA No. 4469/LB/2002 and in ITA No. 4470/LB/2002 dated 06.05.2004 for the assessment years 1998-99 and 1999-2000.
9. The provision related to the minimum tax on the declared turnover was inserted in the Income Tax Ordinance, 2001 as section 113 of this statute. The word "turnover" was defined more clearly under subsection (3) of this section as under:- "(3) In this section, "turnover" means -
(a) the gross receipts, exclusive of any trade discounts shown on invoices or bills, derived from the sale of goods;
(b) the gross fees for the rendering of services, including commissions;
(c) the gross receipts from the execution of contracts; and
(d) the Company's share of the amounts stated above of any association of persons of which the Company is a member ."
As can be seen from clause (b) of this subsection, this provision specifically included the "commission" in the definition of the "turnover" in the cases where the same was received. The plain statutory language is therefore, clear in this regard if the amount received is "commission" in substance in case of a business. This principle is upheld as under in the decision of this Tribunal reported as 2015 PTD (Trib) 1926 , cited by the learned counsel of the taxpayer:- "16. So long as the issue whether the minimum tax under section 113 of the Income Tax Ordinance, 2001 is chargeable on sales / turnover or margin profit / commission is concerned. We are of the view that this issue as already been settled by the superior courts that in the cases of "Distributor" the marginal profit / commission is "turnover" and amenable to minimum tax under section 113 of the Income Tax Ordinance, 2001 instead of sales.
We have noted that in the case of Distributor the right of sale of goods is limited, restricted and controlled by the principal companies, which cannot be treated as normal business / sales. For the services rendered by the distributor , the principal / manufacturer allows him remuneration in the form of discount at a fixed percentage of the value of goods distributed. In the matter of sales, an ordinary trader , having purchased the goods, has the right to sell it to any person, at any price and in any manner he may chose but in the case of distribution, the price, the customer and the manner of sale is prescribed by the manufacturer/principal and the distributor has no choice in the matter . In the case of rise and fall of the market, an ordinary trader makes a profit or loss in respect of the stocks held by him whereas, in distribution the manufacturer/principal increases the prices of its products, the distributor is obligated to distribute the product on the price fixed by the principal and where the principal / manufacturer reduces the prices, the distributor has to sell the goods on the reduced prices and the principal / manufacturer compensate him so that he gets the stipulated remuneration. The most important aspect of the entire arrangement is that the principal/manufacturer does not relinquish control over the goods till its disposal to the end consumer . In the present case we have also noted that no opening and closing stock has been declared by the appellant even in his original return as well as figure of sate / purchase decaled in the Sales Tax Returns are same being the items fall in Third Schedule to the Sales Tax Act, 1990. Therefore, the action of the DCIR in treating the sales mentioned in the original return as turnover for the purpose of section 113 of the Income Tax Ordinance, 2001 is unjustified and against the facts and circumstances of the case for the reaso ns that the taxpayer owns only margin profit / commission which can be treated turnover for the purpose of section 1 13."
10. The overwhelming view of the different benches -therefore appears to be that the commission received by the distributor in such cases is the amount on which minimum tax is chargeable under section 113 of the Income Tax Ordinance, 2001 (or was chargeable under section 80D of the repealed Ordinance). However a Division Bench of this Tribunal has held in the case reported as 2017 PTD (Trib) 2234 that although, as per International Accounting Standards, a distributor was obliged to recognize only the amount of commission as revenue in his final accounts, however , as per local commercial practices, only a small number of distributors were recognizing the amount of commission received from their principals as revenue in their final accounts, while a huge number of distributors were recognizing the value of sales made on behalf of their principal as revenue in their final accounts. The honourable Bench further held that the legislature, being fully cognizant of these two local commercial practices, had covered both. In the former situation, such commission was subject to withholding of tax under section 233 and accordingly liable to tax @ 10% under the final tax regime and not liable to minimum tax under section 113 as commission was not covered by the definition of turnover given under section 113. In the latter situation, such sales were liable to minimum tax under section 113. In the case before the honourable Bench, the taxpayer himself chose to recognize sales made on behalf of his principal as revenue in his final accounts, hence the Bench held that such sales were liable to minimum tax @ 0.2% under section 113. He could not have the best of both worlds by declaring commission in his Return and then applying tax rate of 1% on such commission. However such inference was drawn by the honourable Bench on the basis of the facts of the case, which was a case of a private limited company .
11. Now I shall come to the factual aspects of the case, in the light of the above principles of law and in the light of the arguments advanced by both the learned representatives and the evidences brought before this Bench. It is admitted by the learned Departmental Representative that the respondent in the present appeals was the distributor of the Tapal Tea (Pvt.) Ltd. However , referring to the Clause Nos. 1 to 7 as well as to Clause Nos. 17 and 18 of the agreement, he has iterated that the goods were purchased by the respondent along with the payment and with a corresponding transfer of the title. He has neither submitted the copy of the agreement on which he has placed his reliance, nor has he further explained as to how these clauses are helpful in supporting his contention.
Similarly the learned counsel for the taxpayer has placed reliance upon Claus e No. 4 on page No. 2 of the agreement, Clauses Nos. 6 and 8 on page No. 3, Clauses 9,,10, 12, 15, 16, 21, 23 and 24 of the agreement as well as to the addendum to the agreement, without specifically elaborating his point of view. However in order to decide the issue strictly on the merits of the case, it would be useful to discuss the relevant statutory provisions related to the contract of agency and the law of sale of goods. The law related to the agency is contained in Chapter X of the Contract Act, 1872. Section 182 of the Act defines the principal and agent as under:- "182. An "agent" is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the "principal".
The authority of an agent may be expre ssed or implied under section 186 of the Act and an agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do such act under section
188. An agent having an authority to carry on a business has authority to do every lawful thing necessary for the purpose, or usually done in the course of conducting such business, as enacted under the same provision. An agent thus has an authority to act on behalf of his principal and has an authority to create contractual relationships between the principal and the third parties. He generally receives commission on the basis of the work done by him. He is not subject to the direct control and supervision of the principal and can often act on his discretion, but is bound to follow the lawful instructions of the principal. A mercantile agent is the agent who has the authority to sell the goods, to consign the goods for purpo se of sale, to buy the goods or to raise the security of goods on the behalf of the principal. A commission agent is a mercantile agent who buys or sells good s on behalf of the principal and receives the commission for the purpo se. The duties of an agent, inter alia, include the duty to follow the instructions of the principal, a duty to carry out the work with skill and care and a duty-, to render the accounts to the principal.
12. The law related to the sale of goods is governed by the Sale of Goods Act, 1930. Section 4 of this Act defines the "sale" and the "agreement to sell as under:- "4. Sale and agreement to sell.---(I) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another .
(2) A contract of sale may be absolute or conditional.
(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer , the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called in agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. Formalities of the Contract"
Clause (7) of section 2 defines the term "goods" as under:- "(7) "goods" means every kind of movable property other than actionable claims and money; and includes 4[electricity , water , gas,] stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale; "
Clause (9) of this section defines the term "mercantile agent" as under:- "(9) "mercantile agent" means a mercantile agent having in the customary course of business as such agent authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, or to raise money on the security of goods; "
The goods which form the subject of a contract of sale under section 6 of the Act may be either existing goods, owned or possessed by the seller , or future goods. It hence follows that the transac tion is complete once the sale is complete and the property over the goods is transferred to the buyer . Section 19 of the Act stipulates that where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. Under section 20, where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or for both, is postponed. Section 9 stipulates that the price in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties. Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. The section is silent about the fixation of any price by the parties to the contract for further resale. Under clause (b) of section 14 in a contract of sale there is an implied warranty that the buyer shall have and enjoy quiet possession of goods. It is duty of the seller under section 31 to deliver the goods and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale. Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions under section 32. Delivery of goods sold may be made under section 33 by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold them on his behalf. In short, the contract is fully performed once the above steps are completed.
13. At this stage, it would again not be out of place to refer to the decision of the Division Bench of this Tribunal in the case reported as 2017 PTD (Trib) 2234 wherein the honourable Bench has described the agent, the broker , the distributor , the dealer and the wholesaler as under:- Agent "Generally speaking, anyone can be an agent who is in fact capable of performing the functions involved. The agent normally buying not himself but his principal by the contracts he makes; it is therefore, not essential that he be legally capable to contract (although his duties and liability to his principal might be effected by his status).
"Floyd R Mechem, Outlines of the Law of Agency 8-9 (Philip Mechern ed., 4th ed. 2952).
"The word agent denotes one who acts, a doer, force or power that accomplishes things." Harold Gill Reuschlein & William A. Geregory , The Law of Agency and Partnership 1, at 2-3 (2"d ed. 1990). (Black's Law Dictionary Page 205)
"Party that has express (oral or written) or implied authority to act for another (the principal) so as to bring the principal into contractual relationships with other parties. An agent is under the control (is obligated to) the principal, and (when acting within the scope of authority delegated by the principal) binds `the principal with his' or her acts.
'Additional powers are assigned to agent under the legal concept of 'apparent authority .' The agent, however , does not have title to the principal's goods in his or her possession, except where agent's lien is applicable."
(http: //www .businessdictionary com/definitionlagent html)
"A person employed to do any act for another or so represent the other in dealing s with third person. The person for whom such act is done, or who is so represented, is called the "principal". An agent is a person who is authorized to contract legal obligations and acquire legal rights (for generally to enter into relations involving rights and duties) on behalf of another person from whom his authority is derived." (T agore Law Lectures)
Broker "An agent who acts as an intermediary or negotiator , esp. between prospective buyers and seller; between other persons in matters of trade, commerce, or navigation. A broker differs from the factor because the broker usually does not have possession of the property ." Cf. FACTOR (Case; brokers 2. C.J.S. Brokers 2-5.1 (Black's Law Dictionary Page 205)
Mercantile agent for the sale and purchase of goods, etc. (of which he is not given possession or control), remunerated by a commission on the price of goods sold but not generally liable personally on the contract."
(Readers Digest, Great Encyclopedic Dictionary 1970 Ed. V oLIII, 1 158)
"Means an agent, but used generally in a more special sense for one who buys and sells on behalf of another . He must act according to the instructions given to him and as a general rule his task is finished when lie has made the contract between the buyer and the seller .... Brokers are remunerated by commission known as brocage or brokerage." (Harms) Distributor "A wholesaler , jobber , or other manufac turer or supplier that sells chiefly to retailers and commercial users."
(Black's Law Dictionery Page 509)
"An entity that buys non-competing products or product lines, warehouses them, and resells them to retailers or direct to the end users or customers. Most distributors provide strong manpower and cash support to the supplier or manufacturer's promotional efforts. They usually also provide a range of services (such as product information, estimates, technical support, after-sales services, credit) to their customers."
(http://wwW .businessdictionatycom/definition/distributor .html)
"Any individual, partnership, corporation, association, or other legal relationship which stands between the manufacturer and the retail seller in purchases, consignments, or contracts for sales of consumer goods."
(Aaron E. Levine & Co., Inc. v . Calkraft Paper Co ., D.C. Mich., 429 F .Supp. 1039, 1046)
"A person who distributes goods of the manufacturer to the consumers and in so doing, he acts for and on behalf of the manufacturer . A distributor normally is, therefore, an agent of the manufacturer for the purpose of reaching out the goods to the consumers. The transaction between the distributor and the manufacturer in such a case in not a transaction of sale as a principal, to a principal, but the distributor is in effect an agent who acts for and on behalf of the manufacturer . Such a distributor who acts for and on behalf of the manufacturer probably earns something which is generally recognized in the commercial world as commission is not a buyer of goods from the manufacturer on his own account. Such a distributor does not himself pay price for the goods purchased before the goods are passed on to the consumers. However , in the case of a buyer who purchases goods in payment of a commercial price to the manufacturer and the transaction is in effect a sale, such a buyer is different from the kind of distributor earlier noticed even through such a buyer is sometimes described as a distributor . The distributor in such a case is in fact a whole sale buyer and the property in the goods passes to such a buyer . It is wholly immaterial whether the price is paid in cash or the goods are supplied on credit." (T ax LR 2869 p.2875 (Bom.))
Dealer "A person who purchases goods or property for sale to others; a retailer . A person or firm that buys and sells securities for its own account as a principal, and then sells to a customer ." (Black's Law Dictionary Page 427)
"Individual or firm that buys goods from a producer or distributor for wholesale and/or retail reselling. Unlike a distributor , a dealer is a principal and not an agent."
(Http //www .businessdictionary . com /definition/dealer . html)
"A Commission Agent who sells or buys on behalf of the principal is not a "dealer " and is not liable to taxation in respect of the purchases and sales effected by him on behalf of the principal at his instance and that such transactions do not constitute his turnover ." (AIR 1950 Mad. 521)
"A person acting as broker and recovering only his brokerage in a transaction of sale, is not a dealer as defined in SEc. 2(c) of the C.P . and Berar Sales T ax Act (1947)."
"In (1950) 1 S.T.C. 245, commission agent who sells or supplies on behalf of a principal is not a dealer within the meaning of Sec. 2(b) of the Madras General Sales T ax Act, 1939." (1952 N.L.J. 285 p.285)
"A commission Agent who has dominion over and possession of the goods in which he deals, conies within the definition of "dealer" contained in Sec. 2(c) of the C.P . and Berar Sales T ax Act " (1952 NLJ 285)
"A salesman or a servant of the owner of a business can be a "dealer" within the meaning of the definition in Cl. 3(b) of the Cotton Cloth and Yarn (Control) Order , 1943. There is no warrant for holding that the definition of "dealer" necessarily excludes a salesman or servant of the owner or proprietor of the business or involves or imports the idea of ownership or proprietorship as a necessary ingredient of the expression "dealer". " (AIR 1948 Pat. 266) ti "An auctioneer of goods is a dealer within the meaning of Section 2(c) (1) of the Bengal Sales Tax Act. He has dominion over and possession of the goods. It is the stroke of his manner that completes the sales and transfers property or ownership in the goods to the bidder who purchases goods. He is the person who is actually engaged in the business of the selling the goods.
It is immaterial whether the auctioneer is the owner of the goods or not." (55 CWN 583)
"The word "dealer" in the Provincial Government's order relating to oilcakes means not only a person who buys and sells but also includes one who manufactures and sells." (AIR 1948 Nag. 413)
"The word "dealer" in the C.P. and Berar Oiicake (Control) Order includes a person who manufactures and sells, and is not confined to a person who merely buys and sells as is generally understood." (3DLR (Nag.) 13)
Wholesaler "One who buys large quantities of goods and resells them in smaller quantities to retailers or other merchants, who in turn sells to the ultimate consumer ." (Black's Law Dictionary Page 1628)
One who "sells the whole or a large part of his articles or goods or produce direct at a fixed price to his customers who will be mostly retail dealers." (AIR 2930 Bom. 597)
14. The perusal of the agreement between M/s Tapal Tea (Pvt.) Ltd. and M/s Shaheen Enterprises, Mirpurkhas dated 27.06.2005, copy of which has been provided by the learned counsel of the taxpayer , reveals that the taxpayer has only been appointed as a distributor for the Pithoro Town. Besides this town the distributorship agreement also appears to cover Mirwah Gorchani, Khowaja Goth, Khowaja Colony, Kakepota, Sultanabad, Das Meel Mori and certain other towns specifically mentioned in the agreement. Clause 1 of the agreement stipulates that the distributor is bound to ensure that the supply is made to every shop in accordance with the distribution network. He is further bound to arrange for the transport for the purpose, collect the cash, to ensure the safety of the stock and to maintain and balance the accounts. Clause 2 stipulates that the distributor shall prepare a list of all the shops located in his area that sell the product in the form prescribed by the Company and divide the area in smaller beats in order to ensure an easy access to the shops. Clause 3 stipulates that the distributor shall be bound to place his order at least once in a week. Clause 4 stipulates that the distributor shall book the order with the Company at least once in a week. Clause 7 stipulates that the distributor shall be bound to possess a warehouse, which should be located at a place where the trucks can reach easily; the cartons can be brought inside the warehouse easily and should be protected from humidity and sun. The products should be kept on the racks and should be looked after properly . Clause 10 stipulates that the distributor shall forward all the complaints related to the quality of the products received by him to the Company . The distributor shall sell the products at the prices mentioned in the price list provided by the Company under Clause 15. All these stipulations indicate that the taxpayer is bound under the agreement to act under directions or on behalf of the Company , as is the case with an agency agreement and the relationship is not transaction based, which would end once the transaction of sale of goods between the taxpayer and the Company is completed. It appears to be an agency agreement on the plain reading of its clauses, instead of being an agreement for the sale of goods and hence the taxpayer's contention prima facie appears correct. However the clauses 13 and 14 do stipulate that in case of the cancellation of the agreement the Company shall neither be bound to take back the unsold stock nor to compensate the distributor and the distributor shall be responsible to himself recover the unpaid sale price from the customers in this eventuality , which suggests that the risk is transferred to the distributor under the agreement. Moreover the copy of the agreement provided by the learned counsel is typed on a plain paper , which is unstamped and is not signed by any witness to the agreement. The last page of the agreement directs the distributor to submit a copy of the agreement to the Company after signing and stamping it in order to ascertain that the distributor is in agreement with these stipulations, which indicates that this might be the draft agreement. Although it is mentioned in the amended orders of assessment that, besides being the distributor of the products of M/s Tapal Tea (Pvt.) Ltd.., the respondent is also the distributor of the products of Continental Biscuits (Pvt.) Ltd, neither of the learned representatives has assisted this Bench about whether the issue is common to the products of both the principals / suppliers or to M/s. Tapal Tea (Pvt.) Ltd. alone, nor do the orders of the officers below give any indication about it.
The matter impugned before this Bench in the Departmental appeals is therefore remanded back to the appellant with the specific directions to look at the entire facts and circumstances of the case, go through the stipulations of the agreement actually entered into between the two parties and to decide the issue in the light of the decisions cited above in the light of the facts and circumstances of the case.
15. The Departmental appeals arc disposed of in the manner indicated above.