MUHAMMAD HALEEM, J.-The dispute relates to the assessment and levy of sales tax for three chargeable accounting years 1953-54, 1954-55 and 1955-56. The applicant is a firm engaged in the business of producing films. On completion of a film it either itself arranges for the exhibition of the film in the cinema houses or gives it to a distributor for such exhibition. The Income-tax and Sales Tax Officer, Company Circle III, Karachi, assessed and levied sales tax on the applicant by his orders dated the 3rd of December 1957 for the chargeable accounting years referred to above.
2. The applicant went in appeal and the Appellate Assistant Commissioner of Income-tax, 'A'
Range, Karachi, rejected it vide his order dated 11th October 1958. The applicant then preferred an appeal to the Income-tax Appellate Tribunal. The following two questions were raised :- "(1) The Appellate Assistant Commissioner erred In not declaring the film producers exempt under the sales tax when the appellants are not manufacturers under section 2(11).
(2) Sales tax is to be charged on the cost of print only and not on the cost of raw films consumed during the process of producing the films."
3. The Tribunal while repelling the contention of the applicant that "the production of a cinema film is a work of art like making of portrait" held the appiicant to be a manufacturer within the meaning of section 2(11) of the Sales Tax Act, 1951 (hereinafter referred to as the Act). While con--sidering the second question, the Tribunal observed that the order of the Appellate Assistant Commissioner did not discuss this question qua an exemption which was granted by a Board's circular. It directed the appeal to be re-heard on this question and thus allowed the appeal in part vide order dated 9th September 1960. The applicant then moved the Tribunal by making three applications in respect of three years under section 17(1) of the Act for referring the following two questions to the High Court for decision :- "(1) Whether in the facts and circumstances of the case the applicant, who is a producer of cinematographic films, is liable to sales tax in respect of cinematographic films produced by them and either assigned to others for exhibition or exhibited by themselves?
(2) Whether in the facts and circumstances of the case the Tribunal was right in holding that the applicants are `manufacturer' of cinematographic films within the meaning of that term in the Sales Tax Act, 19517"
4. The learned counsel for the applicant conceded before the Tribunal that the assessee was a 'producer' or 'manufacturer' within the meaning of section 2(11) of the Act. He, however, contended that the transactions which it made for the exhibition of the cinematographic films were not sales, and, therefore, sales tax was not leviable on them. In this context, the Tribunal observed that there was no point in referring question No. 1. With respect to question No. 2, the Tribunal examined the contracts which were made between the applicant and the exhibitors, and reached the conclusion that "the contracts were more or less in the form of a lease with various conditions and restrictions" and that according to the practice prevalent in film industry, "films were leased out for exhibition on receiving rents, commissions and royalties on various terms and conditions". These transactions were "not absolute or out-right sales". The Tribunal rejected the contention of counsel for the applicant that the films were not 'goods' within the meaning of section 2(6) of the Act and held that the case of the applicant was clearly covered by section 3(6)(a) of the Act. In this view of the matter, according to the Tribunal, no question of law arose for reference to the High Court for decision. The three applications were thus rejected.
5. The applicant submitted applications under section 17(2) of the Act in the High Court, in which it was requested that the Tribunal be directed to make the reference of the questions for decision to the High Court. The learned counsel for the applicant again took the stand that though the applicant manufactured films yet did not sell or lease them but leased the right of their exhibition only. Thus they did not fall within the definition of 'goods' because what the applicant manufactured was not the physically handled article called film but only cinematograph films which received this name by virtue of the subject-matter like a story or drama which was introduced in the celluloid material called films. These contentions did not prevail and the applications were rejected by the High Court vide a common order dated 21st November 1961.
6. The applicant then applied to the Supreme Court for leave to appeal which was granted. The Supreme Court while allowing the appeals on 3rd June 1964 and setting aside the order of the High Court framed the following two questions :- "(1) Whether production of the cinematograph film falls within the definition of goods; and
(2) Whether transfer of right of exhibition of such film falls within the definition of 'sale' in the Sales Tax Act?" and directed the Tribunal to state a case on the aforesaid two questions to the High Court under section 17(1) of the Act.
7. The Tribunal pursuant to the directions of the Supreme Court has referred these two questions for decision vide reference dated 7th October 1964. The questions as formulated involve the consideration of the meanings given to the words 'goods' and 'sale' in section 2(6), and 2(15) of the Act as under :- "2(6) 'goods' means all kinds of movable property other than actionable claims, money, stocks, shares and securities.
205) 'sale', with all its grammatical variations and cognate expressions, means every transfer of the property in goods from one person to another in the course of trade or business for cash or for deferred payment or other valuable con--sideration and includes all such transactions and use of one's own goods as are specified in subsection (6) of section 3."
In this context, the consideration of subsection (6) (a) of section 3, which is a charging section is also involved, because this position has given an extended meaning to the word 'sale' and included leases in that concept. It will be convenient to reproduce it here "(6) Where goods are produced or manufactured in Pakistan under such circumstances or conditions as render it difficult to determine the value thereof for the tax because-
(a) a lease of such goods or the right of using the same but not the right of property therein is sold or given; or"
As we have seen above goods are movable property but the expression 'movable property' has not been defined in the Act. It is, however, defined in section 3(34) of the General Clauses Act to mean "property of every description, except immovable property". That definition will be applicable to this term by virtue of section 3 of the General Clauses Act, unless there is g anything repugnant in the subject-matter or in the context of the Act itself. There is nothing repugnant in the context. The definition of the word 'goods' as contained in the Act excludes actionable claims, money, stocks, shares and securities. 'Action--able claim' is defined in section 3 of the Transfer of Property Act, 1882 to mean- "a claim to any debt, other than a debt secured by mortgage or immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession either actual or constructive, of the claimant, which the civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent."
The words placed in italics by us may be noted.
8. Against this background the learned counsel for the applicant while dealing with the first question contended that what is produced in the cinematographic film is a work of art and the material on which it is made is of no legal significance. That material is only a means of depicting stories etc. And as such the exposed cinematographic films even if they were a new entity, cannot be termed as 'goods' within the meaning of section 2(6) of the Act ; they should b., treated as mere copy--right. In this view of the matter, according to counsel, the cinematographic films are not subject to sales tax. He elaborated his argument by contending that the subject-matter of cinema--tographic films was a copyright and accordingly an actionable claim, particularly because this right only is assigned when cinematographic films are given to exhibitors to exhibit them.
9. In support of the above contentions the learned counsel for the applicant cited the case of Adams (Deputy Federal Commissioner of Taxation) v. Rau and another (1). In that case, the defendants were professional shorthand writers licensed under the Evidence Act, 1928 and typists.
Their business consisted chiefly of reporting judicial proceedings pursuant to the pro--visions of the Evidence Act, and they were remunerated for this work by fees prescribed under the Act, which consisted of fees specified for attendance at the proceedings including the taking of notes and fees calculated by the folio for transcripts supplied to the parties. They also reported conferences and meetings of various bodies and with the consent of the parties supplied transcripts to other persons. They had not registered themselves as manufacturers within the meaning of section 13 of the Sales Tax Assessm ent Act (No. 1) 1930-1931, and give security pursuant to section 11. A question therefore arose whether they were manufacturers in terms of section 3(1) of the Act which defines a 'manufacturer'. For the sake of convenience the definition of 'manufacturer' as contained in that Act is reproduced as under t- " 'manufacturer' means a person who engages, whether exclusively or not, in the manufacture or production of goods, including commodities; the word includes a printer, publisher, lithographer or engraver; if goods are made, in whole or in part, by one person out of materials supplied by another, the supplier is the manufacturers, unless the goods are required for the supplier's private, domestic or other personal use."
It was held that the description "manufacture or production of goods or common commodities" cannot "properly be applied to any part of the business or operations, in which the shorthand writers engage". The distinction, which formed the basis of this conclusion, was that the transcript was brought into existence not for sale as a commodity, but for the purpose of enabling the cmployers to have the benefit of services rendered in the
(1) 46 C L R 572 course of a skilled vocation and that it would be a misuse of English to describe a shorthand writer's employment as that of a manufacturer or producer of transcripts. Another obvious distinction is that the transcripts produced by the shorthand writers were not for sale, which is not the case in the instant case and the analogy accordingly i,: inapt, for it is not disputed that the films which are leased for exhibition are commodities which fall within the meaning of the word 'sale' as extended by section 2(15) of the Act. Even after this conclusion the concept) of goods was not excluded and it was held that :- "Doubtless the transcript 'produced' by the typist from the shorthand writer's dictation is a new entity, and is not the same thing as the pieces of paper on which it was made. Doubtless it is capable of sale."
It was also held that formulation of an abstract definition of such general terms was not possible.
Such definitions should be interpreted "according to the natural and ordinary meaning of its terms".
According to this well-settled principle of con--struction it is to be seen whether cinematographic films are included in the definition of the word 'goods'. This depends on the language of section 2(6) of the Act. The words "all kinds of movable property" used in section 2(6) of the Act are compre--hensive enough to include each and every variety of article falling within the definition of the words 'movable property'. Thus it cannot be disputed that cinematographic films are movable property. The only ground upon which it is argued that they are not included within the ambit of the word 'goods' is that they are the result of a skilled vocation. The legislative intent is clear on this point that every article whether it is the result of skill or not should b; included in it so long it falls within the definition of the words 'movable property'. We are thus unable to give to these words a narrow construction so a to exclude the work of art or skill.
10. The learned counsel for the applicant invited our attention to another English case, Clay v. Yates (1), in which the plaintiff, a printer, verbally agreed to print for the defendant 500 copies of a treatise, to which a dedication was to be prefixed at a certain price per sheet, including paper. The treatise was printed, and after the proof sheet of the dedication was revised by the defendant and returned to the plaintiff; he, for the first time, discovered that it contained libellous matter, and refused to complete the printing of it. On an action to recover printing charges for the treatise, the defendant resisted firstly upon the ground that it was a contract for the sale of goods within the 17th section of the Statute of Frauds, and secondly, that the plaintiff having refused to print the dedication was not entitled to recover the charges in respect of the treatise. The contro--versy centred around two points which were : whether the work and labour were the essence of the contract and the materials merely ancillary; and whether the dedication was libellous ; Pollock, C. B. Observed :- "in such cases it seems to me that the true criterion is,
(1) 156 E R Ex. Div. 12. p. 1123 whether work is the essence of the contract, or whether it is the materials supplied. My impression is, that in the case of a work of art, whether in gold, silver, marble or plaster, where the application of skill and labour is of the highest description, and the material is of no importance as compared with the labour, the price may be recovered as work, labour and materials. No doubt, it is a chattel that was bargained for, and, if delivered, might be recovered as goods sold and delivered, still it may also be recovered as work, labour and materials."
1n the facts and circumstances of that case, the conclusion was reached that it was a contract for work, labour and material as it was a mixed contract for work and material and not a =bargain for goods. In the instant case, the applicant was not hired to produce films and that having regard to the compre--hensive definition of the word 'goods' the analogy of this case will also not be applicable.
11. The third case cited at the Bar is published as Robinson v. Graves (1). In this case the plaintiff, who was an artist, was commissioned to paint a portrait of a lady against payment of 250 guineas. The defendant subsequently repudiated the contract before the portrait was completed. On an action by the plaintiff to recover agreed price of the portrait, the claim was decreed and it was held that the contract was not for the sale of goods but one for the exercise of skill to produce for reward a thing and for reaching this conclusion, Greer, L. J. Examined the case from the following angle :- "I can imagine that nothing would be more surprising to a client going to a portrait painter to have his portrait painted and to the artist who was accepting the commission than to be told that they were making a bargain about the sale of goods. It is, of course, possible that a picture may be ordered in such circumstances as will make it an order for goods to be supplied in the future, but it does not follow that that is the inference to be drawn in every case as between the client and the artist. Looking at the propositions involved from the point of view of interpreting the words in the English language it seems to me that the painting of a portrait in these circum--stances would not, in the ordinary use of the English language, be deemed to be the purchase and sale of that which is pro--duced by the artist. It would, on the contrary, be held to be an undertaking by the artist to exercise such skill as he was possessed of to order to produce for reward a thing which would ultimately have to be accepted by the client."
Again this'analogy will be inapt to the instant case upon the distinction drawn earlier in the case of Clay v. Yates, as these cases have been decided on a different principle.
12. The learned counsel for the applicant next emphasised that copyright is a beneficial interest in movable property ; therefore, only an actionable claim. But this must, in view of
(1) 1 K B 579 the definition of the expression "actionable claim", depend on whether the holder of copyright is in possession of beneficial interest or not. If he is in possession of it then it is not an 'actionable claim'. )n the instant case, at the point of time at which the goods were produced, the applicant was the owner of the films as well as of the copyright. This position is not disputed and the learned counsel for the applicant to avoid the, situation that the applicant being in possession of this right cannot be said to have an actionable claim, argued that though it is not actionable claim according to the definition of 'actionable claim', yet is a chose in action according to the English concept, as the meaning assigned to 'actionable claim' in section 130 of the Transfer of Property Act as it originally stood was wider in scope and was a good working definition of the English term 'chose in action', such as copyright, a mortgage debt and such others recognised in this concept. How this concept after the amendment of section 130 of the Transfer of Property Act by Act of 111900 is applicable in Pakistan apart from what is recognised as an actionable claim in section 3 of the Transfer of Property Act was not explained, nor was authority cited to, support this contention. This concept was examined in the case of Mst. Saviiri Devi v. Dwarka Bhatya and another (AIR 1939 All. 305). Iqbal Ahmad, J., while repelling this argument observed at page 308-- of the report :- "In England copyright is regarded as a 'chose in action' vide Halsbury's Laws of England, Edn. 2, Vol. 4, paras. 785 and 787, and (1885) 30 Ch. D 261 at p. 283. It was observed in this case that there being no word to denoie--incorporeal personal property, the meaning of the expression `chose in action' was gradually extended for the purpose of denoting it, and Mr. Joshua Williams in his work on 'Personal Property' treats it as including even copyrights and patents.
On the basis of these authorities, it was urged by the respondents' counsel that copyright falls within the category of actionable claims and can therefore in view of the provisions of section 130, T. P. Act, be assigned by an unregistered instrument. It is doubtful if these authorities will apply in India to 'actionable claims' which have been, defined by section 3, T. P. Act, as meaning inter alia any beneficial interest in movable property not in the possession either actual or constructive, of the claimant . . . . . .
Copyright is no doubt beneficial interest in movable property but the owner of the right has actual or constructive possession of the same and therefore copyright hardly comes within the purview of 'actionable claim' as defined by the Act."
We accordingly conclude that cinematographic films do not fall within the definition of an actionable claim and the English concept of 'chose in action' is not applicable to this case. We, therefore, answer the first question in the affirmative.
13. As to the second question we may mention that the learned counsel for the applicant did not urge anything to show that the transfer of the right to exhibit films does not fall within the extended meaning of the word 'sale' in the Sales Tax Act given to it by section 2(15) of the Act. The learned counsel for the respondent invited our attention to paragraph 3 of the order of the Tribunal dated 1st May 1961, in which the learned counsel for the applicant, as pointed out above, contended that the applicant was a producer and that according to the finding of the Tribunal "the contracts were more or less in the form of lease with various conditions and restrictions", although they did not amount to "absolute or outright sales", and contended that the case fell within clause (a) of subsection (6) of section 3 read with section 2(15) of the Act : See Noorani Cotton Corporation v.
The Sales Tax Officer (1). We accordingly agree with the learned counsel for the respondent and answer the second question also in the affirmative.
14. Thus we return the reference to the Tribunal with our decision to both the questions in the affirmative and direct the applicant to bear the costs of the respondent.
(1) PLD 1965 SC 161