JUDGMENT Upadhya, J.
1. This is a reference made by the Revising Authority under the U. P. Sales Tax Act.
2. The assessees. Messrs. Pannalal Babulal of Kanpur, were assessed to a tax of Rs. 2,343-12-0 on a turnover of Rs. 1,50,000 for the period from 1st April to 8-6-1948. They prefeired no appeal against the assessment but filed an application in revision under Section 10 of the Act to the Judge (Revisions) Sales Tax.
3. The assessees are a firm of commission agents. In the ordinary course of their business they made purchases and supplied goods to their contituents and were paid commission on the goods so supplied. These supplies were treated as sales by Sales Tax Officer and assessed to tax, although the assessses contended that they were merely purchasing agents for their customers find the supply oft goods made by them to their customers was not a sale but performance of their duty as agents.
It was, however, found that when the assessees made purchases for making such supplies, the persons from whom purchases were made entered in their account books the names of the assessees as the purchasers of the goods and the names of the persons for whom the goods were brought were not disclosed to those sellers. The Sales Tax Officer and the Revising Authority took the view that there was no privity of contract between the various business houses at Kanpur from which the goods were purchased and the assessees' customers who were the persons who ultimately received goods through the assessees.
It was, therefore, inferred by the taxing autho-" rities that two sales had taken place. The first was the sale to the assessees by the firm from whom the goods were purchased and the second was the sale effected by the assessees to their customers to whom they were supplied. The second transaction having been considered to be a sale effected by the assessees, they were held to be dealers within the meaning of the Sales Tax Act and required to pay sales tax on the amount received from their customers which was regarded as their turnover.
4. The assessees contended that the business of purchasing goods for their customers and thereafter supplying these goods to them was their ordinary business as commission agents. By undertaking, to work as commission agents they offered to render service as agents to all those persons who wished to purchase cloth from Kanpur. They did not have any cloth of their own to sell. On receipt of the orders from their customers they contacted various cloth dealers at Kanpur and after obtaining those goods from them supplied the goods to their customers.
It was not necessary, according to the custom of the trade, to disclose the identity of the principal for whom they made the purchases. They accepted the responsibility of paying for the goods, and therefore the persons from whom the cloth was purchased at Kanpur were satisfied by recording the names of the assessees' firm as the purchaser.
When the assessees supplied goods to their customers they did so in discharge of their duties as an agent. The assessees did not, in fact, sell goods to their customers, and it was therefore contended that the second transaction was not a sale and no tax could be levied thereon.
"Whether the purchases of goods on behalf of his principal and subsequent supply to the principal and on which transaction the agent does not make any profit but gets only commission in the circumstances of the present case amounted to a sale by the assessee to his principals as denned in the Sale of Goods Act."
6. Learned counsel for the applicant has argued that of the two transactions mentioned above the first is a sale and the second is not. The second transaction, namely the supply of goods by the assessees to their customers is nothing more than the performance by the assessee of their duty as commission agents.
Learned counsel has relied on Cassaboglou v. Gibb (1883) 11 QBD 797 (A). In that case the plaintiff, a merchant in London, gave orders to the defendant, a commission agent in Hongkong, to purchase for him a quantity of a certain kind of opium. No such opium could then be obtained at Hongkong but, instead of informing the plaintiff of this fact, the defendant by mistake informed him that he could procure it, and he purchased and shipped to the plaintiff the opium which he erroneously supposed to be such as was ordered, but which was really of an inferior description.
The plaintiff claimed damages, and the question arose as to what was the relationship between the parties. If the relationship was that of a principal and agent the liability and measure of damages would be different from that which it would be if the relationship was that of a vendor and purchaser.
The Court held that the relationship between the plaintiff and the defendant was not that of a vendor and purchaser but of principal and agent, and that therefore the true measure of damages which the plaintiff was entitled to recover was not the difference between the value of the opium ordered and shipped but the loss actually sustained in consequence of the opium not being of the description ordered: Fry L. J. observed at page 806 of the report:
"It is said, however, that there must be such a contract inferred for two reasons, first, because otherwise the property in the goods would not pass to the English merchant for whom the agent abroad bought them. In my judgment the property would pass. If the articles was specific it would pass by the purchase, and if not specific, but was appropriated by the agent for his principal, it would pass by virtue of the appropriation.
The other reason for inferring the relation of vendor and purchaser was said to be because the foreign agent who has bought for his principal has the right of stoppage in transitu, but that, in my opinion, is no reason for such inference. Since the leading case on the subject, 'namely, that of Lick-barrow v. Mason 1 Sm LC 8th Edn. 753 (B) the person who stops goods in transitu must be a consignor, but there are numerous cases in which the right has been allowed of stopping in transitu without the relationship existing of vendor and purchaser.
This right to stop in transitu is explained by Lord Abinger in Gibson v. Carruthers (1841) 8 M & W 321 (C), and whether founded on some principle of common law or of equity as discussed by Lord Abinger in that case, it is a right which the Courts have given effect to as a just, and equitable right.
The first case on the subject, namely, that of Feise v. Wray (1802) 8 East 93 (D) was cited to show that in the case of the foreign agent buying for his English principal there is the relationship of vendor and purchaser, but Grose, J., there says, "What is this but the plain and common case of the consignor of goods who has not received pay ment for thorn stopping them in transitu before they get to the handy of the consignee? it is said that no such right exists in the case of a factor against his principal.
If this were a case of factor and principal merely, I should find difficulty in saying that it did;" and Le Blane J. says : "For the purpose thus of stopping the goods in transitu they stood in the relative situation of vendor and vendee, though perhaps not so as for all purposes." In Faik v. Fletcher (1865) 18 CB (NS) 403 (E) Willes J., says "The fact of the plaintiff being agent for Be Mottos is no doubt a circumstance that is not to be lost sight of.
But in the sense of being the person who put the goods on board he is in the same condition as if he had been an ordinary unpaid vendor. For this the case of (1802) 3 East 93 (D) is an authority, though that was a case of stoppage in transitu." Then in Ireland v. Livingston (1872) 5 HL 395 (F) Cleasby B., says that there was there not a mere contract between vendor and purchaser, although after the goods were shipped a relation like that of vendor and vendee might arise.
No doubt in that case Lord Blackburn uses stronger language, and says that 'the legal effect of the transaction' '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' but by the legal effect of the transaction he means the legal effect of an analogous contract to that of a contract of purchase and sale.
It is important also to observe that Lord Chelms-ford in that case puts the matter so as to exclude the existence of any contract of purchase and sale. He says, 'I would preface what I have to say by stating my opinion that the question is to be regarded as one between principal and agent, though the plaintiffs might in some respects be looked upon as vendors to the defendants, so as to give them a right of stoppage in transitu'. Therefore in such a case as the present there is in fact no contract of vendor and purchaser."
The other case to which a reference was made was Bhagwandas Parasram v. Burjorji Ruttonji 45 Ind App 29 : (AIR 1917 PC 101) (G). In that case the plaintiffs, a firm carrying on business at Bombay, acted as pakka adatias. The defendant, a young man who was encouraged by some winnings in a lottery, engaged in speculative transactions on the Bombay market and instructed the plaintiffs to sell for him several lots of linseed amounting in all to 4000 tons for September delivery.
On the strength of this order the plaintiffs Bold linseed upto this amount by separate contracts to thirty-nine buyers. Though the transactions took the form of sales by the defendant to the plaintiffs, followed by resales by the plaintiffs to thirty-nine buyers, the plaintiffs acted throughout as pakka adatias, and. to secure them against loss, sums amounting in the aggregate to Rs. 61,000 were deposited, with them by the defendant as margin money. The market went against the defendant, and at the end of August, the plaintiffs asked him either to give delivery of the linseed or to authorise them to purchase linseed on his behalf.
The defendant, however, did neither the one nor the other, and so the plaintiffs acting within their rights, discharged their obligation to the thirtynine buyers by delivering 300 tons, and by making cross-contracts and paying difference as to the balance of the linseed. The result was that after giving the defendant credit for Rs: 61.000 deposited as margin money and a sum of Rs: 5,804 due to him on another account there was due to the plaintiffs Rs. 90,763, unless the plea of wagering was an answer to their claim.
To determine whether this plea was available it was necessary to consider the real nature of the relations between the parties to the transactions. Their Lordships observed that pakki adati dealings were well established as a legitimate mode of conducting commercial business in the Bombay market, and the plaintiffs were entitled to be indemnified by their employer, the defendant, against the consequences of the ants done by them unless those acts were unlawful. At page 33 (of Ind App) : (at p. 102 of AIR) of the report Sir Lawrence Jenkins observes:
"Under the sales to the thirtynine buyers it was the right of each buyer to call for delivery, but as the plaintiffs had carried through the transaction as pakka adatias of the defendant the rise or fall of the market was a matter of no concern to them, except 50 far as it might enhance the risk of recovering complete indemnity from their employer. Their right was to their commission and to an indemnity against loss as incidents of their employment.
The mere fact that as to the greater part of the linseed there was no delivery, but an adjustment of claims cannot alone vitiate the transaction." This case was cited to show that the status of a commission agent had received judicial recognition and that the second transaction in the present case should be regarded as the discharge by the assessees of their duty as commission agents.
In Bhagwan Das v. Kanji Deoji 30 Bom 205 (H) a case decided by a Bench of the Bombay High Court, the legal position of a pakka adatia was again considered, it was held that the pakka adatia has no authority to pledge the credit of an up-country constituent to the Bombay merchant and that no contractual privity is established between the up country constituent and the Bombay merchant. Yet the transaction between the pakka adatia and his constituent was not regarded as a sale. At page 216 of the report Jenkins C. J. observed:
"The evidence does not (in my opinion) show that the relations between the pakka adatia and up-country constituent is that of a mere seller and buyer. Thus, the contract makes provision for commission, and that, it has been said, is conclusive to show that to some extent there was the relationship of principal and agent." Later the learned Chief Justice observed:
"I think the contract between the parties was one of employment for reward, and the acts proved appear to me to converge to the conclusion that the contract of a pakka adatia in the circumstances like the present is one whereby he undertakes or - to use the word in its non-technical sense as businessmen on occasions do use it; see Barker v. M' Andrew (1865) 34 LJCP 191 (I) -- guarantees that delivery should, on due date, be given or taken at the - price at which the order was accepted, or differences paid; in effect he undertakes or guarantees to find goods for cash or cash for goods or to pay the difference."
7. Learned counsel for the assessees contends, therefore, that the supply of goods by his clients to their customers was an act done in the discharge of their duty as commission agents, and that the taxing authorities have erred in construing those transactions as sales effected by the assessees.
8. The learned Standing Counsel has urged in reply that in order to determine the legal character of the transaction it is necessary to find whether the property in the goods was at any time vested in the assessees and whether by the supply of the goods to their customers the assessees transferred that property to them. It is contended that if the answer to this question be in the affirmative, the second transaction cannot but be called a sale.
Learned counsel says that when the assessees firm did not disclose the name of their customer to the cloth dealers at Kanpur the firm was the purchaser of those goods. The cloth dealers sold the goods of the firm and entered the firm's name as the purchaser in their account books. The firm was responsible for paying the price of those goods and even if the alleged principal had become insolvent or had refused to pay, the assessees could not. claim to be absolved from liability to pay the price of the goods to the Kanpur dealers.
It is contended, therefore, that the first transaction was clearly a sale by the cloth dealers in Kanpur to the assessees and the assessees thus acquired the property in the goods so purchased. By the second transaction it is this property in the gocds which they possessed that was transferred by the assessees to their customers and sale is nothing but the transfer of the property in the goods for a price. The fact that the assessees did not make a profit is not relevant. Sales may be and sometimes are effected at a loss, and if in the present case the assessees charged a commission at a fixed rate the transaction did not differ from a sale.
9. Our attention was invited to (1802) 3 East 93 CD) one of the cases referred to in the judgment of Fry L. J. in Cassaboglou v. Gibb (A). In that case a certain trader in London ordered a Hamburg merchant to procure and ship for him a quantity of beeswax. This was procured and shipped on the account and risk of the London merchant on board a general ship for the port of London. The bill of lading was filled up to the order of the London trader.
The persons from whom the Hamburg merchant had purchased the wax were not acquainted with the London merchant and they had had no correspondences with him at all. Before the goods could reach the London trader the latter became a bankrupt, and the question arose as to whether the Hamburg merchant had a right to stop the goods in transitu. Grose J. observed:
"There was no privity between Browne (the London merchant) and the merchant of whom the wax were purchased .................... for the name of the original owner was never made known to the bankrupt. There was no privity between them but the goods were purchased and the bills drawn in Fritzing's (the Hamburg merchant's) own name; and, therefore, he stands in the situation of vendor as to Browne."
Le Blane J., says:
"The questions made are, 1st whether the parties stood in such a relation to each other as mat the right to stop in transitu attached? 2ndly, whether, if they did, there existed any circumstance in the case to repel that right? As to the first, the situation of Fritzing was that of being employed by Browne to purchase goods abroad and to send them to him here. For the purpose then of stopping the goods in transitu they stood in the relative situation of vendor and vendee; though perhaps not so for all purposes.
Fritzing pledged his own credit in the purchase of the goods from the original owners; and Browne could not be called for the value by the original owner unless the goods came to his hands, and he had not paid or accounted for the value of them to Fritzing with whom alone he dealt. Then clearly Fritzing had a right to stop them in transitu, unless the acceptance of his bills by 'Browne made any difference. But if the full price of the goods be not paid to the vendor, it does not take away his right to stop them in transitu."
This case in our opinion is authority only for the proposition that a commission agent who has purchased goods on credit without disclosing the name of his principal and who was, therefore, liable to pay the price of these goods, had the right to stop the goods in transitu; and in doing so he exercised the same right as that possessed by an unpaid vendor.
The learned Standing Counsel also relied on Bhagwan Das v. Kanjiseoji (H) to which reference has been made earlier in support of his contention that the dealings between a pakka adatia or a commission agent and his customer are dealings between principal and principal and not between an agent and principal.
10. Section 4 Sale of Goods Act defines 'a contract of sale of goods' as 'a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price', and if in pursuance of this contract the property in the goods is transferred to the buyer by the seller there is a sale. The customer's identity was not disclosed to the persons from whom the assessees purchased the goods and there was clearly no privity of contract between the vendors and those customers.
The assessees were in law the purchasers of the goods; they were liable for the price of the goods the property in which passed to them. When subsequently the assessees supplied those goods to their customer the property in the goods passed to that customer, and the question is whether it passed in pursuance of a contract of sale between the assessees and their customers, or otherwise.
A commission agent when he agrees to work for his principal as the latter's agent and to obtain for his principal the goods which the latter wants, undertakes a duty which he has to discharge by purchasing the goods required and supplying them to his principal. The transfer of the goods purchased by him to his customer is an act done in discharge of his duty as an agent. The contract between the principal and the commission agent is not, in our opinion, one of sale but of agency, and the transfer of the property in the goods is not a sale within the meaning of the Sale of Goods Act.
In the English cases to which we have referred the true character of the relationship between the parties in each case was inferred from the facts of that case. In (1872) 5 HL 395 (F) the right to detain goods in transitu which is ordinarily recognised as the right of an unpaid vendor appeared to furnish an indication that the relationship between the parties was that of a vendor and purchaser, yet Lord Chelmsford observed that the relationship was to be regarded as one between principal and agent though in some respects it may be looked upon as that of a vendor and purchaser 'so as to give' the consignor a right of stoppage in transitu. The observations made by Fry, L. J. in Cassaboglou v. Gibb (A) have put the matter beyond doubt.
11. We are, therefore, of opinion that the question referred to us must be, answered in the negative.
12. As the applicants succeed they are entitled to their costs which we assess at Rs. 200. The fee of the learned Standing Counsel is fixed at the same amount.