Sunday, January 26, 2014

What constitutes “Property” according to the Supreme Court?

We keep analyzing intellectual property through a narrow prism so much so that we tend to lose sight of the fundamentals of conventional property jurisprudence. Apart from need for conceptual depth and clarity, it is important to understand conventional property jurisprudence to be able to assert property-like rights over subject-matter which is not covered under existing IP legislations and whose protection under common law is not expressly prohibited by these legislations.

During the course of my research on these lines quite some time ago, I came across a dated yet extremely relevant decision, Vikas Sales Corporation and Anr. v. Commissioner of Commercial Taxes AIR 1996 SC 2082, where the Supreme Court has interpreted "property" in the broadest terms I have come across so far. Before I analyse the decision, here are a few definitions to help understand this post better:

1.       The Sale of Goods Act, 1930 defines “goods” to mean every kind of movable property other than actionable claims among other things
2.       The Sale of Goods Act, 1930 defines "'property' to mean “the general property in goods, and not merely a special property"
3.       The General Clauses Act, 1897 defines “movable property” negatively to mean “property of every description except immovable property”
4.       The General Clauses Act, 1897 defines “immovable property” to "include land, benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to the earth"
5.       "Actionable claims" is defined in Section 3 of the Transfer of Property Act to mean a claim to any debt, other than a debt secured by mortgage of 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 recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.

In the Vikas Sales case, the question that the Court was faced with was if transfer of an Import Licence/Exam Scrip by its holder to another person constituted sale of a good for the purpose of levying sales tax on the transaction.

The assessee took the view that an import license was neither a “good” within the meaning of sales tax legislations nor “property”, but was merely an actionable claim which was excluded from the definition of “goods” in the Sale of Goods Act, 1930. According to the assessee, “property is a bundle of rights but every strand in that bundle does not by itself constitute property”. Consequently, the assessee argued that sales tax did not apply to transfer of an import licence.

On the other hand, the Commissioner of Commercial Taxes drew the Supreme Court’s attention to a decision of the Karnataka High Court involving a similar issue, Bharat Fritz Werner Ltd. v. Commissioner of Commercial Taxes (1992) 86 S.T.C. 170, where the High Court took the view that an import licence not only enabled a person to import goods, but also excluded competition. In other words, it was not a mere beneficial interest or an actionable claim, but was a valuable right in itself which was freely transferable. Consequently, according to the High Court, an import licence attracts the definition of “goods” within the meaning of the Karnataka Sales Tax Act, 1957.

This argument was further affirmed by the Division Bench of the K’taka High Court which observed that upon transfer of an import licence, it confers upon the transferee a right which is “choate and perfected and exercisable immediately”.

To establish that sales tax applies to transfer of an import licence, one could do one of these two things, or both:
A.      Either prove that an import licence is not an actionable claim, and is therefore “movable property”, and hence a “good”; or
B.      Positively prove that an import license is movable property.

The Supreme Court did both. The Court analyzed the definition of “actionable claim” in the Transfer of Property Act and observed that import licences were bought and sold freely in the market as goods and since they had a value of their own which was unrelated to the goods which could be imported under the licence, it was idle to contend that they were in the nature of actionable claims. 

On what constitutes “movable property”, the challenge before the Court was that movable property is merely defined negatively to mean “property of every description except immovable property”, which is not of great assistance. Consequently, the Court reviewed a slew of authorities to understand the meaning of “property”. A few critical definitions are extracted below:

19. In Black's Law Dictionary (6th Edition, 1990), the expression "property" has been given the following meanings:

Property: That which is peculiar or proper to any person; that which belongs exclusively to one. In the strict legal sense, an aggregate of rights which are guaranteed and protected by the government. Fulton Light, Heat & Power Co. v. State 65 Misc. Rep. 263, 121 N.Y.S. 536. The term is said to extend to every species of valuable right and interest. More specifically, ownership; the unrestricted and exclusive right to a thing; the right to dispose of a thing in every legal way, to possess it, to use it, and to exclude every one else from interfering with it. That dominion or indefinite right of use or disposition which one may lawfully exercise over particular things or subjects. The exclusive right of possessing, enjoying, and disposing of a thing. The highest right of man can have to anything; being used to refer to that right which one has to lands or tenements, goods or chattels, which no way depends on another man's courtesy.

The word is also commonly used to denote everything which is the subject of ownership, corporeal or incorporeal, tangible or intangible, visible or invisible, real or personal; everything that has an exchangeable value or which goes to make up wealth or estate. It extends to every species of valuable right and interest, and includes real and personal property, easements, franchises, and incorporeal hereditaments, and includes every invasion of one's property rights by actionable wrong. Labberton v. General Cas. Co. of America, 53 Wash. 2d 180, 332 p. 2d. 250, 252, 254.

Property embraces everything which is or may be the subject of ownership, whether a legal ownership, or whether beneficial, or a private ownership. Davis v. Davis. Tax Civ. App., 495 S.W. 2d 607,611. Term includes not only ownership and possession but also the right of use and enjoyment of lawful purposes. Hoffmann v. Kinealy, Mo., 389 S.W. 2d. 745, 752.

Goodwill is property, Howell v. Bowden, Tex Civ App., 368 S.W. 2d 842, 848; as is an insurance policy and rights incident thereto, including a right to the proceeds, Harris v. Harris 83 N.M. 441,493 P. 2d 407, 408.

The Dictionary further says "property is either: real or immovable; or personal or movable". It then proceeds to give the meaning of the expression "absolute property", "common property", "intangible property", "movable property", "personal property" "private property" and "public property" among others. The above definition shows the wide meaning attached to the expression. It is said to extend to every species of valuable right and interest. It denotes everything which is the subject of ownership, corporeal or incorporeal, tangible or intangible, visible or invisible, real or personal. It includes "everything that has an extendable value". It extends to every species of valuable right and interest.

....Under the Law of Property Act, 1925, Section 205, "property" includes anything in action and any interest in real or personal property. There must be a definite interest; a mere expectancy as distinguished from a conditional interest is not a subject of property.

....'Property' also signifies a beneficial right in or to a thing. Sometimes the term is used as equivalent to ownership; as where we speak of the right of property as opposed to the right of possession (q.v.), or where we speak of the property in the goods of a deceased person being vested in his executor. The term was chiefly used in this sense with reference to chattels (Finch, Law 176).

...This definition also shows that the expression signifies "things and rights considered as having a money value". Even incorporeal rights like trademarks, copyrights, patents and rights in personam capable of transfer or transmission, such as debts, are also included in its ambit.”

After reviewing these definitions, the Supreme Court observed thus:

“21. The above material uniformly emphasises the expansive manner in which the expression "property" is understood. Learned counsel for the petitioners brought to our notice the meanings of the term "property" set out in Chapter-13, "The Law of Property", in Salmond's Jurisprudence (12th Edition, 1966). In this chapter, several meanings attributed to "property" are discussed in extenso, to all of which it may not be necessary to refer. Suffice to say that property is defined to include material things and immaterial things (Jura in re propria) and leases, servitudes and securities etc. (jura in re aliena). 

The material things are said to comprise land and chattels while immaterial things include patents, copyrights and trademarks, which along with leases, servitudes and securities are described as incorporeal property. The expression "movable property" is stated to include (Page 421) corporeal as well as incorporeal property. Debts, contracts and other choses-in-action are said to be chattels, no less than furniture or stock-in-trade. Similarly, patents, copyrights and other rights in rem which are not rights over land are also included within the meaning of movable property. 

We are unable to see anything in the said Chapter-13, which militates against the meanings ascribed to the said expression in the judicial dictionaries referred to above. Indeed, they are consistent with each other.

The Court then reviewed the terms of the Import Licence to ascertain its nature and concluded that such a licence had its own value, could be freely bought and sold which lent it the character of a “good”. Consequently, the Court concluded that sales tax was applicable when such a license was sold.

I will analyze the implications of this decision further in the next post.

No comments:

Post a Comment