Bombay High Court
Commissioner Of Sales Tax, Maharashtra ... vs Sunderdas Harjiwan on 5 March, 1986
Equivalent citations: [1987]65STC450(BOM)
Author: M.H. Kania
Bench: M.H. Kania, Sujata V. Manohar
JUDGMENT
M.H. Kania, A.C.J.
1. This is a reference under section 23(1) of the Bombay Sales Tax Act, 1946 and section 34(1) of the Bombay Sales Tax Act, 1953. This reference should correctly have been divided into four references according to the periods of assessments. The assessments in respect of two of the periods are under the Bombay Sales Tax Act, 1946, one under the Bombay Sales Tax (No. 2) Ordinance, 1952 and one assessment is for a period during which the Bombay Sales Tax Act, 1953 was in force. However, there is no material difference in the provisions of these two Acts and the said Ordinance in connection with the questions with which we are concerned and the reference arises on a single application made against the decision of the Sales Tax Tribunal in a single revision application, namely, Revision Application No. 33 of 1975 which was decided on 26th March, 1976. In view of this, we are disposing of the reference as a single reference. No objection has been raised to our following this course.
2. The two questions posed for our determination in this reference are as follows :
(i) Whether, on the facts and in the circumstances of the case and on a true and proper interpretation of section 18(1) of the Bombay Sales Tax Act, 1953, the Tribunal was correct in law in holding that the transferee was not liable for the assessed dues of the transferor ?
(ii) Whether, on a proper construction of the assignment dated 16th October, 1952, the Tribunal was justified in concluding that there was entire transfer of business as contemplated under section 26(1) of the Bombay Sales Tax Act, 1953 ?
3. The facts giving rise to the reference are as follows :
One Sunderdas Dharamsi was carrying on business in the firm name and style of Messrs. Sunderdas Harjivan and had obtained a registration certificate No. BC-28. The registered dealer was Messrs. Sunderdas Harjivan. It appears that Mrs. Valibai Morarji, the wife of Sunderdas Dharamsi obtained a decree in Suit No. 970 of 1952 in this Court against her husband Sunderdas. On 16th October, 1952, Sunderdas Dharamsi executed a deed of assignment assigning in favour of his wife Valibai the business carried on in the name and style of Messrs. Sunderdas Harjivan, the registered dealer. We shall presently come to the terms of that deed of assignment. No intimation of that transfer was given to the Sales Tax Officer either by the transferor Sunderdas Dharamsi or by his wife Valibai. In these circumstances, five orders of assessment came to be passed against the registered dealer as represented by Sunderdas Dharamsi. These assessment orders and the periods to which they relate are as follows :
Period of assessment Date of assessment Amount of tax due
1-4-49 to 31-3-51 1-10-53 Rs. 11,634-4-3
1-4-51 to 31-10-52 22-3-54 Rs. 3,674-2-0
1-11-52 to 31-3-53 (Gen.tax) 5-9-55 Rs. 98-4-6
1-11-52 to 31-3-53 (Spl. tax) 5-9-55 Rs. 70-4-6
1-4-53 to 31-3-54 (Gen. tax) do. Rs. 222-11-0
do. (Spl. tax) do. Rs. 89-4-6
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Total Rs. 15,789-8-3
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It may be mentioned that in respect of the first order of assessment, namely, of Rs. 11,634-4-3 made on 1st October, 1953 for the period 1st April, 1949, to 31st March, 1951, out of the said amount of Rs. 11,634-4-3, the amount of tax was Rs. 9,859-12-0 and the balance of the amount, namely, Rs. 1,754-8-3 was in respect of penalty. It appears that Sunderdas Dharamsi filed an appeal against the said order. But that appeal was dismissed some time in October, 1954. The sales tax authorities were not aware of the deed of assignment or of the transfer made by Sunderdas in favour of his wife Valibai at all. It was only when the Collector of Bombay started recovery proceedings in respect of assessed dues that the Sales Tax Officer concerned came to know that the business of Messrs. Sunderdas Harjivan had been transferred to Valibai by her husband. The Sales Tax Officer thereafter issued a show cause notice dated 19th January, 1965 against Valibai asking her to show cause why she should not be held liable for the recovery of the aforesaid tax dues as a transferee of the business of Messrs. Sunderdas Harjivan, and passed an order on 13th February, 1965 directing the said Valibai to pay up the aforesaid amount of tax with penalty for late payment of dues failing which the amounts would be recovered by the Collector of Bombay as arrears of land revenue. It may be mentioned here that Valibai did not send any reply to the said show cause notice nor did she appear to show cause. However, Valibai preferred an appeal to the Assistant Collector of Sales Tax against the aforesaid order of the Sales Tax Officer. But that appeal was dismissed. She preferred a revision application to the Deputy Commissioner of Sales Tax against the said order, but that was also dismissed. She then filed a revision application, namely, Revision Application No. 33 of 1975 before the Sales Tax Tribunal. It was contended on behalf of Valibai before the Tribunal that there was no transfer of the entire business of Messrs. Sunderdas Harjivan in favour of Valibai, and hence the taxes and penalty claimed against the said registered dealer were not recoverable from Valibai. It was also contended on behalf of Valibai that the assessment orders were not binding on Valibai and could not be enforced against her, because she had a right to be heard before the assessment orders were passed and the assessment orders were passed without any notice to Valibai. The Tribunal came to the conclusion that under the aforesaid deed of assignment, the entire business of the registered dealer had been transferred to Valibai. The Tribunal thus confirmed the order holding Valibai as the transferee of the business, but further held that the order directing the recovery of the dues from Valibai was liable to be set aside, because she had not been given any notice before the assessment orders in question were passed. It is from this decision of the Tribunal that the aforesaid two questions have been referred to us.
4. Before proceeding to consider the first question referred to us, it will be useful to take notice of the relevant provisions of the relevant Acts. The assessment orders relating to the periods 1st April, 1949 to 31st March, 1951, and 1st April, 1951 to 31st October, 1952, are made under the Bombay Sales Tax Act, 1946. The assessment orders in respect of general tax and special tax in respect of the period 1st November, 1952 to 31st March, 1953, are made under the Bombay Sales Tax (No. 2) Ordinance, 1952 and the assessment orders in respect of general tax and special tax for the period 1st April, 1953 to 31st March, 1954 are made under the provisions of the Bombay Sales Tax Act, 1953. Section 17 of the Bombay Sales Tax Act, 1946, inter alia, deals with the question of information to be furnished regarding changes of business and sub-section (a) of that section provides that if any registered dealer sells or otherwise disposes of his business or any part of his business or effects or comes to know of any other change in the ownership of the business, he shall, within the prescribed time, inform the prescribed authority accordingly. Under rule 11 of the Bombay Sales Tax Rules, 1946, the time is fixed within which the information required under section 17 has to be given, and that time is fixed as one month from the occurrence of the events mentioned in sub-clauses (a), (b) and (c) of section 17. Sub-section (1) of section 18 of the said Act of 1946 which is the relevant provision runs as follows :
"When the ownership of the business of a dealer liable to pay the tax under this Act is entirely transferred, any tax payable in respect of such business and remaining unpaid at the time of the transfer shall be payable by the transferee as if he were the dealer liable to pay such tax; and the transferee shall also be liable to pay tax under this Act on the sale or supplies of goods effected by him with effect from the date of such transfer and shall within thirty days of the transfer apply for registration under section 8 or 8A, as the case may be, unless he already holds a certificate of registration."
Sub-section (3A) of section 12 provides that if any tax payable under the Act is not paid by any dealer within the prescribed time, the dealer shall pay, by way of penalty in addition to the amount of tax a sum not exceeding three-fourth per cent of the amount of tax for every month after the expiry of the prescribed period during which he continues to make default in the payment of the tax, Clause (i) of sub-section (1) of section 24 provides that whoever neglects to furnish any information required by section 17, shall, in addition to the recovery of any tax that may be due form him, be punishable with simple imprisonment which may extend to six months or with fine not exceeding one thousand rupees or with both. Coming to the Bombay Sales Tax Act, 1953, sub-section (18) of section 2 of that Act defines the term "tax" as meaning sales tax, general sales tax or purchase tax payable under that Act. The relevant portion of section 25 runs thus :
"If any dealer to whom the provisions of this Act apply -
(a) sells or otherwise disposes of his business or any part of his business, or effects or comes to know of any other change in the ownership of the business, or
(b) ...........
(c) ...........
he shall, within the prescribed time, inform the prescribed authority accordingly ......."
Sub-section (1) of section 26 runs as follows :
"When the ownership of the business of a dealer liable to pay the tax is entirely transferred, the transferor and the transferee shall joinly and severally be liable to pay any tax including penalty, if any, payable in respect of such business whether under the Bombay Sales Tax Act, 1946, the Bombay Sales Tax (No. 2) Ordinance, 1952, or this Act and remaining unpaid at the time of the transfer; and the transferee shall also be liable to pay tax on the sales or purchases of goods effected by him with effect from the date of such transfer and shall within thirty days of the transfer apply for registration unless he already holds a certificate of registration."
Sub-section (4) of section 26 reads as follows :
"When a dealer to whom a part of the business has been transferred, or who has obtained the whole or part of the stock relating to the business of a partnership which has been discontinued or dissolved, or an undivided Hindu family which is partitioned, obtains a certificate of registration he shall be liable to pay the tax on the turnover in respect of sales or purchases of goods made by him with effect from the date of such transfer of business, discontinuance or dissolution of the partnership, or the partition of the family, as the case may be."
Section 36 of the Bombay Sales Tax Act, 1953 deals with offences and penalties. Clause (a) of sub-section (1) of section 36 lays down that whoever carries on business as a dealer without applying for registration in contravention of section 11 or 26 is liable to be punished with simple imprisonment and fine. Similarly, whoever neglects to furnish any information required by section 25 is also punishable with imprisonment and fine.
5. At the hearing before us, the Revenue was represented by Mr. Jetly and Miss Sikandar. The respondent-assessee was, however, not represented at all. As we felt that in deciding the reference some of the aforesaid sections would have to be construed, we requested Mr. P. C. Joshi to assist us by appearing as amicus curiae, and he readily consented to assist us.
6. The submission of Mr. Jetly, learned counsel for the Revenue, is that in the present case the Tribunal has erred in holding that the orders of assessment in question could not be held binding as against Valibai, the transferee as no notice has been issued to her before the orders were passed. It was submitted by him that, in the present case, neither the transferor Sunderdas Dharamsi nor the transferee Valibai gave notice of the transfer of the business as they were bound to do. Thus, there was nothing to indicate to the sales tax authorities including, in particular, the Sales Tax Officers concerned that the transferee Valibai had any interest in the business of the registered dealer. In such a case it insist on a prior notice being given before the assessment orders could be made against Valibai would be to put Valibai at an advantage by reason of her own wrong. We find that there is substance in this argument of Mr. Jetly. It is true that principles of natural justice have to be complied with before and order of assessment, which imposes a liability on an assessee, can be passed. However, where the assessee, by his own wrongful conduct, renders it impossible for a notice to be given before an assessment order can be passed against the assessee, we fail to see what rule of natural justice requires that the orders of assessment should be set aside for the want of such notice. After all principles of natural justice or rules of natural justice are not embodied rules or sections of a statute. They are the principles which have to be observed in order to ensure fair play where an order imposing a liability on a party or having civil consequences is to be based against any person. Where an assessee, like the present one, himself or herself creates a situation where the fact of transfer of the business is suppressed from the sales tax authorities, we fail to see how it could be required of the sales tax authorities that before an order of assessment against the transferee-assessee can be made, a previous notice must be given to a transferee. In this regard, the Tribunal has relied upon the decision of a Division Bench of the Mysore High Court in the case of Tejanasa Tuljansa Bhandage v. First Commercial Tax Officer, II Circle, Gadag reported at [1969] 23 STC 47. We find, however, that the reliance placed on this decision by the Tribunal is misplaced. In the case before the Division Bench of the Mysore High Court, on 28th February, 1963, the whole of the business in question was purchased by Bhandage who was the petitioner before the High Court in four revision petitions which were disposed of by the judgment. Bhandage purchased the business from one Kabadi who was carrying on business as a radio and cloth dealer at Gadag and was a dealer under the Mysore Sales Tax Act, 1957. There is nothing in the judgment to suggest that the fact of this transfer was suppressed from the sales tax authorities. What has been held by the Division Bench is that no tax or penalty had become payable in respect of the assessment years 1959-60, 1960-61 and 1961-62 when the petitioner purchased the business from Kabadi, because the tax and penalty with respect to those assessment years became payable only when the orders of assessment were made and those orders of assessment were made only after the purchase. So no tax or penalty payable by the dealer had remained unpaid when he transferred his business to the petitioner in respect of those years. This decision cannot be relied on for holding that principles of natural justice were required to be observed before making assessment orders in a case like the one before us. Moreover in connection with the aforesaid decision we may observe that in the judgment all the relevant provisions of the Mysore Sales Tax Act, 1957 have not been set out. Neither counsel has drawn our attention to the provisions of that Act or to the scheme of that Act. We may only point out that, whatever may be the position under the Mysore Sales Tax Act, under the scheme of the Bombay Sales Tax Act 1959, the liability to pay tax arises as soon as the turnover of the sales or purchases made by the dealer exceeds the prescribed limit. In any case, a registered dealer is bound to pay the tax payable by him according to the returns filed by him prior to the filing of the returns. In view of this, it cannot be said that under the Bombay Sales Tax Act, 1959, the liability to pay tax arises only when the assessment orders are made. The liability to pay penalty stands on a different footing.
7. The next question which arises is to what extent the transferee is liable. In this connection it has to be borne in mind that the deed of assignment is dated 16th October, 1952. On a plain reading of section 18(1) of he Bombay Sales Tax Act, 1946, it is clear that where the ownership of the business is entirely transferred, then the liability for tax which is incurred by the transferee is for "any tax payable in respect of such business and remaining unpaid at the time of the transfer". Thus it is only such part of the tax which the registered dealer had become liable to pay upto and inclusive of 16th October, 1952 and remained unpaid that became payable by the transferee, Valibai. As far as any business which might have been done by Sunderdas Dharamsi after that date is concerned, we fail to see how the liability to pay tax for such transactions can be foisted on Valibai under sub-section (1) of section 18 although she might be liable for the tax payable on sales and purchases after that date under any other provisions of the said Acts or Ordinances. The same is the position under sub-section (1) of section 26 of the Bombay Sales Tax Act, 1953. In view of this, it is clear that it is only the liability under the first assessment order to the extent that it pertains to sales tax which can be enforced against Valibai, the transferee. As far as the second period, namely, 1st April, 1951 to 31st October, 1952 is concerned, it is only the liability for payment of tax pertaining to the period 1st April, 1951 to 16th October, 1952, which can be enforced against Valibai. As far as the remaining periods under assessments are concerned, they are all after the date of the assignment and the assessment orders pertaining to the same cannot be enforced against Valibai as the transferee under section 18(1) of the Bombay Sales Tax Act, 1946, and the tax dues cannot be recovered from her under the said sub-section.
8. Even as far as the first order of assessment pertaining to the period 1st April, 1949, to 31st March, 1951, is concerned, it is only in so far as the order pertains to tax dues, namely, Rs. 9,859-12-0, that it can be enforced against transferee Valibai and amount can be recovered from her. As far as the penalty is concerned, it is common ground that that penalty relates to delay in the payment of taxes. The relevant provision regarding the imposition of that penalty is sub-section (3A) of section 12 of the Bombay Sales Tax Act, 1946. A perusal of the provisions of the said sub-section which we have referred to in some detail earlier shows that the penalty is payable in a sum not exceeding three-fourth per cent of the amount of tax for every month after the expiry of the prescribed period during which the assessee continues to make default in the payment of the tax. Thus penalty is not automatic as such nor is it a penalty, the quantum of which can be ascertained merely by calculation as directed in law. The rate at which the penalty is to be imposed will have to be determined by the officer concerned. In these circumstances, the liability to pay the penalty can only arise when it is imposed. In the present case, the penalty was imposed along with the assessment order which was passed on 1st October, 1953, long after the deed of assignment was executed. Hence the penalty cannot be enforced against the transferee, Valibai.
9. What we have stated above would clearly show that it is not possible to answer question No. (i) as it is framed and in order to bring out clearly the controversy between the parties and determine the same, it will be necessary to reframe the said question by breaking it up. This we shall do at the conclusion of the judgment.
10. This brings us to question No. (ii). In regard to this question, the submission of Mr. Jetly was that we should not answer this question at all, because it was not competent to the respondent-assessee to raise that question in a reference application which was made by the Commissioner of Sales Tax. In support of this contention, Mr. Jetly relied on the decision of the Supreme Court in Commissioner of Income-tax, Kerala v. V. Damodaran . In that case, it has been held by the Supreme Court that in every case, it is only the party applying for a reference who is entitled to specify the question of law which should be referred. Nowhere in the Income-tax Act, 1961, is there a right given to the non-applicant to ask for a reference of questions of law on the application made by the applicant. Where the order of the Tribunal under section 254 of the Income-tax Act has decided the appeal partly against one party and partly against the other, the party who is aggrieved and who desires a reference to the High Court must file a reference application : It is not open to him to make a reference application filed by the other party the basis of his claim that a question of law sought by him should be referred. Where, however, the order made by the Tribunal operates entirely in favour of one party, although in the course of making the order the Tribunal may have negatived some points of law raised by that party, not being a party aggrieved by the result of the appeal, it is not open to that party to file a reference application and hence that party is not precluded from applying to refer a question even on a reference application made by the other party. Although these principles have been laid down in connection with the provisions of the Income-tax Act, 1961, it is common ground that they are applicable to the case before us. The question, however, is whether on the basis of these principles the assessee before us should be held to have been precluded from raising question No. (ii). In this connection, it is significant that the order of the Tribunal from which the reference arises imposes no liability to pay any tax or penalty on the assessee. It is, therefore, an order entirely in favour of the respondent-assessee. Even a bare perusal of provisions of section 23(1) of the Bombay Sales Tax Act, 1946, and of section 34(1) of the Bombay Sales Tax Act, 1953 makes it clear that in order to enable an assessee to apply for a reference, the order made by the Tribunal must affect his liability as a dealer to pay tax under the Act. In the present case, the order of the Tribunal imposed no such liability, and therefore, the assessee could not have applied for making any reference to this Court under the Bombay Sales Tax Act, 1946 or the Bombay Sales Tax Act, 1953. In these circumstances, we fail to see how she could have been precluded from raising the aforesaid question No. (ii) on a reference application made by the Commissioner. In fact, the very judgment relied upon by Mr. Jetly clearly shows that the assessee was not precluded from making such application.
11. Before considering the merits of question No. (ii), it is desirable to take a brief note of the provisions of the said deed of assignment under which the transfer of business has been effected. The said deed of assignment is dated 16th October, 1952 and is a registered document. The assignor is Sunderdas Dharamsi and the assignee is his wife Valibai, the assessee before us. The recitals in the said deed of assignment show that what Sunderdas assigned to his wife was the said business carried on in the name and style of Messrs. Sunderdas Harjivan as a going concern together with the stock-in-trade, furniture, fittings and fixtures and the goodwill of the said business including the right to use the name and also the benefits of and interest in the monthly tenancy of the premises where the said business was carried out. The assignment of this business is free from all encumbrances, debts, mortgages whatsoever without the right to recover outstanding of the said business or the liability to pay the debts and taxes including income-tax, sales tax and other outgoings. Clause (d) of the said deed of assignment makes it clear that the assignor agreed to pay and discharge all debts and liabilities, income-tax, sales tax and other taxes payable by him personally or in connection with the said business prior to the date of assignment and clause (g) says that the assignor retained the right to recover and realise all outstandings of the said business upto the date of assignment. Mr. Joshi who appeared as amicus curiae submitted before us that in these circumstances the assignment must be held not to be of the entire business but of a part of the business and in view of this, no liability to pay the tax or penalty in connection with the payment of tax which had been incurred by the said registered dealer, namely, Messrs. Sunderdas Harjivan, had incurred upto the date of the assignment could be enforced against the transferee. It was submitted by him that a perusal of the provisions of the relevant sections which we have referred to earlier shows that it is only where the entire business is transferred that the liability to pay tax under the Bombay Sales Tax Act, 1946, the aforesaid Ordinance of 1952 or the Bombay Sales Tax Act, 1953 which had been incurred by the registered dealer prior to the date of assignment could be enforced against the transferee. In support of this contention, Mr. Joshi relied on the decision of a Division Bench of this Court in Commissioner of Sales Tax v. K. Tajkhanji & Co. reported in [1975] 36 STC 130, to which one of us was a party. In that case it was held that where a partnership firm carrying on business as dealers in paints, varnishes and other painting materials assigned the business in favour of the respondents, but, in doing so, reserved to themselves and did not transfer to the respondents the right to perform the outstanding contracts as well as the liability to perform the same, it could not be said that the ownership of the business had been entirely transferred to the respondents within the meaning of section 26(1) of the Bombay Sales Tax Act, 1953. We are afraid that this decision is of no assistance to the assessee in the present case. In fact it has been held in that decision that, in order to attract the liability under section 26(1) of the Bombay Sales Tax Act, 1953, it is necessary to establish that the business as a running concern was transferred and nothing substantial was kept back by the vendor to impair the running of the business by the transferee (see page 133 of the report). Thus, on a proper analysis of the said judgment, it is not as if, in order that the ownership of the business should be held to be transferred, it is required that nothing should be kept back whatever; but where something is kept back from the transfer which is an essential part of the business as a running business, then the transfer cannot be said to be of the entire business or that the ownership of the business was entirely transferred. In the case of Commissioner of Sales Tax v. K. Tajkhanji & Co. [1975] 36 STC 130 (Bom) what was kept back by the assignor was the right to perform the outstanding contracts which was an essential part of the running business itself, and it was in view of this that it was held that the ownership of the business has not been entirely transferred. In the present case, however, all that has been kept back is the right to recover the outstandings which cannot be regarded as an essential part of the business as a running business at all. Similarly, the fact that the liability to pay debts, taxes and outgoings of the business had been retained by the assignor cannot result in the transfer being only partial. The Tribunal was quite correct in holding that the transfer was of the entire business of the registered dealer. In the result, question No. (i), with consent of counsel, is reframed as follows :
"(i) Whether, on the facts and in the circumstances of the case and on a true and proper interpretation of section 18(1) of the Bombay Sales Tax Act, 1946 and section 26(1) of the Bombay Sales Tax Act, 1953, the Tribunal was correct in law in holding that the transferee was not liable for the assessed dues of the transferor pertaining to :
(a) the periods of assessment 1st April, 1949 to 31st March, 1951 and 1st April, 1951 to 16th October, 1952;
(b) the periods of assessment 16th October, 1952 to 31st October, 1952 and 1st November, 1952 to 31st March, 1953, in respect of general tax as well as special tax;
(c) the period of assessment 1st April, 1953 to 31st March, 1954 in respect of general tax as well as special tax; and
(d) in respect of the penalty of Rs. 1,754-8-3 in respect of the period 1st April, 1949 to 31st March, 1951 ?"
12. As far as question No. (i) (a) is concerned, the same is answered in the negative and in favour of the Revenue. As far as questions Nos. (i)(b), (i)(c) and (i)(d) are concerned, the same are answered in the affirmative and against the revenue. Question No. (ii) is answered in the affirmative and against the assessee.
13. Before parting with the matter, we would like to express our gratitude to Mr. Joshi for having assisted us as and amicus curiae in the hearing of this reference.
14. There will be no order as to the costs of this reference.
15. Reference answered accordingly.