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The Collector Of Sales Tax, Bombay State v. Messrs Parimal Brothers
Factual and Procedural Background
These eight references, involving the same respondent firm Messrs. Parimal Brothers, were consolidated and decided by a single judgment. The underlying facts are identical in all eight references. The business in question changed hands several times: originally carried on by Shroff Parekh & Co., transferred in December 1952 to Mrs. Kusum Mody, who on 26 November 1953 transferred it to Sunways (India) Private Limited, which on 2 June 1954 transferred the business to Messrs. Parimal Brothers, who thereafter ran it.
On 26 April 1955 the Assistant Collector of Sales Tax issued notices under section 14 to Mrs. Kusum Mody, to Mr. K.M. Shroff of Sunways (India) Pvt. Ltd., and to Messrs. Parimal Brothers calling upon them to show cause why they should not be assessed to sales tax for five specified periods: (1) 1-1-1953 to 31-3-1953; (2) 1-4-1953 to 25-11-1953; (3) 26-11-1953 to 31-3-1954; (4) 1-4-1954 to 6-5-1954; and (5) 7-5-1954 to 1-6-1954.
After hearings, on 1 June 1955 the Assistant Collector passed eight assessment orders assessing the respondent to tax under section 26 of the Sales Tax Act, 1953 — two orders (general and special tax) for each of the first three periods and composite orders for the last two periods. Messrs. Parimal Brothers appealed to the Sales Tax Tribunal arguing they could not be held liable under section 26 as transferees because neither Mrs. Mody nor Sunways had been assessed to tax prior to the transfer; the Tribunal accepted that contention (relying on Mohanlal Brijlal v. State of Bombay) and held Messrs. Parimal Brothers not liable. The Collector of Sales Tax then referred a question of law to the court concerning the proper construction of subsection (1) of section 26 and whether the transferee was liable to pay the taxes assessed on 1-6-1955 for the listed periods.
Legal Issues Presented
- Whether, on the facts and in the circumstances of these cases, and on a proper construction of subsection (1) of section 26 of the Bombay Sales Tax Act, 1953, Messrs. Parimal Brothers (the opponents/transferees) are liable to pay the tax assessed on 1-6-1955 for the periods: 1-1-1953 to 31-3-1953; 1-4-1953 to 25-11-1953; 26-11-1953 to 31-3-1954; 1-4-1954 to 6-5-1954; and 7-5-1954 to 1-6-1954.
- Whether the phrase "any tax payable ... and remaining unpaid at the time of the transfer" in s.26(1) requires that tax be previously assessed and demand served (i.e., whether assessment and notice/demand are conditions precedent to the tax being "payable" and "remaining unpaid" for the purposes of s.26(1)).
Arguments of the Parties
Applicant / Collector (Mr. Palkhivala)
- Conceded Messrs. Parimal Brothers were not liable for the period 1-1-1953 to 31-3-1953 because that liability arose under the 1952 Ordinance, not under the Act.
- Contended that "tax payable" in s.26 includes the tax which the transferor-dealer is liable to pay under the Act, and that assessment and quantification are not conditions precedent to payability; the Act imposes a duty on the dealer to pay and assessment is a remedy for default.
- Argued decisions under the Income-tax Act are of limited assistance because the statutory schemes differ.
Respondent / Transferee (Mr. Ganatra)
- Argued that "tax payable and remaining unpaid" should be understood to mean tax which has been assessed and in respect of which a demand notice has been issued and the payment date in the notice has expired.
- Distinguished the "quality of charge-ability" (i.e., liability under charging section) from the "quality of payability" (i.e., a tax becoming payable only when assessed and demanded).
- Contended a transferee cannot be exposed to an unquantified liability which could not be ascertained at the time of transfer; relied on provisions of s.16 (esp. sub-s. (6)) and on certain decisions to support the requirement of assessment/demand before payability.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Mohanlal Brijlal v. State of Bombay, 1956 7 S.T.C. 295 | Decision on similar question relied upon by the Tribunal to hold transferee not liable where transferor had not been assessed. | The Tribunal relied on this decision to reach its conclusion; the present court noted the Tribunal's reliance when framing the issue for determination and proceeded to examine the statutory language and other authorities. |
| State of Bombay v. A. & A. Industries Corporation, 1960 12 S.T.C. 122 | Principle of construction for taxing statutes: ambiguities are resolved in favour of the taxpayer. | The court cited this authority to emphasize the settled rule that taxing provisions must be clearly expressed and that in case of doubt the taxpayer's interpretation should prevail; this principle informed the court's approach to construing s.26(1). |
| Wallace Brothers and Co. Ltd. v. Commr. of Income Tax, 1948 16 I.T.R. 240 (P.C.) | Liability to tax arises by virtue of the charging section and is not dependent on assessment; quantification may be postponed. | The court relied on this Privy Council decision to support the proposition that the obligation to pay tax is created by the charging provision and does not await assessment for its existence. |
| Whitney v. The Commissioners of Inland Revenue, 1925 10 Tax Cases 88 | Authority cited in relation to the principle that liability to tax can arise independently of assessment. | The court referred to this House of Lords decision (through subsequent authorities) as part of the lineage of authority supporting the point that charging provisions create liability before assessment. |
| Chhaturam v. Commr. of Income Tax, Bihar, 1947 15 I.T.R. 302 (F.C.) | Held that liability to pay tax does not depend on assessment; assessment order only quantifies liability already created by charging sections. | The court cited this Federal Court decision to corroborate the principle that assessment merely quantifies a liability already created by the charging sections, and hence payability need not depend on prior assessment. |
| Recols (India) Ltd., In re | Points to the time at which tax becomes a debt recoverable (for purpose of Companies Act s.230), i.e., when ascertained and notified by assessment. | The court distinguished this authority as addressing when tax becomes a concrete debt recoverable (relevant to winding up and priorities under Companies Act), not the separate question of when tax becomes payable under the Sales Tax Act. |
| Bihar Bolts, Rivets & Engineering Works Ltd., In re | Similar to Recols: concerned with when tax becomes a debt due and payable for priority in winding up. | The court treated this decision as addressing priority in liquidation (debt status) and therefore distinguishable from the issue of when tax is "payable" for the purposes of s.26(1). |
| Commr. of Sales Tax v. Jagatbandhu Mohanty, 1961 12 S.T.C. 706 | Construction of sub-s. (1) of s.19 Orissa Sales Tax Act (worded similarly to s.26 here); to some extent supports view that assessment/notice are required. | The court acknowledged this decision as partially supportive of the respondent's position but stated it was unable to follow the line of reasoning adopted there for reasons given in the opinion. |
| Phoolchand Dharamchand v. State, 1952 3 S.T.C. 460 | Calcutta High Court decision dealing with a similar provision of the Bengal Finance (Sales Tax) Act; reached a different view. | The court noted this decision (which takes a different view) and observed it was not considered in Jagatbandhu Mohanty. |
| Rambali Bhuleshwar v. Sales Tax Officer, Recovery I, Bombay, 1960 12 S.T.C. 595 | Held a purchaser at Court-auction is not liable under s.26(1) because the change of ownership in a Court-auction is not a transaction between dealer (transferor) and purchaser (transferee) as contemplated by s.26(1). | The court distinguished that case on its facts and held it was not applicable because in the present matter the respondent acquired the business by a transfer from a dealer (Sunways), not in a Court-auction context. |
| Indian Aluminium Co. Ltd. v. M.M. Dalvi, 1956 8 S.T.C. 58 | Authority relied upon by the respondent in arguing that the law in force at the date of transfer matters for tax liability. | The court noted the reliance but rejected the argument in the present case, observing the point was not raised earlier and that the amendment to the Act did not repeal prior provisions relevant to the contested periods. |
| Chatturam Horilram Ltd. v. Commr. of Income Tax, 1955 27 I.T.R. 709 | One of several Income-tax decisions cited in support of the view that payability arises on assessment. | The court recorded the citation but treated Income-tax authorities as of limited assistance given the differing statutory schemes between Income-tax and Sales Tax Acts. |
| Rungta Engineering & Construction Co. Ltd. v. Income-tax Officer | Cited among Income-tax authorities regarding assessment and payability. | The court mentioned it as part of authorities relied on by respondent's counsel but did not apply it as directly persuasive given the statutory differences. |
Court's Reasoning and Analysis
The court began by stating and applying well-established principles of construction for taxing statutes: charges on taxpayers must be imposed by clear, unambiguous language and any ambiguity should be resolved in favour of the taxpayer (citing Maxwell and the Supreme Court in State of Bombay v. A. & A. Industries Corporation). Bearing those principles in mind, the court examined the admitted facts: neither Mrs. Mody nor Sunways had registered as dealers, filed returns, or paid tax and there was no assessment or quantification of tax at the dates of the respective transfers.
The court analysed subsection (1) of section 26 and described it as enacting a legal fiction: it makes a transferee of an entire business liable to pay tax "as if he were the dealer liable to pay such tax." The court identified three conditions that must be fulfilled for the transferee's liability to attach under s.26(1):
- the transfer must be of the entire business;
- the transferor must have been a dealer liable to pay tax in respect of that business; and
- the tax payable by the transferor in respect of that business must have remained unpaid at the date of transfer.
The court then examined the meaning of "tax payable" and held that it includes the dealer's obligation to pay the tax (the liability created by the charging section), as distinct from a quantified tax debt. Relying on authorities (Wallace Brothers; Chhaturam), the court affirmed the principle that liability to tax arises by virtue of the charging provision and is not dependent on prior assessment; assessment serves to quantify what is already a liability.
Addressing the respondent's argument that "remaining unpaid" necessarily implies an assessment and demand, the court observed that the ordinary meaning of "remains unpaid" is that the tax has already become payable and has not been paid at a given point of time. The court distinguished the separate question of when the tax amount becomes a debt recoverable by the State (which under sub-s. (6) of s.16 and authorities like Recols is when it is ascertained and notified), from the question of when tax becomes payable. Sub-s. (6) of s.16, the court said, fixes the point at which unpaid tax becomes recoverable as arrears; it does not determine the earlier question of when an obligation to pay arises.
The court analysed the scheme of the Sales Tax Act: s.5 creates the liability when turnover exceeds the limit; s.9 requires registration; s.13 and the rules prescribe returns (monthly/quarterly); s.16(2) requires registered dealers to pay the tax due according to their return. Sections 14 and 16, the court stressed, operate primarily as machinery for assessment, demand and recovery when a dealer fails to discharge statutory obligations. Thus, the obligation to pay arises when the statutory conditions (e.g., turnover threshold) are met and becomes payable at the point prescribed for filing returns; assessment/demand procedures are remedial for defaults.
From this analysis the court concluded that if the transferor-dealer at the time of transfer had failed to discharge any obligation in respect of the business transferred, the transferee would be liable under section 26 to discharge that obligation "in the same manner and to the same extent" as if he were the transferor (the opinion refers to sub-s. (7) of s.26 in this context).
The court considered and distinguished several authorities relied upon by the respondent. It held decisions about the point at which tax becomes a debt for the purposes of Companies Act priorities (Recols; Bihar Bolts) to be inapposite to the question of when tax is "payable" under the Sales Tax Act. It acknowledged that Jagatbandhu Mohanty (an Orissa Sales Tax case) supported the respondent's view to some extent, but stated it was unable to follow that reasoning. It also distinguished Rambali Bhuleshwar (Court-auction purchaser) as factually different and inapplicable here.
On the question whether the respondent should be liable for tax attributable to the period when Mrs. Mody conducted the business, the court rejected the respondent's privity argument. It reasoned that when Sunways acquired the business from Mrs. Mody on 26 November 1953, Sunways acquired Mrs. Mody's tax liabilities in respect of the transferred business; when Sunways later transferred the business to the respondent (2 June 1954), those accumulated liabilities (Sunways' own plus those acquired from Mrs. Mody) were fastened on the respondent under s.26(1).
The court also rejected the contention that amendments to the Act (from 1 April 1954) altered liability for earlier periods in a way that prejudiced the respondent; it noted that the amendments did not repeal provisions relevant to the disputed periods and that no purchase tax liability was fastened on the respondent for the earlier period.
Finally, the court declined to entertain a fresh factual contention raised for the first time (that the transfer to the respondent was not of the entire business) because it had not been raised before the Sales Tax authorities or the Tribunal.
Holding and Implications
Core Ruling: The court answered the referred question as follows: the answer is negative insofar as the period 1-1-1953 to 31-3-1953 is concerned, and affirmative insofar as the periods 1-4-1953 to 25-11-1953; 26-11-1953 to 31-3-1954; 1-4-1954 to 6-5-1954; and 7-5-1954 to 1-6-1954 are concerned.
Consequences and immediate effects:
- Messrs. Parimal Brothers are not liable under s.26 for the period 1-1-1953 to 31-3-1953 (liability for that period arose under the 1952 Ordinance).
- Messrs. Parimal Brothers are liable under s.26 for the remaining listed periods; the transferee is liable to discharge the unpaid obligations of the transferor in respect of the transferred business (including liabilities acquired in a prior transfer chain).
- The respondent (Messrs. Parimal Brothers) must pay the costs of the applicant: a single set of costs quantified at Rs. 500.
- The court limited its conclusions to the construction and application of s.26(1) and the facts presented; no broader new legal rule supplanting prior authorities was expressly declared beyond the application of established interpretive principles and the court's construction of "tax payable" to include the underlying obligation created by the charging section rather than requiring prior assessment and demand.
Tambe, J.:— These eight references can be disposed of by one judgment. The dealer who has been assessed to sales tax under the Sales Tax Act, 1953 (hereafter referred to as the Act) is the same person, namely, the firm of Messrs. Parimal Brothers, respondents to all these eight references.
2. The facts giving rise to these references, and the question referred to us are identical in all these references. These eight references raise a question as regards the interpretation and true meaning of the clause “any tax payable …and remaining unpaid an the time of the transfer” occurring in s. 26 of the Act. The facts in brief are: The business was carried on originally by a firm doing business under the name Shroff Parekh & Co. In December 1952, Shroff Parekh & Co. transferred its business as a going concern to one Mrs. Kusum Mody. On November 26, 1953, Mrs. Mody in her turn transferred the business as a going concern to the Sunways (India) Private Limited. On June 2, 1954, the Sunways (India) Private Limited transferred the business as a going concern to Messrs. Parimal Brothers, the respondent to all these eight references, and since then, it appears that they have been running the business. On April 26, 1955, notices under s. 14 were issued by the Assistant Collector of Sales Tax to Mrs. Kusum Mody, Mr. K.M Shroff of Messrs. Sunways (India) Private Limited, and Messrs. Parimal Brothers, calling upon them to show cause why they should not be assessed to sales-tax in respect of the following five periods: (1) January 1, 1953 to March 31, 1953; (2) April 1, 1953 to November 25, 1953; (3) November 26, 1953 to March 31, 1954; (4) April 1, 1954 to May 6, 1954; (5) May 7, 1954 to June 1, 1954. After hearing them, the Assistant Collector of Sales Tax on June 1, 1955, passed eight orders assessing the respondent to tax. For the first three periods, two orders for each period were passed, one relating to the general tax and the other relating to the special tax; and for the last two periods, one composite order for each period was passed in respect of both the taxes. The respondent has been assessed to tax under s. 26 of the Act. In due course, all these eight cases were taken to the Sales Tax Tribunal by Messrs. Parimal Brothers. On their behalf it was contended that they cannot be held liable under s. 26 of the Act in their capacity as transferee of the business inasmuch as neither Mrs. Kusum Mody nor the Sunways (India) Private Limited had been assessed to tax prior to or on the date of transfer of the business in their favour. In other words, the argument was that unless tax has been assessed, it cannot be said to have become payable within the meaning of s. 26 of the Act. This contention succeeded before the Tribunal. The Tribunal, relying on its prior decision in Mohanlal Brijlal v. State of Bombay . 1956 7 S.T.C 295., held that Messrs. Parimal Brothers were not liable to be taxed in respect of the aforesaid five periods. At the instance of the Collector of Sales Tax, Bombay State, Bombay, the Tribunal after drawing up the Statement of the Cases, has referred the following question of law in all these references:
Whether on the facts and in the circumstances of these cases, and on a proper construction of sub-section (J) of section 26 of the Bombay Sales Tax Act, 1953, the opponents are liable to pay the tax assessed on 1-6-1955 for the periods 1-1-1953 to 31-3-1953, 1-4-1953 to 25-11-1953, 26-11-1953 to 31-3-1954, 1-4-1954 to 6-5-1954, and 7-5-1954 to 1-6-54?”
3. At the outset, it may be stated that Mr. Palkhivala, learned counsel for the Collector of Sales Tax, conceded that the respondent was not liable to be assessed to tax for the period January 1, 1953 to March 31, 1953, under s. 26 of the Act. The liability to pay tax for that period arose under the Ordinance of 1952 and not under the Act. Section 26, therefore, had no application to such a liability.
4. Mr. Palkhivala contends that “tax payable” in s. 26 means the tax which the transferor-dealer was liable to pay under the Act. If he has not discharged that liability by the date of the transfer, it is “remaining unpaid at the time of the transfer”. Assessment and quantification of tax is not a condition precedent to the payability of the tax under the Act. The Act requires the dealer, liable to pay the tax, to pay the tax of his own volition. It is only when a dealer does not duly discharge his obligations under the Act an assessment is required to be made for recovery of the tax from such a dealer. Therefore, the decisions under the Indian Income-tax Act are of little assistance. On the other hand, Mr. Ganatra contends that the expression “tax payable and remaining unpaid” could only mean tax which has been assessed, and which after demand notice in respect thereof having been issued has remained unpaid till the expiry of the period mentioned in the notice of demand. Quality of charge-ability to tax is entirely different from the quality of payability of the tax. A dealer may become liable to pay tax under s. 5, but no tax is payable by him unless he is assessed to tax under s. 14 of the Act, and payment of the tax is demanded from him under s. 16. The payment which a registered dealer makes at the time of filing of the return is not of a tax, but it is only a payment towards the tax. Even when a registered dealer has duly filed a return and paid tax in advance, sub-s. (I) of s. 14 contemplates making an order of assessment. The Legislature could never have intended to expose an innocent transferee to the peril of being made to shoulder the liability of his transferor the extent of which he could never have ascertained at the time of the transfer. He referred us to the provisions of s. 16 in general and of sub-s. (6) of s. 16 in particular, in support of his argument. Both Mr. Palkhivala and Mr. Ganatra have referred us to certain decisions to which we will in due course advert.
5. We are conscious that we are here dealing with the construction of a taxing statute, and the well-settled rule of construction in this respect is that
“…all charges upon the subject must be imposed by clear and unambiguous language, because in some degree they operate as penalties.
‘In a Taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the lang-guage used’.”
6. (Maxwell on Interpretation of Statutes, 11th edn., p. 278). Their Lordships of the Supreme Court in State of Bombay v. A. & A. Industries Corporation . 1960 12 S.T.C 122. have observed (p. 125):
“…If the Legislature has failed to clarify its meaning by the use of appropriate language, the benefit thereof must go to the taxpayer. It is settled law that in case of doubt, that interpretation of a taxing statute which is beneficial to the taxpayer must be adopted.”
7. Bearing these principles in mind, the case will have to be approached. It is an admitted position that neither Mrs. Mody nor the Sunways (India) Private Limited have registered themselves as dealers; filed any returns; or paid any tax, which they were liable to pay under the Act. There was also no assessment and quantification of tax payable by them at the date of the transfer. It is to be seen whether on the language used in sub-s. (I) of s. 26, respondent can be held liable to pay the tax which Mrs. Mody and/or the Sunways (India) Private Ltd., were liable to pay. The material part of sub-s. (1) of s. 26 is in following terms:
“26. (1) When the ownership of the business of a dealer liable to pay the tax 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;…”
8. In our view, sub-s. (1) of s. 26 enacts a legal fiction. A transferee of a business is made liable to pay tax in respect of the transferred business as if he is the dealer liable to pay tax. The liability fastened on a transferee is made coextensive with the liability of the transferor to pay tax in respect of such business. That liability arises when the following three conditions are fulfilled: (1) the transfer is of the entire business; (2) the transferor was a dealer liable to pay tax in respect of that business, and (3) the tax payable by the transferor in respect of that business has remained unpaid at the date of the transfer. The section does not say that the transferee shall pay tax payable by the transferor, but, on the other hand, it says that the transferee shall pay the tax payable by the transferor liable to pay the tax. Now, the tax payable by a dealer, liable to pay tax would, in our opinion, include his obligation to pay tax as contradistinguished from a tax debt payable by such a dealer. In our opinion, therefore, the tax payable would mean obligation of a dealer to pay the tax.
9. It is a well-settled principle that liability to pay a tax arises by virtue of the charging section, and it is not dependent on assessment. Dealing with the charging sections of the Income-tax Act in Wallace Brothers and Co. Ltd. v. Commr. of Inc. Tax . 1948 16 I.T.R 240, S.C 50 Bom. L.R 482 P.C, the Privy Council observed (p. 244):
“…the rate of tax for the year of assessment may be fixed after the close of the previous year and the assessment will necessarily be made after the close of that year. But the liability to tax arises by virtue of the charging section alone, and it arises not later than the close of the previous year, though quantification of the amount payable is postponed.”
10. Relying on the decision of the House of Lords in Whitney v. The Commissioners of Inland Revenue . 1925 10 Tax Cases 88., the Federal Court in Chhaturam v. Commr. of Inc. Tax, Bihar . 1947 15 I.T.R 302, F.C held that
“…liability to pay tax does not depend on assessment that ex-hypothesi has already been fixed. The Assessment Order under section 23 only quantifies the liability which is already definitely and finally created by sections 3 and 4 which are the charging sections.”
11. Mr. Ganatra, however, argues that even assuming that “tax payable” means tax which a dealer was liable to pay, it cannot be said “to be remaining unpaid” unless notice of demand has been issued, and the date of payment specified in the notice had expired. Very strong reliance was placed by Mr. Ganatra on sub-s. (5) of s. 16 of the Act in support of this contention. The expression “tax remaining unpaid” would ordinarily mean tax which has already become payable, has remained to be paid or that has not been paid at a given point of time. It does not mean that at that point of time the tax becomes for the first time payable. The provisions of sub-s. (6) of s. 16 have not the effect of in any manner altering the aforesaid ordinary and plain meaning thereof. In sub-s. (6) of s. 16, the words “remains unpaid” occur, but they are not used in connection with fixing of point of time at which the tax becomes payable. On the other hand, that sub-section fixes the point of time at and after which the tax which remains unpaid becomes recoverable as arrears of land revenue. In other words, that sub-section fixes the point of time at which the default amount of tax becomes a debt due to the State.
12. It was also argued that the clause “the tax shall be paid in the manner hereinafter provided at such intervals as may be prescribed” occurring in the preamble of s. 16 indicates that the section fixes the point of time at which tax becomes payable by a dealer. Briefly stated, the scheme of the Act is: Sales Tax is levied on the taxable turnover of a dealer i.e a person who carries on business of selling goods in the State of Bombay, at the rates specified in s. 6. Under s. 5, the liability to pay tax arises when the turnover of the dealer exceeds the limit specified in the Act. The dealer, liable to pay tax, is required by the Act to apply and get himself registered as a dealer under the Act. Sub-section (1) of s. 9 provides that no dealer shall, while being liable to pay tax, carry on business as a dealer unless lie has applied for registration within the prescribed period. In the event the registered dealer transfers his business, or the turnover of his business does not exceed the specified limit, he is entitled to apply for cancellation of registration. Section 13 enjoins a duty on the registered dealer to furnish returns of his turnover in the prescribed manner to the prescribed authority, and according to the rules the interval at which the returns are to be furnished by a registered dealer are monthly returns or the quarterly returns. Section 16 deals with payment and recovery of tax, and not payment of tax alone. Sub-section (2) of s. 16 requires a registered dealer to pay into Government treasury the full amount of the tax due from him according to his return. Section 14 deals with assessment of tax. Assessment is done for each year, and the year according to the Act is the financial year. At the time of the assessment, if the sales tax authority is satisfied about the correctness of the return filed and the tax paid by the dealer, nothing more is required to be done by him. He only makes a formal assessment order. If the sales tax authority is not satisfied with the correctness of the return, sub-s. (5) of s. 14 empowers the sales tax authority to issue a notice to the registered dealer to appear before him and produce such evidence and books of account as he requires. After hearing the registered dealer, if he appears, and perusing the materials and evidence produced by him, the sales tax officer makes an assessment order as he may deem power. If the registered dealer fails to comply with the said notice, sub-s. (4) of s. 14 empowers the sales tax officer to assess the registered dealer to the best of his judgment. In the event the dealer fails to furnish the return within the prescribed time, then sub-s. (5) of s. 14 empowers the sales tax authority to assess such a dealer to the best of his judgment, after giving a notice to such a dealer. Sub-section (6) of s. 14 provides that.
“If upon information which has come into his possession, the Collector is satisfied that any dealer has been liable to pay the tax in respect of any period but has failed to apply for registration, the Collector shall, after giving the dealer a reasonable opportunity of being heard, assess to the best of his judgment, the amount of the tax, if any, due from the dealer in respect of such period and all subsequent periods.”
13. If during the course of this assessment, the Collector is satisfied that the dealer has wilfully failed to apply for registration, sub-s. (7) empowers him to levy by way of penalty a sum not exceeding one and half times of the tax assessed on such dealer. It would thus be seen that the occasion to make an assessment and make a demand for payment of the tax would only arise if a dealer does not abide by the provisions of the Act either unwittingly or wilfully in the following cases: (1) a dealer duly gets himself registered, files a true return, but fails to pay the amount of tax or part thereof at the time of filing the return [s. 16(5)(i)(a)]; (2) a registered dealer files a return, pays the tax according to his return, but fails to satisfy the Collector about the correctness of his return and/or the amount of tax payable by him [s. 14(3) & (4) read with s. 16(5)(i)(b)]; (3) a dealer after getting himself registered, fails to file a return [s. 14(5) read with s. 16(5)(i)(b)]; (4) a dealer liable to pay tax, fails to get himself registered either unwittingly or wilfully [s. 14(5) read with s. 16(5)(i)(b)]. The various provisions discussed above would show that the obligation to pay tax is incurred by a dealer when his turnover exceeds the specified limit and the tax becomes payable by him at that point of time. A duty is enjoined on a dealer to discharge that obligation at the point of time prescribed for filing returns. Sections 14 and 16 only come into play when a dealer fails to carry out his obligations under the Act. The provisions relating to making of an assessment and issuing of a demand notice only relate to the cases of defaulting dealers.
14. For the reasons stated above, in our judgment, if the transferor-dealer, at the time of the date of the transfer, has failed to discharge any obligation in respect of the business transferred by him the transferee-dealer would, under sub-s. (7) of s. 26, be liable to discharge that obligation in the same manner and to the same extent as if he is the transferor-dealer himself.
15. Mr. Ganatra had referred us to the following five decisions: (1) Chatturam Horilram Ltd. v. Commr. of Inc. Tax . 1955 27 I.T.R 709..; (2) Rungta Eng. & Con. Co. Ltd. v. Inc-Tax Officer;7 (3) Recols (India) Ltd., In re8 (4) Bihar Bolts, Rivets & Engineering Works Ltd., In re9; and (5) Commr. of Sales Tax v. Jagatbandhu Mohanty . 1961 12 S.T.C 706.. None of these cases except Commr. of Sales Tax v. Jagatbandhu Mohanty is directly in point. The two Income-tax decisions have been relied upon by Mr. Ganatra in support of his contention that though the charging section makes the tax payable, payability only arises on making up an assessment order. The two decisions under the Income-tax Act can hardly be called in aid by the respondent in this case. The scheme of the Sales Tax Act is materially different from the scheme of the Income-tax Act. The rate at which income-tax is payable is not specified in the Act, but is declared every year in the Finance Act enacted each year. The assessee is not enjoined with any duty to pay income-tax in relation to his previous year's income of his own accord, but, on the other hand, all that the assessee need do is to file a return of his income even though the rate at which tax is payable is known to him. Such is not the case under the Sales Tax Act. It cast a duty on a dealer to get himself registered, to file a true and correct return of the turnover of his business, calculate the tax payable by him at the rate mentioned in the Act itself and pay it at the time of filing of the return. It is indeed true that certain observations made in the two cases viz. Reaols (India) Ltd., In re and Bihar Bolts, Rivets & Engineering Works Ltd., In re, appear to support Mr. Ganatra's contention, but, in our view, reading those observations in the context of the facts of those cases, they can hardly be stated to be of any assistance to Mr. Ganatra. In both those cases, the question which was being considered was at what point of time the sales tax can be said to be a debt due and payable within the meaning of s. 230(7)(a) of the Indian Companies Act, 1913, as it then stood. That section provided that
“In a winding up there shall be paid in priority to all other debts—
(a) all revenues, taxes, cesses and rates, whether payable to the State or to a local authority, due from the company at the date hereinafter mentioned and having become due and payable within the twelve months next before that date;”
16. The date “hereinafter mentioned” was the date of winding up order (vide sub-s. (5) of s. 230 of the Indian Companies Act). The dates on which the assessment orders were made fell within one year preceding the winding up order, but the dates on which the returns should have been filed and tax paid were beyond that period. The learned Judges were considering the question of priority as between the debt due by the company to the State in respect of taxes, cesses, etc., and the debt due by the company to its creditors. It is in this context that it had been held that the tax becomes due and payable within the meaning of s. 230 of the Companies Act, on it being quantified by an order of assessment. The learned Chief Justice has made this position clear in Recols (India) Ltd., In re (p. 282):
“…There can be no doubt that Section 230(i)(a) of the Indian Companies Act contemplates concrete debts because it deals with the order in which the debts shall be paid by the liquidator. It can have no concern with mere liabilities of a problematic character or liabilities, unascertained and unquantified and incapable of present payment.”
17. The aforesaid observations make it abundantly clear that the question which was being considered is the point of time at which the amount due from a dealer becomes a debt recoverable by the State, and in that sense, it has been held that the amount of tax becomes a debt due and recoverable when it has been ascertained, quantified and notified to the assessee with a demand for payment. With this proposition, with respect, we have no quarrel. We have already stated that under sub-s. (6) of s. 16, such also is the position; but we are not here considering the question as to at what point of time the amount of tax becomes a debt recoverable by the State, but we are considering at what point of time the tax becomes payable as contradistinguished from recovery of it as a debt due to State under the scheme of the Act. These two decisions also, therefore, in our opinion are of no assistance to Mr. Ganatra. It is indeed true that the decision in Commr. of Sales Tax v. Jagatbandhu Mohanty, which relates to the construction of sub-s. (1) of s. 19 of the Orissa Sales Tax Act, 1947, which appears to be similarly worded to s. 26 of the Act, to a certain extent supports the view canvassed by Mr. Ganatra. With respect, for the reasons stated above, we are unable to follow the line of reasoning adopted by the learned Judges in this case. It may be stated that dealing with a similar provision of the Bengal Finance (Sales Tax) Act, 1941, the Calcutta High Court in Phoolchand Dharamchand v. Stated . 1952 3 S.T.C 460. had taken a different view. This decision does not appear to have been noticed in Commr. of Sales Tax v. Jagatbandhu Mohanty.
18. It is next contended that the respondent is not liable to pay any tax prior to November 26, 1953, the date on which the Sunways (India) Private Ltd., purchased the business from Mrs. Mody. In other words, it is the contention of Mr. Ganatra that the respondent is not liable to pay tax relating to the business conducted by Mrs. Mody. It is the argument of Mr. Ganatra that under s. 26 the liability fastened on the transferee is confined only in respect of the business conducted by his transferor, and not in respect of the business conducted by any person other than his transferor. There was no privity of contract between the respondent and Mrs. Mody. The respondent is not, therefore, liable for the tax due for the period during which Mrs. Mody conducted the business. Reliance is placed on the decision in Rambali Bhuleshwar v. Sales Tax Officer, Recovery I, Bombay* . 1960 12 S.T.C 595.. We are unable to accept this contention of Mr. Ganatra. In our view, on the terms of sub-s. (1) of s. 26, the liability that is fastened on the transferee of a business is the liability of the transferor in respect of the business transferred by him, and not the tax liability of the transferor in respect of the business transacted by himself. Under sub-s. (1) of s. 26, the tax liability of Mrs. Mody was fastened on the Sunways (India) Private Limited by reason of the transfer of the business effected by Mrs. Mody in favour of the Sunways (India) Private Ltd. on November 26, 1953. Thus on June 2, 1954, the date on which the Sunways (India) Private Ltd., transferred the business to the respondent, the tax payable by the Sunways (India) Private Ltd., in respect of the business transferred by it, consisted of not only the tax liability of the period during which the Sunways (India) Private Ltd. itself conducted the business, but also the tax liability of Mrs. Mody, acquired by the Sunways (India) Private Ltd., and that tax liability has been fastened on the respondent under sub-s. (1) of s. 26 of the Act. We fail to see how the decision on which reliance has been placed is of any assistance to the respondent. In that case (Rambali Bhuleshwar v. Sales Tax Officer, Recovery I, Bombay*, Recovery I, Bombay*) the question that fell for consideration was whether the purchaser, at a Court-auction was liable to discharge tax liability of the judgment-debtor, under sub-s. (1) of s. 26 of the Act, and it has been held that the transaction of change of ownership as mentioned in sub-s. (1) of s. 26 must be as between dealer and his purchaser, the dealer being referred to as the transferor, and the purchaser having been referred to as the transferee. A Court-auction is not a transaction between a dealer and the transferee. On the facts established in this case, there cannot be any doubt that the transfer obtained by the respondent was a transfer from a dealer, namely, the Sunways (India) Private Ltd.
19. It has also been contended that the respondent is not liable to discharge the tax liability relating to April 1, 1953, to March 31, 1954, inasmuch as the law in force on the date of transfer was not the law in force during the said period between April 1, 1953 to March 31, 1954. Reliance is placed on a decision reported in Indian Aluminium Co. Ltd. v. M.M Dalvi . 1956 8 S.T.C 58.. This contention in this form has not been raised at any time before the Tribunal. It has also no merit. It is true that from April 1, 1954, the Act had been to a certain extent amended, but that does not mean that any of the provisions of the Act, by reason of the amendments, had been repealed. Prior to the amendment, the taxes imposed were only two taxes, namely, general tax and special tax. After the amendment, the taxes imposed also include one more tax, namely, the purchase tax. No liability in respect of the purchase tax has been fastened on the respondent for the period April 1, 1953 to March 31, 1954, and, therefore, it cannot be said that the respondent had in any manner been wrongfully taxed. Lastly, it is contended that s. 26 has no application at all inasmuch as the transfer by the Sunways (India) Private Limited in favour of the transferee was not of the entire business, but was only of a part of the business. This contention is purely one of fact, and it has not been raised at any time before any of the Sales Tax authorities or the Tribunal. It cannot, therefore, be said that it arises out of an order of the Tribunal. We have, therefore, not allowed Mr. Ganatra to advance any argument in support of this contention.
20. For reasons stated above, the answer to the question referred to us will be in the negative so far as the period January 1, 1953 to March 31, 1953, is concerned, and in the affirmative so far as the periods April 1, 1953 to November 25, 1953, November 26, 1953 to March 31, 1954, April 1, 1954 to May 6, 1954, and May 7, 1954 to June 1, 1954, are concerned. The respondent shall pay the costs of the applicant, only one set of cost quantified at Rs, 500.
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