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C.N Savankutty v. State Of Kerala

Kerala High Court

Apr 6, 1978

Judgment

Subsequent
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Judgment Summary — V.P Gopalan Nambiyar, C.J.

Factual and Procedural Background

The assessee was a partner in the firm "Chenglah's New Stores." For the assessment year 1960-61 the firm filed a return disclosing a turnover of Rs. 2,27,112. The firm's accounts were rejected and the firm was assessed on a turnover of Rs. 4,62,250. In O.P. No. 86 of 1962 this Court set aside the assessment order and remanded the matter to the assessing officer. A fresh notice was issued on 6 January 1964 and a reply was sent on 31 January 1964. The firm was dissolved on 22 August 1962. The final assessment was completed on 30 June 1972.

On these facts the only surviving contention for the Court's examination in this revision was whether the assessment completed on 30 June 1972 was valid and proper.

Legal Issues Presented

Whether an assessment completed on 30 June 1972 (final assessment) in respect of a firm that had been dissolved on 22 August 1962 was valid and proper.
Whether, under the General Sales Tax Act, 1125, a dissolved firm can be assessed (i.e., whether the statute authorises assessment of a dissolved firm expressly or by necessary implication).
Whether the repeal of the General Sales Tax Act, 1125, and the enactment of the Kerala General Sales Tax Act, 1963 (specifically section 61 of the 1963 Act), permitted continuation and validation of proceedings initiated under the repealed Act so as to permit assessment of a dissolved firm.
Whether an assessment made only on one partner (the revision petitioner), who is one of the partners of the dissolved firm, could be assailed when that ground was not pleaded or considered below.

Arguments of the Parties

Assessee's Arguments

Under the General Sales Tax Act, 1125, a dissolved firm cannot be assessed; the statute provides no authority (express or implied) to assess a firm after dissolution.
The disability to assess a dissolved firm continued even after the Kerala General Sales Tax Act, 1963 came into force; counsel acknowledged that the 1963 Act contains section 21A enabling assessment of a dissolved firm but contended that this did not cure the disability applicable to proceedings initiated under the 1125 Act.
Counsel relied strongly on the Supreme Court decision in State of Punjab v. Jullundur Vegetables Syndicate (1966) to support the proposition that, absent express statutory authorisation, a dissolved firm cannot be assessed and that it made no difference whether proceedings were initiated before or after dissolution.
It was further contended (later in proceedings) that the assessment had been made only on the revision petitioner (one partner) rather than on the firm; this point, however, had not been pleaded or considered below.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
State of Punjab v. Jullundur Vegetables Syndicate [1966] 17 S.T.C 326 S.C; A.I.R. 1966 S.C. 1295	Holds that a dissolved firm cannot be assessed unless the statute authorises the assessment expressly or by necessary implication; the Court observed no distinction between proceedings initiated before or after dissolution and emphasised that absent express provision no assessment can be made on a firm which has lost its character as an assessable entity.	The assessee relied heavily on these passages. The present Court accepted the general proposition but qualified it in light of later authority: the prohibition applies unless there is express or implied statutory provision continuing assessment of a dissolved firm.
Murarilal Mahabir Prasad v. B.R. Vad [1976] 37 S.T.C 77 S.C.	Treated Jullundur Vegetables Syndicate as authority for four propositions, notably that (1) a dissolved firm cannot be assessed unless statute authorises it (expressly or impliedly); (2) a firm defined as a dealer becomes a legal entity for assessment and ceases to be such on dissolution; (3) provisions requiring notification of discontinuance or imposing joint liability do not confer jurisdiction to assess dissolved firm; and (4) the court cannot cure deficiencies in fiscal statutes.	The Court cited the first proposition from this case to support the position that assessment of a dissolved firm requires express or implied statutory authorisation.
Sales Tax Officer v. K.S.V. Gupta [1971] 28 S.T.C 722	Interpreted section 61 of the 1963 Act and (section 4 of the Interpretation and General Clauses Act): if a proceeding had been initiated under the 1125 Act before repeal it will be deemed to have been initiated under the 1963 Act and can be continued accordingly; distinguished provisional assessment as not being a "proceeding" initiated under the repealed Act.	The Court relied on this Division Bench decision to hold that, on the facts of the present case, proceedings for final assessment had been initiated under the 1125 Act while the firm was a legal entity and thus could be continued and deemed to have been taken under the 1963 Act by virtue of section 61.
Cheru v. Sales Tax Officer, Ponnani	Cited in K.S.V. Gupta as support for the proposition that proceedings initiated under the 1125 Act before repeal may be deemed to have been initiated under the 1963 Act.	Referenced indirectly via K.S.V. Gupta as a supporting authority for the continuation-of-proceedings principle under section 61.
Arya Vaidya Pharmacy Ltd., Palghat v. State of Kerala	Used in K.S.V. Gupta to show that provisional assessment and final assessment are different and that provisional assessment cannot be equated to initiation of final-assessment proceedings under the repealed Act.	Used indirectly by the Court (through K.S.V. Gupta) to distinguish provisional assessments from final-assessment proceedings when considering whether proceedings were initiated under the 1125 Act.
Deputy Commissioner of Sales Tax v. V.S. Chamunni [1978] 41 S.T.C 474 (T.R.C No. 26 of 1977)	Considered the position purely with respect to the provisions of the 1125 Act, without the complication of section 61 of the 1963 Act or the K.S.V. Gupta principle.	The Court noted this decision but held that there was no bar to continuing proceedings under section 61 of the 1963 Act as construed in K.S.V. Gupta; Chamunni was distinguished as addressing the 1125 Act alone.

Court's Reasoning and Analysis

The Court's analysis proceeded step-by-step and remained closely tied to statutory text and precedent:

The Court recognised the primary legal principle from the Supreme Court's Jullundur Vegetables Syndicate decision and the later clarification in Murarilal Mahabir Prasad that, as a general rule, a dissolved firm cannot be assessed unless the statute under which assessment is sought expressly or impliedly authorises assessment of a dissolved firm.
The Court examined the statutory framework, in particular section 61 of the Kerala General Sales Tax Act, 1963, which repealed the General Sales Tax Act, 1125, but contained a saving/fictive provision deeming things done under the repealed Act to be done under the 1963 Act, and enabling recovery of arrears as if they had accrued under the new Act.
The Court relied on the Division Bench's decision in Sales Tax Officer v. K.S.V. Gupta which read section 61 together with the Interpretation Act to hold that if a proceeding had been initiated under the 1125 Act before its repeal, it would be deemed to have been initiated under the 1963 Act and could be continued accordingly. The Court noted, however, that provisional assessment was held in K.S.V. Gupta not to amount to initiation of the final-assessment proceedings under the repealed Act.
Applying these principles to the facts, the Court concluded that final-assessment proceedings in the present case had indeed been initiated under the 1125 Act while the firm was still a legal entity (the assessment that terminated in an assessment on 11 December 1961). The subsequent notices and steps were a continuation of those proceedings.
Because the proceedings for final assessment were initiated under the 1125 Act prior to dissolution, section 61 of the 1963 Act operated as a fiction to deem those proceedings to have been taken under the 1963 Act from their inception, thereby permitting continuation and completion of assessment notwithstanding the dissolution that occurred later.
The Court also observed that the later decision in Deputy Commissioner of Sales Tax v. V.S. Chamunni concerned the 1125 Act alone and was not complicated by section 61; the present case, in contrast, involved the operation of section 61 and the K.S.V. Gupta principle, so there was no bar to continuing the proceedings under section 61 as construed in K.S.V. Gupta.
Finally, the Court refused to entertain for the first time in this revision the argument (raised but not pleaded or considered below) that the assessment had been made only on the revision petitioner (one partner). The Court declined to consider that new point at this stage.

Holding and Implications

Holding: The tax revision is dismissed; the Court declined to disturb the assessment. The Court explicitly dismissed the petition "without costs" and recorded "Petition dismissed."

Implications: The direct effect of the decision is that the assessment completed on 30 June 1972 stands and the revision seeking to set it aside is dismissed. The Court's reasoning relies on the interaction of the repeal/saving provision in section 61 of the Kerala General Sales Tax Act, 1963, with the principle that proceedings initiated under the repealed Act before repeal may be continued under the new Act (as explained in K.S.V. Gupta). The Court applied existing authorities (including Jullundur Vegetables Syndicate, Murarilal Mahabir Prasad and K.S.V. Gupta) to the facts and did not purport to create a novel legal principle beyond these applications. No broader novel precedent was announced beyond the application and reconciliation of those earlier authorities to the facts of this case.

Note: This summary is prepared strictly from the content of the provided opinion and contains no information beyond that opinion.

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The Judgment of the Court was delivered by

V.P Gopalan Nambiyar, C.J:— The assessee was a partner of a firm by name Chenglah's New Stores. For the assessment year 1960-61 it filed a return disclosing a turnover of Rs. 2,27,112. Its accounts were rejected and the firm was assessed on a turnover of Rs. 4,62,250. In O.P No. 86 of 1962, this court set aside the assessment order and remanded the proceedings back to the officer. A fresh notice was issued on 6th January, 1964, to which a reply was sent on 31st January, 1964. There were other notices which were issued by the department, which it is unnecessary to notice. It is enough to state that the firm was dissolved on 22nd August, 1962, and that the assessment was completed on 30th June, 1972. On these facts, the only contention that now survives for examination before us in this revision is whether the assessment completed on 30th June, 1972, was valid and proper.

2. Counsel for jthe assessee contended that under the General Sales Tax Act, 1125, by which the proceedings for assessment are governed in this case as they were initiated while the said Act was in force, a dissolved firm cannot be assessed; and that the disability to assess continues even after the passing of the Kerala General Sales Tax Act, 1963, which contains section 21A enabling assessment of a dissolved firm. In support of the position that a dissolved firm cannot be assessed under the provisions of the General Sales Tax Act, 1125, counsel drew our attention to the decision of the Supreme Court in State Of Punjab v. Jullundur Vegetables Syndicate. [1966] 17 S.T.C 326 S.C; A.I.R 1966 S.C 1295.. In that case, M/s. Jullundur Vegetables Syndicate, a firm doing business in vegetables, was dissolved on 11th July, 1953, and a notice of dissolution was sent to the department on 18th July, 1953.

3. It was assessed to Sales tax on 30th May, 1953. The proceedings assessing the firm to tax were quashed by the Financial Commissioner and a fresh assessment was made on the turnover of the firm. It is not clear whether the fresh proceedings were initiated or whether the earlier proceedings initiated before the dissolution of the firm were merely continued. But the High Court had proceeded on the basis that the firm had been dissolved before fresh proceedings for assessment were initiated. On these facts, it was observed by the Supreme Court that the assessability had to be decided under the provisions of the 1953 statute (sic). We shall quote the following observations made by the Supreme Court:

“6. We are concerned in this appeal with the question of the statutory right of a taxing authority under the provisions of the Act to assess a dissolved firm in respect of its pre-dissolution turnover. That question falls to be decided on the relevant provisions of the Act. The provisions of the Indian Partnership Act regulating the relationship between the partners and their liability to third parties have, except in so far as those provisions are expressly or by necessary implication incorporated in the provisions of the Act, no relevance to the present appeal. The question also falls to be decided on the provisions of the Act as it stood in 1953. Further, we cannot discover any distinction in the matter of assessability of a dissolved firm between a case where the proceedings were initiated before and that after the said dissolution. We shall proceed, therefore, to consider the question irrespective of that distinction

9. In this context as we have stated earlier, there cannot be a distinction on principle between an assessment made on a firm under a proceeding initiated before the dissolution and that made in a proceeding started after the dissolution. In either case, unless there is an express provision, no assessment can be made on a firm which has lost its character as an assessable entity.”

4. Counsel for the assessee placed the strongest reliance on these passages and contended that according to the decision of the Supreme Court it made no difference whether the firm was dissolved when the proceedings were pending or before they were initiated. We would like to point out that the observations in paragraph 6 must be qualified by what is stated in paragraph 9, namely, that unless there was an express provision no assessment could be made on a dissolved firm. In the later decision of the Supreme Court in Murarilal Mahabir Prasad v. B.R Vad, the decision in the Jullundur Vegetables Syndicate case [1966] 17 S.T.C 326 S.C; A.I.R 1966 S.C 1295. was treated as authority for four propositions, namely: (1) a dissolved firm cannot be assessed to sales tax unless the statute under which the assessment is made authorises the assessment either expressly or impliedly; (2) if, by definition, a firm is a dealer under the Act, it becomes a legal entity or an independent assessable unit for the purposes of the Act. If that be so, it ceased to be a legal entity on dissolution and, thereafter, on principle it cannot be assessed to sales tax unless the statute authorised it expressly or by necessary implication; (3) neither a provision requiring a dealer to inform the authorities of the discontinuance of business, nor one imposing a joint and several liability on the dealer and its partners for payment of tax or penalty can be interpreted as conferring jurisdiction to assess a dissolved firm; and (4) in interpreting a fiscal statute the court cannot proceed to make good the deficiencies, if any, in the statute (underlining* ours). As thus explained, it is enough if there is an express or implied provision to continue the assessment of a dissolved firm; and this is to be looked for in the statute under which the assessment is made. We are unable to find any provision in the General Sales Tax Act, 1125, by which a proceeding initiated against a firm while it was a legal entity for purposes of assessment automatically lapses on the dissolution of the firm. Along with this we have to take into account the significant provisions of section 61 of the Kerala General Sales Tax Act, 1963, which, in so far as it is material reads as follows:

“61. Repeal.—(1) The General Sales Tax Act, 1125 (Act XI of 1125), is hereby repealed:

Provided that such repeal shall not affect the previous operation of the said Act or any right, title, obligation or liability already acquired, accrued or incurred thereunder, and subject thereto, anything done or any action taken, including any appointment, notification, notice, order, rule, form, regulation, certificate, licence or permit, in the exercise of any power conferred by or under the said Act, shall be deemed to have been done or taken in the exercise of the powers conferred by or under this Act, as if this Act were in force on the date on which such thing was done or action was taken, and all arrears of tax and other amounts due at the commencement of this Act may be recovered as if they had accrued under this Act”

5. In Sales Tax Officer v. K.S.V Gupta [1971] 28 S.T.C 722, para 2., a Division Bench of this Court examined the position in regard to the liability of a dissolved firm to assessment in the light of the provisions of section 61 of the 1963 Act. It quoted also section 4 of the (Kerala) Interpretation and General Clauses Act, 1125. After quoting both the provisions, the Division Bench observed:

“Reading the two provisions together, it seems to be quite clear that if a proceeding had been initiated under the 1125 Act before its repeal it will be deemed to have been initiated under the provisions of the 1963 Act and can be continued accordingly—see Cheru v. Sales Tax Officer, Ponnani. But, if no proceeding had been initiated under the repealed Act, then the enforcement of the liability under the repealed Act can only be under the provisions of that Act and the Rules made thereunder—Arya Arya Vaidya Pharmacy Ltd., Palghat v. State Of Kerala. We are unable to accede to the argument that the proceedings for assessment for the year 1962-63 had been initiated under the repealed Act because a provisional assessment had been made thereunder. The provisions of the repealed Act as well as of the new Act make it abundantly clear that the provisional assessment is an entirely different thing from ithe final assessment and that proceedings for the levy of the provisional assessment and of the final assessment are entirely independent proceedings, the one having nothing to do with the other, although adjustments have to be made after the final assessment if there has been an over-collection or an under-collection in pursuance of the provisional assessment. That being sio, the proceedings for the levy of the tax for the year 1962-63 can only be regarded as maintainable under the provisions of the 1125 Act, and that Act not providing for a levy on a dissolved firm, the rule in State Of Punjab v. Jullundur Vegetables Syndicate. still applies to make the assessment invalid. The amendment of the 1963 Act by the introduction of the new section 21A and the validation of the assessments made under the 1963 Act py section 7 of the Amendment Act, it is obvious, can be of no avail to validate an assessment made under the provisions of the Act of 1125”

(underlining ours).

6. Of course the actual decision on the case was rested on the ground that provisional assessment cannot be said to be a “proceeding” initiated under the provisions of the 1125 Act. But on the facts disclosed in the present case, we are clearly of the opinion that the proceedings for final assessment were initiated under the 1125 Act while the firm was a legal entity. That terminated in an assessment on 11th December, 1961, and the subsequent notices issued and the proceedings taken were clearly a continuation of the said proceedings. The fiction enacted by section 61 of the 1963 Act would deem these proceedings to be taken under the 1963 Act from their inception. This is of course subject to any right accrued, etc. But no right had accrued under the 1125 Act, las proceedings had been initiated before the dissolution of the firm. The position is clearly recognised in K.S.V Gupta's case [1971] 28 S.T.C 722. in the passage underlined. It is also recognised by the Supreme Court in Murarilal Mahabir Prasad's case [1976] 37 S.T.C 77 S.C. in the first of the four propositions underlined by us, for which the fullundur Vegetables Syndicate's case was treated as authority. The recent decision in Deputy Commissioner of Sales Tax v. V.S Chamunni [1978] 41 S.T.C 474. (T.R.C No. 26 of 1977) considered the position purely with respect to the provisions of the 1125 Act, uncomplicated by section 61 of the 1963 Act or the principle in Sales Tax Officer v. K.S.V Gupta. We are of the opinion that there is-no bar to the proceedings being continued under the provisions of section 61 of the 1963 Act as construed by the Division Bench in the earlier case noticed.

7. Counsel for the assessee contended that, even so, the assessment in this case had been made only on the revision petitioner, who is only one of the partners of the dissolved firm. This is a point which has not been pleaded or considered by any of the authorities below and we are unable to entertain it for the first time in this revision.

8. We dismiss this tax revision case, but without costs.

9. Petition dismissed.