Deputy Commercial Tax Officer & ANR
Vs. Sha Sukhraj Peerajee [1967] INSC 111 (17 April 1967)
17/04/1967 RAMASWAMI, V.
RAMASWAMI, V.
SHAH, J.C.
SIKRI, S.M.
CITATION: 1968 AIR 67 1967 SCR (3) 661
ACT:
Madras General Sales Tax Act IX of 1939-s.
19(1), (2)(c)- Whether purchaser of business of 'dealer' liable for arrears of
sales-tax due from dealer prior to amending Act 1 of 1959.
HEADNOTE:
By a registered instrument dated October 5,
1956, the respondent purchased the business carried on by a dealer as defined
in the Madras General Sales Tax Act IX of 1939. The dealer had been assessed to
sales tax in respect of his turnover for the years 1948-49 and 1949-50 and had
paid a part of the sales tax determined as due from him with the balance amount
remaining in arrears. The sales tax authorities attempted to recover the
arrears from the respondent as the purchaser of the business and although he
denied liability, his contention was overruled by the Deputy Commercial Tax
Officer. His appeal to the Board of Revenue was also dismissed and he
thereafter filed a Writ Petition under Art. 226 of the Constitution,
challenging the orders of the C.T.O. and the Board. A Single Bench of the High
Court dismissed the appeal but a Division Bench allowed a Letters Patent Appeal
holding that Rule 21-A of the Sales Tax Rules under which the arrears were
sought to be recovered from the respondent, was illegal and ultra vires the
Act.
In the appeal to the Supreme Court it was
contended, Inter alia, on behalf of the department (i) that Rule 21-A was valid
having been made in exercise of the rule making power granted to the State
Government under ss. 19(1) and 19(2) (c) of the Act whereby it could make rules
for the assessment to tax under the Act of businesses which were discontinued
or the ownership of which had changed; (ii) that further more under s. 10, the
whole of the amount outstanding on the date of the default was charged on the
property of the person liable to pay the tax; therefore, in the present case,
the business-which was transferred to the respondent was charged with the
payment of sales tax and it was open to the sales tax authorities to proceed
against the assets of the business for realising the amount of sales tax
due;-and (iii) that upon a true construction of the registered instrument dated
October 5, 1956, the respondent undertook to pay all liabilities like sales tax
imposed in regard to the business.
HELD: dismissing the appeal:
(i) Rule 21-A was beyond the rule making
power of the State Government either under s. 19(1) or s. 19(2)(c) and was
therefore ultra vires the Act. [666 E-F] Although by the amending Act 1 of
1959, an express provision was inserted by which the transferee of the business
was made liable for the arrears of sales tax due from the transferor, there was
no Such provision in the Act during the period covered by the present case.
[664 D] it is manifest that the person who purchases a business as a 'dealer'
can be assessed to sales tax only in respect of his turnover and under the
scheme of the charging provision of the Act, the purchaser of the business has
nothing to do with the sales effected by the seller of the business, The
turnover in respect of such sales remains. therefore, the turnover of the
transferor and not of the transferee. [664 C] Although s. 19(2)(c) deals with
the assessment to tax of businesses which are discontinued or the ownership of
which has changed, in the context and background of other sections of the Act,
the word "assessment" used in para 19(2)(c) does not include the.
power of recovering tax assessed from a person other than the assessee. [664
F-G; 665 B-C] Badridas Daga v. C.I.T., [1949] I.T.R. 209, 211; Chatturam v.
C.I.7. Bihar. [1947] F.C.R. 116; and Whitney v. Commissioners of Inland
Revenue, [1926] A.C. 37, relied on.
(ii) S. 10 of the Act as amended and sought
to be relied upon had not come into force until October 8, 1956; in the present
case the registered instrument by which the business was transferred to the
respondent was dated October 5, 1956 and the amended section therefore had no
Application. [666 F] (iii) It was not open to the State Government to rely on
the instrument inter vivos between the transferor and the transferee and to
contend that there was any contractual obligation between the transferee and
the State Government who was not a party to the instrument. [667 BC]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 696 of 1966.
Appeal by special leave from the judgment and
order dated September 13, 1963 of the Madras High Court in Writ Appeal No. IO
of 1962.
P. Ram Reddy and A. V. Rangam, for the
appellant.
R. Ganapathy Iyer, for the respondent.
The Judgment of the Court was delivered by
Ramaswami, J. The question of law involved in this appeal is whether the
purchaser of business carried on by a dealer as defined in the Madras General
Sales Tax Act, 1939 (Madras Act No. IX of 1939), hereinafter called the 'Act',
can be made liable for arrears of sales-tax due from the dealer in respect of
transactions of sale which took place before the, transfer of the business
under Rule 21-A of the Rules framed in exercise of the powers conferred on the
State Government by s. 19 of the Act.
The respondent purchased, by a registered
instrument dated October 5, 1956, the business carried on by one Purushottam
Raju under the name-All India Trading Company. Purushottam Raju was the sole
proprietor of the business and had been assessed to sales-tax in respect of his
turnover for the years 1948-49 and 1949-50. The assessee paid some amounts
towards sales-tax thus determined, but there remained some arrears of sales-tax
i.e., Rs. 3836-4-0 for 1948-49 and Rs.
1218-1-9 for 1949-50. The Sales-tax
authorities attempted to recover the arrears of tax from the respondent as the
purchaser of the business. The respondent 6 63 denied liability to pay
sales-tax but his contention was over-ruled by the Deputy Commercial Tax
Officer. The respondent appealed to the Commercial Tax Officer as well as to
the Board of Revenue, but the appeals were dismissed.
The respondent thereafter moved the Madras
High Court under Art. 226 of the Constitution for the issue of a writ in the
nature of certiorari to quash the orders of the Commercial Tax Officer and the
Board of Revenue. Ganapatia Pillai, J.
who heard the petition dismissed it. The
respondent took the matter in appeal under the Letters Patent. The Division
Bench consisting of S. Ramachandra Iyer, C.J. and Ramakrishnan, J. reversed the
judgment of the Single Judge, holding that Rule 21-A of the Sales-Tax Rules was
illegal and ultra vires and the respondent was not liable to pay the sales-tax
due from his predecessor in-title, Purushottam Raju.
This appeal is brought, by special leave,
from the judgment of the Division Bench of the Madras High Court dated
September 13, 1963 in Writ Appeal No. 10 of 1962.
Rule 21-A was framed by the State Government
under the rule- making power granted to it under s. 19(1) and (2) of the Act.
Rule 21 -A reads as follows :
"When the ownership of the business of a
dealer liable to pay the tax under the Act is entirely transferred, any tax
payable in respect of such business and remaining unpaid at the time of the
transfer shall be recoverable from the transferor or the transferee as if they
were the dealers liable to pay such tax, provided that the recovery from the
transferee of the arrears of taxes due prior to the date of the transfer shall
be only to the extent of the value of the business he obtained by transfer. The
trans- feree shall also be liable to pay tax under the Act on the sales of goods
effected by him with effect from the date of such transfer and shall within
thirty days of the transfer apply for registration or licence, as the case may
be, unless he already holds a certificate of registration or licence, as the
case may be." Section 19 ( 1 ) and 1 9 (2) (c) are to the following effect
"19. (1) The State Government may make rules to carry out the purposes of
this Act.
(2) In particular and without prejudice to
the generality of the foregoing power, such rules may provide for- (c) the
assessment to tax under this Act of businesses which are discontinued or the
ownership of which has changed;" 664 The first question to be considered
in this appeal is whether Rule 21-A is intra vires of the power of the State
Government under ss. 19(1) and (2) of the Act. Section 3(1) of the Act is the
charging section. It imposes a liability to pay sales-tax on every dealer for
each year, and the tax is to be calculated on his total turnover for that year.
Section 2(b) of the Act defines a
"dealer" as "a person who carries on the business of buying,
selling . . . . goods".
The word "turnover" is defined in
s. 2(i) of the Act to mean "the aggregate amount for which goods are
either bought or sold by a dealer, whether for cash or for deferred payment or other
valuable consideration. . . .". It is manifest that a person who purchases
a business as a 'dealer' can be assessed to sales-tax only in respect of his
turnover and under the scheme of the charging provision of the Act the
purchaser of the business has nothing to do with the sales effected by the
seller of the business. The turnover in respect of such sales remains therefore
the turnover of the transferor and not of the transferee. By the amending Act
of 1959 (Act 1 of 1959) an express provision was inserted by which the
transferee of the business was made liable for the arrears of sales-tax due
from the transferor. But there is no such provision in the Act for the period
with which we are concerned in the present case. The question is whether the State
Government has authority under its rule-making power under s. 19 of the Act to
create a legal fiction by which the transferee of the business is constituted
as the dealer liable to pay the tax in respect of the turnover of the
transferor. On behalf of the appellants Mr. Ram Reddy suggested that the State
Government has power under s. 19(1) and 19(2) (c) of the Act to frame the
impugned rule. We are unable to accept this argument as correct. Section 19(1)
of the Act empowers the State Government to make rules to carry out the
purposes of the Act, but the section cannot be utilised to enlarge the scope of
s. 10 regarding recovery and payment of tax from some other person other than a
"dealer" under the Act. We also consider that the State Government
has no authority under s. 19(2)(c) of the Act to enact the rule. Section
19(2)(c) deals with the assessment to tax of businesses which are discontinued
or the ownership of which has changed. It is true that the word
"assessment" in the scheme of sales-tax and income-tax legislation is
a term of varying import. The word is used sometimes to mean the computation of
income, sometimes the determination of the amount of tax payable, and sometimes
the whole procedure laid down in the Income-tax Act for imposing liability on
the tax-payer. As the Judicial Committee, however, said in Badridas Daga v.
C.I.T (1), the words 'assess' and 'assessment' refer primarily to the
computation of the amount. of income. In Chatturam v. C.I.T. Bihar(1), the
Federal Court pointed out, relying upon the decision of the House of Lords in
(1) [1949] I.T. R. 209, 21 1.
(2) [1947] F.C.R. 116, 665 Whitney v.
Commissioners of Inland Revenue("), that the liability to tax does not
depend upon assessment. The liability is definitely created by ss. 3 and 4 of
the Income-tax Act which are the charging sections and the assessment order
under s. 23 only quantifies the liability which has already been definitely and
finally created by the charging sections and the provision in regard to
assessment relates only to the machinery of taxation. In our opinion, the
principle of these decisions applies to the interpretation of the Act in the
present case. We consider that, in the context and background of other sections
of the Act, the word 'assessment' used in s. 19(2)(c) does not include the
power of recovering tax assessed from a person other than the assessee. It
follows therefore that Rule 21- A is beyond the rule-making power of the State
Government either under s. 19(1) or s. 19(2)(c) of the Act. It was then
submitted by Mr. Ram Reddy that Rule 21-A may be supported by the language of
s. 10(1) of the Act which states "10. Payment and recovery of tax.-(1) The
tax assessed under this Act shall be paid in such manner and in such
instalments, if any, and within such time, as may be specified in the notice of
assessment, not being less than fifteen days from the date of service of the
notice. If default is made in paying according to the notice of assessment, the
whole of the amount outstanding on the date of default shall become immediately
due and shall be a charge on the properties of the person or persons liable to
pay the tax under this Act." It was contended that under this section the
whole of the amount outstanding on the date of default is charged on the property
of the person liable to pay the tax. In the present case, the business which
was transferred to the respondent was hence charged with the payment of
sales-tax and it was open to sales-tax authorities to proceed against the
assets of the business for realising the amount of sales-tax due. In our
opinion, there is no justification for this argument. Section 10 of the Act as
it stood before the Madras General Sales-tax (3rd amendment) Act, 1956 (Act No.
XV of 1956) read as follows "The tax assessed under this Act shall be paid
in such manner and in such installments, if any, and within such time, as may
be specified in the notice of assessment, not being less than fifteen days from
the date of service of the notice. In default of such payment, the whole of the
amount then remaining due may be recovered as if it were an arrear of land
revenue." This section was amended by s. 8 of the Madras General Sales-tax
(3rd amendment) Act, 1956 which reads as follows (1) [1926] A.C. 37.
666 "Substitution of new section for
section 10 in Madras Act IX of 1939.-For section 10 of the principal Act, the
following section shall be substituted, namely "10. Payment and recovery
of tax.-(1) The tax assessed under this Act shall be paid in such manner and in
such installments, if any, and within such time, as may be specified in the
notice of assessment, not being less than fifteen days from the date of service
of the notice. If default is made in paying according to the notice of
assessment, the whole of the amount outstanding on the date of default shall
become immediately due and shall be a charge on the properties of the person or
persons liable to pay the tax under this Act................
The 3rd Amendment Act, 1956 received the
assent of the President on October 1, 1956 but it was published in the Madras
Gazette on October 8. 1956. Section 5 of the Madras General Clauses Act (Madras
Act No. 1 of 1891) provides as follows "5. (1) Where any Act to which this
Chapter applies is not expressed to come into operation, on a particular day,
then, it shall come into operation on the day on which the assent thereto of
the Governor, the Governor-General or the President, as the case may require,
is first published in the Official Gazette." In the present case, the Act
is not expressed to come into operation on any particular date, but as it was
published in the Madras Gazette on October 8, 1956, the Act came into operation
on that date and not before. In the present case, the registered instrument by
which the business was transferred to the respondent is dated October 5, 1956
and the amending Act has therefore no application. We accordingly reject the
argument of the appellants on this aspect of the case and hold that Rule 21-A
is ultra vires of the rule-making power of the State Government under the, Act.
It was next argued on behalf of the
appellants that upon a true construction of the registered instrument dated
October 5, 1956 the respondent undertook to pay not only Sch. I liabilities but
also other liabilities like sales-tax imposed in regard to the business. It
was, however, disputed by Mr. Ganapathy Iyer on behalf of the respondent that
there was any undertaking on the part of the respondent to discharge the
liabilities in regard to arrears of sales- tax. But even on the assumption that
the respondent undertook to pay the arrears of sales-tax due by the transferor,
it does not follow 66 7 that there is a liability created inter se between the
State Government on the one hand and the transferee on the other hand. To put
it differently, it is not open to the State Government to rely on the
instrument inter vivos between the transferor and the transferee and to contend
that there is any contractual obligation between the transferee and the State
Government who is not a party to the instrument. We accordingly reject the
argument of the appellants on this aspect of the case also.
For these reasons we hold that the judgment
of the Division Bench of the High Court dated September 13, 1963 is correct and
this appeal must be dismissed with costs.
R.K.P.S.
Appeal dismissed.
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