K ABOO Vs. SALES TAX OFFICER

JUDGEMENT

(1.) A person who is sought to be assessed to sales tax for 1959-60 under the General Sales Tax Act of 1125 seeks to quash exhibit P5, a preassessment notice issued by the Sales Tax Officer, Badagara. The petitioner and five others constituted a firm under the firm name Madeena Oil Mills and Industries; and the firm was assessed to sales tax for 1959-60 in February, 1961. The turnover was worked out from the quantity of electric current consumed by the mill for crushing copra. The firm filed O. P. No. 1176 of 1961 questioning the correctness of this; and the writ petition was allowed by this court (vide exhibit P2) holding that the basis adopted was wrong and that the Sales Tax Officer should have effected a test crushing to find out the quantity of electric energy consumed for crushing one ton of copra. Though the petition was disposed of on 28th June, 1962, the Sales Tax Officer did not take any steps for effecting a reassessment until he issued exhibit P3 on 5th September, 1966, calling upon the firm to remit Rs. 80 towards the expenses of a test crushing. The petitioner replied under exhibit P4 that a test crushing after such long lapse of time would not give a correct idea regarding the consumption of electric current during the relevant year (1959-60), since the machinery became very old. He also stated that in December, 1963, the firm was dissolved by a deed of dissolution and another firm was constituted by the petitioner and two others and that in 1965 one of the three partners died and thus the second partnership also got dissolved. The further allegation in exhibit P4 was that thereafter the petitioner and the remaining partner assigned their rights to a third party, who was thereafter running the concern as the sole proprietor thereof. There were one or two other objections also in exhibit P4 like that the assessment became barred, etc. Exhibit P4 was dated 15th September, 1966, within ten days of exhibit P3. The Sales Tax Officer remained silent for about two years more, and on 24th August, 1968, issued exhibit P5, the preassessment notice now sought to be quashed. In the notice nothing was stated about the dissolution of the firm or the transfer of the business to a third party. Exhibit P5 dealt with only the question as to how far the accounts submitted by the petitioner could be relied upon for making the assessment. The Sales Tax Officer rejected the accounts and said that he proposed to make a best of judgment assessment as indicated in exhibit P5. The papers produced before me show that the petitioner filed another objection to exhibit P5 as well. The contention seriously urged before me is that Sales Tax Officer has no power to assess a firm after it is dissolved, as there is no provision in the General Sales Tax Act of 1125 authorising such a levy. The Government Pleader opposes this contention saying that under exhibit P5 the Sales Tax Officer has asked the petitioner to file his objections, if any, to the proposals contained in exhibit P5, so that this court need not interfere under article 226 of the Constitution at this stage. The answer of the counsel of the petitioner is that, if the firm as such is not in existence, the same having been dissolved and, if under the Sales Tax Act, the Sales Tax Officer has no jurisdiction to assess a dissolved firm, this court need not wait for the assessment to be completed, because the lack of jurisdiction of the Sales Tax Officer goes to the very root of the assessment and this court may, in such a case, quash even the preassessment notice. If, as contended by the petitioner's counsel, the firm has already been dissolved and, in such a case, the Sales Tax Officer has no power to assess the dissolved firm, there is no point in allowing the assessment to be completed and asking the petitioner to come by way of another writ petition, when alone this court will exercise its jurisdiction under article 226. Therefore, the only questions to be considered in this case are whether the original partnership which existed during the relevant time (1959-60) exists now, when the assessment is sought to be completed; and whether under the General Sales Tax Act there is power vested in the Sales Tax Officer to assess a dissolved partnership. As I have already stated, exhibit P5 is silent regarding the question whether the partnership was dissolved. In spite of the petitioner's averment in exhibit P4 that the partnership was dissolved under a deed of dissolution in December, 1963, that another partnership came into existence which itself got dissolved in 1965 and that, thereafter, the assets of the second partnership were also transferred to a third party, the Sales Tax Officer discreetly or meaningfully kept quiet in exhibit P5 without making any reference to this question. The Government Pleader draws my attention to the counter-affidavit filed on behalf of the Sales Tax Officer. It is stated therein that the petitioner did not intimate within the prescribed time the fact of the dissolution of the firm; that the constitution of a different firm and its subsequent dissolution by the death of one of the partners were also not intimated to the Sales Tax Officer; that the petitioner did not give the Sales Tax Officer any intimation of transfer of the mill within the time prescribed by law; and that the petitioner is sought to be assessed now in his individual capacity and not as a representative of the firm. These allegations in the counter-affidavit speak for themselves; they are contradictory one to the other. In the earlier part of the counter-affidavit, it is stated that the dissolution of the original firm was not intimated to the Sales Tax Officer within the prescribed time. In the later part of the counter-affidavit, it is averred that the petitioner is now sought to be assessed in his individual capacity and not as a representative of the firm. If the firm is in existence, the petitioner need not be assessed in his individual capacity; this need be done only after the firm is dissolved. Again, exhibit P5 is quite clear that the proposed assessment is of the firm. The Government Pleader has gone even to the extent of stating at the Bar that the averment that the proposed assessment is of the petitioner in his individual capacity might have been a mistake of the drafting counsel : May be : but I need not go into that question, because the only question for me to decide is whether the Sales Tax Officer has a consistent case regarding the existence or otherwise of the original firm. Firstly, the Sales Tax Officer did not advert at all to this aspect in exhibit P5. Secondly, even in the counter-affidavit, in its earlier portion, the dissolution of the original firm has not been denied : the only allegation is that the dissolution was not intimated in time. Thirdly, even in the subsequent portion of the counter-affidavit, the dissolution has been tacitly admitted and it has been said that the proposed assessment is of the petitioner in his individual capacity. Thus, the irresistible conclusion is that the partnership was dissolved as claimed by the petitioner. Then arises the next question regarding the power of the Sales Tax Officer to make an assessment in a case like this. The counsel of the petitioner has brought to my notice the decision of the Supreme Court in State of Punjab v. Jullundur Vegetables Syndicate ([1966] 17 S. T. C. 326 (S. C.) ). In that case, a similar Act, the East Punjab General Sales Tax Act of 1948, was considered by the Supreme Court; and Subba Rao, J. , speaking for the court, has held that the Sales Tax Officer had no jurisdiction to make an assessment after a firm was dissolved. Subba Rao, J. , has also observed that it does not make any difference whether the assessment proceeding was started prior to the dissolution of the firm and closed after the dissolution or whether the assessment proceeding commenced only after the dissolution of the firm. The reasoning of the Supreme Court is that unless there is a specific provision for making an assessment, a taxing statute cannot be interpreted to widen its scope against the assessee, and, if necessary, the statute has to be interpreted in such a way as to benefit the taxpayer. In the later decision in Khushi Ram Behari Lal & Co. v. Assessing Authority, Sangrur ([1967] 19 S. T. C. 381 (S. C.)), the Supreme Court has affirmed its earlier decision and has made it clear that an assessment of a dissolved firm, whether the proceedings were initiated before or after the firm was dissolved, was unsustainable. The Government Pleader seeks to distinguish the Punjab General Sales Tax Act from our General Sales Tax Act of 1125. But, he has not drawn my attention to any provision in the Act itself by which the distinction sought to be drawn can be justified. He has referred to rules 35 to 37 of the General Sales Tax Rules framed under the Act. The relevant rule in the East Punjab Act is rule 40 (1), which is quoted by Subba Rao, J. , in his judgment. It reads : " A dealer and his partner or partners shall be jointly and severally responsible for payment of the tax, penalty, or any amount due under the Act or these Rules. " The relevant rule in our Act is rule 35, which reads : " If a dealer or licensee enters into partnership in regard to his business, he shall report the fact to the assessing authority within 30 days of his entering into such partnership. The dealer or licensee and the partner shall jointly and severally be responsible for the payment of the tax leviable under the Act. " The Government Pleader argues that the word used in rule 35 is "leviable", whereas the word used in rule 40 of the Punjab Act is "due". I am not able to see any distinction between these two words, much less a distinction which indicates by necessary implication that a Sales Tax Officer can assess the erstwhile partnership after it is dissolved. As pointed out by Subba Rao, J. , a taxing law cannot be interpreted in such a way as to widen its scope and justify an assessment, unless there is specific provision in the law authorising such levy or such power can be gathered by necessary implication. Rule 35 of our Act does not indicate any such power by necessary implication. Rules 36 and 37 are also not helpful to support the argument of the Government Pleader. Rule 36 says that, if a partnership is dissolved, every person who was a partner shall send a report of the dissolution to the assessing authority within 30 days of such dissolution. Rule 37 provides that, if at any time, a dealer or licensee (a) discontinues or sells or otherwise disposes of the whole or any part of any business carried on by him, or (b) changes his place of business, or (c) changes the name of any business carried on by him, he shall notify the fact to the assessing or licensing authority concerned within 30 days thereafter. These rules also do not obviously imply any such power. No other provision in the Act or Rules has been brought to my notice to justify the proposed assessment. As pointed out by the Supreme Court, the absence of such a provision in the East Punjab Act was a lacuna which was later on filled up. The absence of such a provision appears to be a lacuna in our Act of 1125 too, which appears to have been set right by section 21 of the Kerala General Sales Tax Act of 1963. Therefore, under the earlier Act, an assessment as proposed under exhibit P5 cannot be made. The writ petition is allowed and exhibit P5 is quashed. Both parties are directed to bear their respective costs. [the judgment of the Division Bench of the Kerala High Court consisting of T. C. RAGHAVAN, C. J. , and V. KHALID, J. , in P. C. Assankutty v. The Sales Tax Officer, Badagara (W. A. Nos. 148, 193 and 216 of 1971) delivered on 12th March, 1973, is printed below : -] P. C. ASSANKUTTY v. THE SALES TAX OFFICER, BADAGARa The judgment of the Court was delivered by RAGHAVAN, C. J.- The appellants in these three appeals are the six partners of a partnership firm by name Madeena Oil Mills and Industries. The partnership was assessed to sales tax fixing the turnover on the basis of the consumption of electric current for crushing copra. The firm filed O. P. No. 1176 of 1961; and Vaidialingam, J. , directed that there should be a test crushing before the consumption of electric current was taken as the basis for fixing the turnover. The judgment was pronounced on 28th June, 1962; still, until 5th September, 1966, the Sales Tax Officer did not take any step to have a test crushing. On 5th September, 1966, he called upon the firm to remit the charges for a test crushing, when the partners of the firm, the firm having been dissolved in the meantime on 3rd December, 1963, filed O. P. No. 3673 of 1968, which was heard by one of us and was allowed quashing the proposed assessment. The said decision is reported as K. Aboo v. Sales Tax Officer (Page 478 supra; 1969 K. L. R. 807 ). This judgment was pronounced on 24th September, 1968; and, on the same day, the Sales Tax Officer issued notices to the partners of the firm calling upon them to file objections, if any, to the proposed assessments before 2 p. m. the next day. Two days after, on 26th September, the assessments were finalised on the erstwhile partners of the firm; and in the present writ petitions giving rise to these appeals, the partners have questioned the validity of the said assessments. Two of the partners filed two writ petitions, one by each; and the other four partners have filed the third writ petition. (One of the four petitioners was the son of a deceased partner.) All these writ petitions were dismissed by a single Judge holding that the present assessments were against persons who were admittedly members of the firm, as the partners were jointly and severally liable for the tax payable by the firm. The learned Judge also directed the petitioners to pay the costs of the revenue. In these appeals, this decision of the single Judge is being challenged. In the earlier decision mentioned by us, viz. , K. Aboo v. Sales Tax Officer (Page 478 supra; 1969 K. L. R. 807), all the aspects of the case were considered in full detail. The partnership was assessed under the General Sales Tax Act of 1125; and by the time the second attempt was made to assess the firm, the partnership was dissolved - once by a deed of dissolution and a second time - the second partnership - by the death of a partner. The full details of the life of the partnership (the first dissolution and the second dissolution) were stated in that decision. It was pointed out, after referring to two decisions of the Supreme Court - State of Punjab v. Jullundur Vegetables Syndicate ([1966] 17 S. T. C. 326 (S. C.)) and Khushi Ram Behari Lal & Co. v. Assessing Authority, Sangrur ([1967] 19 S. T. C. 381 (S. C.)) - that a partnership could not be assessed after its dissolution. It was argued in that case, basing on rules 35 to 37 of the General Sales Tax Rules, 1950, framed under the Act of 1125, that the assessment sought to be made was legal and proper. This contention was also rejected; and we are told that that decision has become final since no appeal was filed against it. This court also pointed out towards the end of the judgment in that case that, to meet the situation, section 21 of the General Sales Tax Act of 1963 was enacted, which provided that, where any firm was liable to pay any tax, fee or other amount under the Act, the firm and each of the partners of the firm would be jointly and severally liable for such payment. It was further pointed out that, under the Act of 1125, there was no such provision and the said lacuna in the Act could not be filled up by interpreting any provision in the said Act. As we have already indicated, the judgment in that case was pronounced on 24th September, 1968; and the impugned notices appear to have been issued on the same day stating that objections should be filed before 2 p. m. the next day. (In one of the cases at least, a contention has been raised before us that even this notice was served on the appellant concerned only on 30th September.) Ant on 26th September, the impugned assessments appear to have been made on the erstwhile partners of the partnership, which was dissolved prior to the assessments. The simple question for us to consider is whether such assessments on the partners of a dissolved firm could be sustained in law. The counsel for the appellants has drawn our attention to three decisions, two of the Rajasthan High Court and one of the Punjab and Haryana High Court. The decision of the Punjab and Haryana High Court is Moti Ram Kishore Chand v. District Excise and Taxation Officer (Assessing Authority), Bhatinda ([1968] 21 S. T. C. 459), by a single Judge. The learned Judge has held that a firm which was dissolved could not be assessed to sales tax after its dissolution in respect of its turnover before dissolution under the Punjab General Sales Tax Act, 1948. The reasoning is that there was no provision in the said Act expressly empowering the Assessing Authority to assess a dissolved firm in respect of its turnover before its dissolution. The two decisions of the Rajasthan High Court are Smt. Shanti Bai v. State ([1968] 21 S. T. C. 458) and Mst. Jeeyakanwar v. State of Rajasthan ([1968] 21 S. T. C. 461), both Division Bench rulings. In the first of these decisions, the Rajasthan High Court has held that, if a firm stood dissolved, an assessment in respect of the turnover of the firm for a period prior to the dissolution should be made under a particular provision of the Rajasthan Sales Tax Act and not otherwise. In the next case, the aforesaid decision has been followed. The principle followed in this case is that a partnership is an entity for the purpose of taxation and the members of the partnership are different entities and, unless there is special provision for making them liable for the tax of the partnership in the particular Act under which the assessment is sought to be made, there is no liability jointly or otherwise for the partners of the firm to pay the tax due by the partnership. Yet another decision brought to our notice is the Division Bench ruling of the Allahabad High Court in Rameshwar Oil Mills v. Additional Revising Authority, Sales Tax, Varanasi Range, Varanasi ([1969] 23 S. T. C. 465 ). The Allahabad High Court has held therein that a manufacturer who sold oil manufactured by him would be liable for sales tax on the sale of oil manufactured by him (under the particular Act); but, if the manufacturer was a partnership and the oil was sold by one of the partners after the dissolution of the partnership and after the partner got the oil as his share, the partner would not be liable, since the producer of the oil was the firm, one entity, and the seller of the oil was the individual partner, another entity, who would not be a dealer-manufacturer. There decisions clearly indicate that the erstwhile partnership was an entity for the purpose of taxation, and for its tax liability, the members thereof will not be liable, unless they are specifically made liable by some provision in the Sales Tax Act. The Government Pleader has conceded that there was no such specific provision in the General Sales Tax Act of 1125 and it was to meet that lacuna that section 21 of the later Act of 1963 was enacted. Therefore, there is no escape for the revenue in these cases; the partners of the dissolved partnership cannot be assessed in respect of the turnover of the partnership. The appeals are allowed, the decision of the single Judge is set aside and the assessments are quashed. The appellants in all these appeals will get their costs in the appeals; but, in the writ petitions, we direct both the parties to bear their respective costs. .