RAMABEN KANTILAL VITHALANI Vs. STATE OF GUJARAT

JUDGEMENT

(1.) ON reference application being filed under section 69 (1) of the Gujarat Sales Tax, 1969, hereinafter referred to as "the said Act", the Tribunal has framed the following two questions of law for our decision : " (1) Whether on the facts and in the circumstances of this case and on construction of the relevant deed, dated December 29, 1973, the Tribunal was right in law in holding that it was not a deed of dissolution of M/s. Jalaram Engineering Works itself as a firm, but that it was merely a deed of retirement of the two applicants as partners of that firm with effect from November 26, 1973 ? (2) Whether on the facts and in the circumstances of this case, the Tribunal was right in law in holding that by virtue of condition No. (4) of the above deed, both applicants continued to be liable for payment of tax as levied upon the firm even after their retirement, along with the other two continued partners, till the date of receipt of the intimation of their retirement by the Commissioner of Sales Tax in terms of section 25 of the Gujarat Sales Tax Act, 1969, as construed by the Tribunal ?"

(2.) IT is necessary to refer to the facts to answer the said questions : (i) The applicants and two other partners commenced business of fabrication and manufacture of goods in the name and style of M/s. Jalaram Engineering Works at Vadodara on and from December 11, 1972. The firm was duly registered as a dealer under the Gujarat Sales Tax Act, 1969. Thereafter, by agreement, dated 29th December, 1973, two out of four partners, namely, the present applicants retired as partners of the said firm with effect from 26th November, 1973, and the remaining two partners, namely, (i) Shantilal Ratilal Raberu and (ii) Rameshchandra Harakji Chandrani continued the business of the said firm having acquired the assets, rights and liabilities of that firm from the said date. IT is required to be noted that the applicants after retiring as partners did not intimate the date of their retirement to the Commissioner by notice in that behalf in writing. Such intimation was required to be given within 15 days from the date of retirement, and admittedly, the applicants did not give intimation of their retirement within a period of 15 days. (ii) The Sales Tax Officer of Vadodara, served a statutory notice of the proposed assessment of the firm for the accounting year from January 1, 1973 to December 31, 1973. Since the Sales Tax Officer has never received intimation of retirement of the two applicants from the partnership firm he has finalised the assessment of the said firm for the abovesaid period by order, dated 11th October, 1976 and held the present applicants liable for the payment of tax assessed. (iii) The present applicants, thereafter, filed an appeal before the Assistant Commissioner of Sales Tax, inter alia, contending that they had retired from the partnership firm with effect from 26th November, 1973, and that therefore, the assessment relating to period after the date of their retirement as partners was illegal, so far as their liability was concerned. IT was also contended by them before the appellate authority that on their retirement from the partnership firm, the firm stood dissolved with effect from 26th November, 1973, and the business was, thereafter, continued by the other two partners and for liability incurred while carrying on such business, they cannot be liable. (iv) The Assistant Commissioner negatived both these contentions and held that there was no dissolution of the firm, but in fact, the present applicants have retired from the partnership firm and the remaining two partners have continued the business of the existing partnership firm. The Assistant Commissioner granted certain partial reliefs in favour of applicants. (v) Being aggrieved by the order of the Assistant Commissioner of Sales Tax, the applicants approached the Tribunal. After considering the terms and conditions of the deed, dated 29th December, 1973, the Tribunal came to the conclusion that the said deed was not a deed of dissolution but it was a mere deed of retirement of the two applicants as partners of the said firm. However, the Tribunal found that on retirement of applicants, the original firm had not come to an end and had continued to run the business. The Tribunal, therefore, dismissed the appeal. (vi) However, on application for reference being made to the Tribunal it was the opinion of the Tribunal that question of construction of deed, dated 29th December 1973, was pure question of law, and that it was required to be referred for our opinion. The Tribunal, therefore, formulated the two questions of law stated hereinabove for our opinion.

(3.) THE second question relates to interpretation of condition No. 4 of the said deed, dated 29th December, 1973. As stated hereinabove, by condition No. 4, it is inter alia, stipulated that continuing partners have taken over the rights and liabilities including liability to pay all taxes except income-tax, and therefore, the retiring partners are not required to discharge any liability. Based on this stipulation in the deed, it was contended before the Tribunal that there was no liability of the applicants for payment of tax as levied. In order to appreciate this submission, it is necessary to refer to section 25 of the said Act : " 25. Notwithstanding any contract to the contrary, where any firm is liable to pay tax under this Act, the firm and each of the partners of the firm shall be jointly and severally liable for such payment : Provided that, where any such partner retires from the firm he shall intimate the date of his retirement to the Commissioner by a notice in that behalf in writing and he shall be liable to pay the tax and the penalty (if any) remaining unpaid at the time of his retirement and any tax due up to the date of retirement though unassessed at that date : Provided further that where no such intimation is given within fifteen days from the date of retirement, the liability of the partner under the first proviso shall continue until the date on which such intimation is received by the Commissioner. " It is pertinent to note that the section begins with a non-obstante clause overriding any provision in the contract to the contrary. THErefore, even if there is a contract to the contrary amongst partners of firm wherein the firm is liable to pay tax under the said Act, the firm as well as each of its partners jointly and severally are liable for payment of such tax. When any partner retires from the partnership firm there is obligation on him to intimate the date of his retirement to the Commissioner by notice in that behalf in writing. However, he is liable to pay the tax or penalty (if any) remaining unpaid at the time of his retirement. This provision, with respect to retiring partner and his liability to pay tax till the date of his retirement, clearly provides that, if the partner intimates the date of his retirement to the Commissioner by notice in writing, within 15 days, his liability for tax or penalty for the period subsequent to the date of his retirement shall come to an end. In case of failure of a partner to give intimation in writing within 15 days from the date of his retirement, the liability of such partner continues until he gives the intimation of his retirement. THE effect of this provision is that in the absence of written intimation within stipulated time by retiring partner, about his retirement, he continues to be liable to pay tax despite his retirement from the partnership firm.