STATE OF GUJARAT Vs. TAMAKUWALA AND SONS

JUDGEMENT

(1.) This is a reference made at the instance of the State under S. 34 of the Bombay Sales Tax Act, 1958. The facts which have been found by the Tribunal are few and may be briefly stated at the outset, for having regard to those facts, it is not possible to see how any conclusion other than that in favour of the assessee can be reached in this reference. Prior to 3rd April 1954, the respondent firm, which consisted of five partners, carried on business at two places, namely, Vasad in Kalra District and Padra in Baroda District. The business at Vasad was carried on in the name of Messrs. Tamakuwala & Sons, and that at Padra was carried on in the name of Messrs, Trikamlal Nagardas Tamakuwala. The respondent firm was a registered dealer under the provisions of the Act and was liable to pay tax on sales effected by it in the course of its business. On 3rd April 1954, the respondent firm was dissolved and under an arrangement arrived at between the partners, the business of the respondent firm at Padra was taken over by three of the partners while the business at Vasad was taken over by the remaining two partners in partnership with two other persons. This latter partnership constituted of two partners of the respondent firm and two others, carried on business in the name of Messrs. Gokalbhai Tribhovandas & Co., but it was not registered under the provisions of the Act nor did it obtain a certificate of registration until 16th September 1954. Now at the date of dissolution, the respondent firm had stock of goods of the value of Rs. 44,177 in respect of the business at Vasad, and since the business at Vasad was taken over by Messrs. Gokalbhai Tribhovandas & Co., this stock of goods was also transferred to Messrs. Gokalbhai Tribhovandas & Co. along with the business of which it constituted an asset. It is in respect of the tax liability of this stock of goods that the present controversy has arisen between the parties.

(2.) In the course of the assessment of the respondent firm to sales tax for the assessment period 1st April 1954 to 3rd April 1954. That being the last period during which the respondent firm carried on business, the Sales Tax Officer included the sum of Rs. 44,177 being the value of the stock of goods transferred to Messrs. Gokalbhai Tribhovandas & Co., in the turnover of sales of the respondent firm and taxed the respondent firm on such turnover, presumably relying on Section 26(2) of the Act. The respondent firm thereupon preferred an appeal to the Assistant Commissioner of Sales Tax. The respondent firm contended before the Assistant Commissioner of Sales Tax that the business at Vasad was a distinct and independent business from the business at Padra and since the ownership of tbe business at Vasad was entirely transferred by the respondent firm to Messrs Gokalbhai Tribhovandas & Co., the case was covered by Section 26(1) and the stock of goods transferred to Messrs. Gokalbhai Tribhovandas & Co., along with the Vasad business was not liable to be included in the turnover of sales of the respondent firm. Now it is difficult to see why reliance was placed by the respondent firm on Section 26(1). The revenue sought to tax the stock of goods transferred to Messrs. Gokalbhai Tribhovandas & Co. under Section 28(2) and the only argument which could therefore be profitably advanced before the Assistant Commissioner of Sales Tax was that Section 20(2) had no application to the facts of the case and not that the case was governed by Section 20(1). But presumably the argument that Section 26(1) applied to the facts of the case was advanced because that section could apply only if the ownership of the business was transferred in its entirely and if it could be said that when tbe business at Vasad was transferred to Messrs, Gokalbhai Tribhovandas & Co., there was transfer of the ownership of the business in its entirely, that would exclude the applicability of Section 26(2) which applied only where the ownership of a part of the business was transferred. The Assistant Commissioner of Sales Tax, however, negatived this contention based on the applicability of Section 26(1) and held that the business of the respondent firm at Vasad and Padra was one single business and the transfer of ownership of the business at Vasad alone could not, therefore, be said to be transfer of ownership of the entire business of the respondent firm so as to fall within Section 26(1). The Assistant Commissioncr of Sales Tax took the view that since there was transfer of ownership of a part of the business of the respondent firm, namely, that at Vasad, the respondent firm was liable to pay tax in respect of the stock of goods transferred to Messrs. Gokalbhai Tribhovandas & Co., by reason of Section 26(2). The respondent firm carried the matter in revision before the Deputy Commissioner of Sales Tax. but the revision application was unsuccessful and the respondent firm thereupon preferred it further revision implication to the Tribunal Before the Tribunal, the view of the revenue authorities that the case fell within Section 20(2) was challenged on behalf of the respondent firm and the challenge was upheld by the Tribunal. The Tribunal took the view that on a true construction of Section 26(2). what was required for the applicability of the section was that the transferor should transfer the ownership of a part of his business to the transferee and the other part of the business should remain with the transfer or and it is only in such a case that the transferor would be liable to pay tax in respect of the stock of goods transferred to the transferee as if the goods had been sold by him, provided of course, the transferee did not hold a certificate of registration and did not obtain it within the prescribed period. The Tribunal held that since in the present case the respondent firm was dissolved and the business of the respondent firm was distributed between the two sets of partners, no part of the business was retained by the respondent firm when the Vasad business was transferred by the respondent firm to Messrs. Gokalbhai Tribhovandas & Co. Both the parts of the business were transferred by the respondent firm, one to tlie three partners of the respondent firm and the other to Messrs. Gokalbhai Tribhovandas & Co. at the same time under an arrangement arrived at between the partners and no part of the business could, there-fore, he said to have remained with the respondent firm when the Vasad business was transferred to Messrs. Gokalbhai Tribhovandas & Co. in this view of the matter, the Tribunal held that the condition requisite for the applicability of Section 26(2) was not fulfilled and the value of the stock of goods transferred to Messrs. Gokalbhai Tribhovandas & Co. was not liable to be included in the turnover of sales of the respondent firm. An alternative argument was also advanced on behalf of the State before the Tribunal and that argument was that, in any view of the matter, even if Section 26(2) did not apply, the case was covered by Section 26(3)(i) and the value of the stock of goods transferred to Messrs. Gokalbhai Tribhovandas & Co should be taxed under that provision. This argument was also negatived by the Tribunal and two grounds were given by the Tribunal in support of their view. The first ground was that it was not open to the revenue at the stage of the revision application before the Tribunal to change the basis of assessment from Section 26(2) to Section 26(3)(i) and the second ground was that, in any event, the machinery of assessment prescribed by S. 14 was not available in cases covered by Section 26(3) (i). The State, being aggrieved by this decision of the Tribunal, made an application for a reference and on the application, the following three questions were referred for the opinion of this Court: "l. Whether on the facts and in the circumstances of the case the Gujarat Sales Tax Tribunal was justified in holding that the provisions of Section 26(2) of the Bombay Sales Tax Act 1958 could not be applied to the facts of the case? 2. Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the basis of the assessment could not be allowed to be changed from the basis under Section 26(2) to the basis under Section 20(3) for the first time at the Tribunal stage?

(3.) If the answer to question No. 2 is in the negative whether the Gujarat Sales Tax Tribunal was justified in holding that the provisions of Sections 14 and 15 of the Bombay Sales Tax Act 1963 could not be applied to an assessment under Section 26(3) of the said Act?" So far as the second and third questions are concerned, we need not say anything more about them beyond stating that the State cannot rely on Section 26(3)(i) in the present case since that section, in to far as it purports to tax allotment of goods of a firm amongst partners on dissolution, is ultra vires the State Legislature as held by us in a decision given on 8th November 1963 in Sales Tax Ref. No. 5 of 1962, (State of Gujarat v. Ramanlal Sankalchand & Co., AIR 1965 Guj 60). These two questions will, therefore, have to be answered accordingly by saying that the State is not entitled to tax the stock of goods transferred to Messrs. Gokalbhai Tribhovandas & Co. under Section 26(3)(i). 3. That takes us to the first question which deals with the applicability of Section 23(2) to the facts of me present case. The determination of that question turns on the interpretation of Section 26(2). Section 26(2), as it stood at the material time, was in the following terms: