Full Judgment Text
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PETITIONER:
STATE OF PUNJAB
Vs.
RESPONDENT:
M/S. JULLUNDER VEGETABLES SYNDICATE
DATE OF JUDGMENT:
01/11/1965
BENCH:
WANCHOO, K.N.
BENCH:
WANCHOO, K.N.
SUBBARAO, K.
SUBBARAO, K.
SHAH, J.C.
SIKRI, S.M.
GAJENDRAGADKAR, P.B. (CJ)
HIDAYATULLAH, M.
SHAH, J.C.
SIKRI, S.M.
CITATION:
1966 AIR 1295 1966 SCR (2) 457
CITATOR INFO :
R 1976 SC 313 (10,12,13,19,50,51,52,53)
RF 1976 SC2372 (2)
R 1979 SC1588 (6)
D 1985 SC1143 (3,5)
ACT:
East Punjab General Sales Tax Act (46 of 1948), s. 16 and
East Punjab General Sales Tax Rules, 1949, r. 40--Assessment
of dissolved firm with respect to its predissolution
turnover--Validity.
HEADNOTE:
The respondent firm was assessed to sales-tax in 1953 but
the order was set aside by the Financial Commissioner,
because, the authority who made the assessment had no
jurisdiction to do so. Fresh proceedings we’re then started
for assessment, but the respondent firm was dissolved before
the proceedings were initiated. The Sales-tax Officer
however however made the assessment. The turnover and tax
were reduced on appeal and the Financial Commissioner, in
revision, confirmed the appellate order. But the High Court
on a -reference, held in favour of the respondent on the
ground that a firm was a separate assessable entity under
the Act and that there was no machinery provided under the
Act for assessing a firm after its dissolution in respect of
its turnover of business before the dissolution.
In appeal to this Court,
HELD : The High Court was right in holding that the
assessment order on the dissolved firm could not be
supported under the provisions of the Act. [464 E]
Though under the partnership law a firm is not a legal
entity, for the purposes of sales-tax, under the Act, it is
a legal entity. If that be so, on dissolution, the firm
ceases to be a legal entity. Thereafter, on principle,
unless there is a statutory provision permitting the
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assessment of a dissolved firm, there is no longer any scope
for assessing the firm which ceased to have, a legal
existence. There is no provision in the Act, as it stood in
1953 expressly empowering the assessing authority to assess
a dissolved firm in respect of its turnover before its
dissolution. Neither s. 16 of the Act, nor r. 40 of the
Rules made thereunder, provide for the assessment of a
dissolved firm and the provisions of the Partnership Act
have no bearing on the question of assessment. [461 G; 462
C-D, F, G, H]
As in the present case, admittedly the firm was dissolved
before the order of assessment was made, the said order was
bad and it made no difference whether the proceeding was
initiated before the dissolution or thereafter. [462 E]
Jagat Behari Tandon v. The Sales Tax Officer, Etawah, (1955)
6 S.T.C. 125, Lalji v. The Assistant Commissioner, Sales
Tax, Raipur, (1958) 9 S.T.C. 571, R. D. Fernandez In re.
(1957) 8 S.T.C. 368 and Ponnuswami Gramani v. The Collector
of Chingleput District, (1960) 11 S.T.C. 80, disapproved.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 588 of 1964.
4 58
Appeal from the judgment and order dated February 6, 1962 of
the Punjab High Court in Sales Tax Reference No. 1 of 1959.
K. S. Chawla and R. N. Sachthey, for the appellant.
M. S. Gupta, for the respondent.
The Judgment of the Court was delivered by
Subba Rao, J. This appeal on a certificate issued by the
High Court of Punjab at Chandigarh raises the question
whether a firm could be assessed to sales-tax after it was
dissolved.
The facts may briefly be stated. Messrs. Jullunder
Vegetables Syndicate was a firm doing business in Jullunder
from October 4, 1952 to July 11, 1953. It was dissolved on
July 11, 1953. An intimation of the dissolution of the firm
under S. 16 of the East Punjab General Sales Tax Act, 1948,
hereinafter called the Act, was sent to the Department on
July 18, 1953. The firm was assessed to sales-tax on May
30, 1953, by the Sales-tax Officer under the provisions of
the Act in respect of its turnover for the period between
October 4, 1952 and March 31, 1953; but the said assessment
order was quashed on April 11, 1955, by the Financial Com-
missioner on the ground that the authority which made the
assessment had no jurisdiction to do so. On September 3,
1955, the Sales-tax Officer made a fresh assessment on the
turnover of the said firm. Its taxable turnover was fixed
at Rs. 15,04,091-11-3 and was assessed to sales-tax in a sum
of Rs. 47,002-14-0. It is not clear from the record whether
after the order of the Financial Commissioner fresh
proceedings were initiated by the Sales-tax Officer or
whether the earlier proceedings initiated by him before the
dissolution of the firm were continued thereafter. But from
the question formulated for the decision of the Full Bench
of the High Court, which is the subject-matter of this
appeal, it appears that the firm was dissolved before the
proceedings for the assessment were initiated. The frame of
the question indicates that after the order of the Financial
Commissioner quashing the original order of assessment on
the ground that the assessing authority had no jurisdiction,
fresh proceeding were stated for assessment. We shall,
therefore, proceed to consider the question raised in the
appeal on that assumption. On appeal, the Deputy Excise and
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Taxation Commissioner, by his order dated October 20, 1956,
reduced the figure of turnover and also correspondingly
reduced the tax payable to a sum of Rs. 30,049-12-0. On
revision, the Financial Commissioner, rejecting the
contention of the firm that the assessment proceedings could
not be taken against a firm after its dissolution, confirmed
the assess-
4 5 9
ment. At the instance of the assessee the following
question was referred to the High Court for its decision
under S. 22 of the Act
"Whether a partnership firm, which is a
registered firm under the provisions of the
Punjab Sales Tax Act and which was in
existence throughout the period for which
assessment of sales tax has to be made, ceased
to be liable to the said assessment by the
mere fact that it has dissolved before the
proceedings for assessment are initiated."
A Full Bench of the Punjab High Court answered the question
in the affirmative. The main reason given by it for its
decision was that a firm was a separate assessable entity
under the Act and that there was no machinery provided under
the Act for assessing a firm after its dissolution in
respect of its turnover of business before the said
dissolution. The State of Punjab, on a certificate issued
by the High Court, has preferred the present appeal to this
Court.
Mr. K. S. Chawla, learned counsel for the State, raised
before us the following points : (1) a firm under the Act is
not a separate legal entity and, therefore, an assessment
thereunder can be made on the group of partners who
constituted the firm before it was dissolved; (2) even if it
was a separate assessable unit, dissolution of a firm does
not put an end to its liability for assessment till its
registration certificate is cancelled by the appropriate
authority; (3) the High Court proceeded on a misapprehension
that the assessment proceedings were initiated afresh after
the order of the assessing authority was quashed by the
Financial Commissioner, but in fact after the said order of
the Financial Commissioner, the assessment proceedings
started before the dissolution of the firm were continued.
On that assumption, the argument proceeded, that the
proceedings validly started against a firm could be
continued though the said firm was dissolved and the notice
of such a dissolution was given to the appropriate authority
till the registration of the firm was cancelled.
Mr. M. S. Gupta, learned counsel for the firm, contended
that a firm under the Act, just like a firm under the Indian
Income-tax Act, was a separate assessable legal entity and
that, unlike under the Income-tax Act, there was no
machinery provided under the Act for making the assessment
on such a firm after its dissolution and that, irrespective
of the fact whether the proceedings were initiated before or
after its dissolution, the assessing authority had no power
or jurisdiction to assess the firm after such a dissolution.
He further argued that in the present case the High Court
proceeded on the assumption that the assessment proceedings
were started
460
denovo after the order of the Financial Commissioner and,
therefore, this Court should not permit the appellant to
contend that the assessment proceedings were only the
continuation of the earlier proceedings, particularly in the
absence of any material on the record supporting the said
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fact.
Before we advert to the rival contentions it will be
convenient to clear the ground. It is a settled rule of
construction that in interpreting a fiscal statute the court
cannot proceed to make good the deficiencies, if there be
any, in the statute : it shall interpret the statute as it
stands and in case of doubt, it shall interpret it in a
manner favourable to the tax payer: see C.A. Abraham v.
Incometax Officer, Kottayam(1). In considering a taxing
Act, the court is not justified in straining the language in
order to hold a subject liable to tax.
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.
The relevant provisions of the Act may now be
read
Section 2. In this Act, unless there is
anything repugnant in the subject or; context-
(d) "dealer" means any person, firm or Hindu
joint family,engaged in the business of
selling or supplying goods in East
Punjab;..........
Section 4. (1) Subject to the provisions of
sections 5 and 6, every dealer whose gross
turnover during the year immediately preceding
the commencement of this Act exceeded the
taxable quantum shall be liable to pay tax
under this Act on all sales effected after the
coming into force of this Act.
(1) [1961] 2 S.C.R. 765
461
Section 7. (1) No dealer shall, while being
liable to pay tax under this Act, carry on
business as a dealer unless he has been
registered and possesses a registration
certificate.
Section 16. If any dealer to whom the
provisions of sub-section,(2) of section 10
apply-
(b) discontinues his business or changes his
place of business or opens a new place of
business, he shall within the prescribed time
inform the prescribed authority accordingly;
and if any such dealer dies, his legal
representatives shall in like manner inform
the said authority.
Section 17. When the ownership of the
business of a registered dealer is
transferred, any tax payable in respect of
such business remaining unpaid at the time of
the transfer shall be payable by the
transferee as if he was the registered dealer;
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and the transferee shall within 30 days of the
transfer apply for registration under Section
7.
Rule 40 of the East Punjab General Sales Tax
Rules, 1949, reads
(1) 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 scheme of the Act is a simple one. A firm is a dealer;
the said dealer is assessable to tax on its turnover, if its
turnover exceeds the prescribed limit. It cannot do
business while being liable to pay tax under the Act without
getting itself registered and possessing a registration
certificate. It is assessed to tax under s. 11 of the Act
in the manner prescribed thereunder. If it discontinues its
business, it shall within the specified time inform the pre-
scribed authority accordingly. A dealer and its partners
are jointly and severally responsible to pay the tax
assessed on the dealer. But there is no provision expressly
empowering the assessing authority to assess a dissolved
firm in respect of its turnover before its dissolution. The
question is whether such a power can be gathered by
necessary implication from the other provisions of the Act.
The first question is whether a firm is a separate
assessable entity for the purposes of the Act or whether it
is only a compendious term used to denote a group of
partners. The definition of "dealer" takes in three
categories of assessable units, namely, person,
462
firm or a Hindu Joint family. The substantive and the
procedural provisions of the Act prescribe the mode of
assessment and realization of the tax assessed on such a
dealer. If we read the expression "firm" in substitution of
the word "dealer", it will be apparent that a firm is an
independent assessable unit for the purposes of the Act.
Indeed, a firm has been given the same status under the Act
as is given to it under the Income-tax Act. Under S. 3 of
the Income-tax Act "firm" is treated as a unit of assessment
and as a distinct assessable entity. Though under the
partnership law a firm is not a legal entity but only
consists of individual partners for the time being, for tax
law, income-tax as well as sales-tax, it is a legal entity.
If that be so, on dissolution, the firm ceases to be be a
legal entity. Thereafter, on principle, unless there is a
statutory provision permitting the assessment of a dissolved
firm, there is no -longer any scope for assessing the firm
which ceased to have a legal existence. As in the present
case, admittedly, the firm was dissolved before the order of
assessment was made, the said order -was bad.
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.
To get over this legal position, a strong plea was made on
the basis of S. 16 of the Act. Section 16, so far as is
relevant to the present enquiry, only says that if a dealer
discontinues his business, ’it shall within the prescribed
time inform the prescribed authority accordingly. This
section does not expressly state that a dealer, if it
happens to be a firm, continues to have legal existence even
if it has ceased to be a firm. Nor does the section permit
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a necessary implication to that effect. It serves only a
limited purpose. It is enacted for administrative purposes
so that the appropriate authority may take the necessary
action.
Nor does r. 40 of the East Punjab General Sales Tax Rules,
1949, carry the matter further. It only imposes a joint and
several liability on the dealer and its partners for the
payment of tax penalty or any amount due under the Act or
the rules. It does not provide for a case of the
dissolution of a firm and the assessment of the dissolved
firm.
Nor the provision of the Partnership Act can possibly be
called ’in aid to resuscitate a dissolved firm for the
purpose of assessment.
463
They deal only with the relationship between the partners
and their rights and liabilities. They have no bearing on
the question of assessment under a different statute. There
is, therefore, a lacuna in the Act, which was filled up
later on by an amending Act; but the said Amending Act, it
is conceded, is not retrospective in operation.
The decisions cited at the Bar reflect conflicting views on
the question. We have carefully gone through them. It is
enough it we briefly touch upon them.
The Allahabad High Court in Jagat Bahari Tandon v. The Sales
Tax Officer, Etawah(1) maintained the assessment of a
dissolved firm on the ground that it was not a separate
entity. The Madhya Pradesh High Court in Lalji v. The
Assistant Commissioner, Salestax, Raipur (2 ) relied upon S.
17 of the C.P. and Berar Sales Tax Act, 1947, similar to S.
16 of the present Act, to sustain the continuity of a firm
as a legal entity till a notice contemplated by that section
was given. The Madras High Court in R. D. Fernandes in
re(1) relied upon the provisions of the Partnership Act to
reach the desired end. The Punjab High Court in Khushi Ram
Behari Lal & Co. v. The Assessing Authority Sangrur (4 )
distinguished the Full Bench decision, which is the subject
matter of the present appeal before us, on the ground that
the dissolution of the firm in the case before it was long
after the assessment proceedings were initiated. It also
relied upon S. 16 of the Act to support its conclusion that
the liability of the firm continued till the registration
was cancelled. It may also be noticed that the question in
that case arose after the amended definition wherein the
expression "firm" was omitted. The Madras High Court in R.
Poonuswami Gramani v : The Collector of Chingleput
District(1) followed the earlier decision of that Court; and
it does not contain any reasoning on the question. The
Bombay High Court in Bankatlal Badruka v. The, State of
Bombay (1)based its conclusion only on the circumstance that
the notice of dissolution under r. 35 of the Hyderabad
General Sales Tax Rules’ 1950, was not given before the
assessment. The Orissa High Court in Commissioner of Sales-
tax, Orissa v. Aurbinde Auto Service(7) also sustained the
assessment after dissolution inter alia, on the ground that
no notice of dissolution was given under s. 18 (b) of the
Orissa Sales Tax Act, 1947, read with r. 14 of the Orissa
Sales Tax Rules, 1947. But the main reason for that
decision was based upon s. 19(3) of the Orissa Sales Tax Act
(1) [1955] 6 S.T.C. 125 (2) [1958] 9 S.T.C. 571
(3) [1957] 8 S.T.C. 368 (4) [1954] 15 S.T.C. 165
(5) [1960] 11 S.T.C. 80. (6) [1961] 12 S.T.C. 405,
(7) [1963] 14 S.T.C. 46.
L2Sup.CI/66-16
464
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which is pari materia with S. 44 of the Income-tax Act,
which has been construed by this Court to confer a power on
the assessing authority to make such an assessment. All
these decisions, if we may say so with respect, were
overburdened with the consequences of a contrary
construction on the incidence of taxation and also by their
mixing up the question of the statutory power of assessing a
dissolved firm with the liability of the partners thereof to
pay the tax so assessed on the firm before dissolution. For
the reasons we have already given earlier, we cannot accept
the validity of the reasons given in the said judgments for
maintaining an assessment ,on a dissolved firm, whether the
proceedings were initiated before or after the firm was
dissolved.
Strong reliance was placed upon two judgments of this Court.
This Court in C. A. Abraham v. Income-tax Officer,
Kottayam(1), speaking through Shah, J., held that S. 44 of
the Income-tax Act set up a machinery for assessing the tax
liability of firms which have discontinued their business.
This was followed by this Court again in Commissioner of
Income-tax, Madras v. S. V. Angidi Chettiar(2). These two
decisions are of no help to the Revenue in the present case.
Indeed, in a sense they are against it. The Income-tax Act
contains an express provision for assessing a dissolved
firm. Indeed, but for that provision no assessment could be
made under that Act on dissolved firms.
For the foregoing reasons we hold that the High Court was
right in holding that the assessment order on the dissolved
firm could not be supported under the provisions of the Act.
The High Court has given a correct answer to the question
propounded for its decision.
In the result, the appeal fails and is dismissed with costs.
Appeal dismissed.
(1) [1961] 2 S.C.R. 765 (2) [1962] 44 I.T.R. 739.
465