1. These are references under section 34(1) of the Bombay Sales Tax Act, 1953 (hereinafter referred to as 'the said Act') made at the instance of the Commissioner of Sales Tax.
2. The facts giving rise to the question raised in these references are as follows : Prior to 23rd February, 1956, one Sugrabai and others were carrying on the business as dealers in paints, varnishes and other painting materials in partnership under the firm name and style of K. Tajkhanji & Co. One Asmabai Chandabhai (hereinafter referred to as the 'assignee') lent and advanced to the said Sugrabai and others (hereinafter referred to as the 'assignors') several sums of money from time to time which they were unable to repay. The assignors then executed a mortgage in favour of the assignee for repayment of the sum of Rs. 8,000 by a deed of mortgage dated 2nd August, 1955. The assignors were unable to repay the amount of the mortgage debt and interest thereon. By a deed of assignment dated 23rd February, 1956, the assignors transferred the said business of K. Tajkhanji & Co. to the assignee on the terms and conditions set out in the said deed of assignment. The said deed of assignment contains the recitals setting out the aforesaid facts. The relevant clauses of the said deed of assignment being clauses 1 and 4 are as follows :
'1. That in consideration of the sum of Rs. 5,900 (Rupees five thousand and nine hundred) being part consideration amount of the mortgage hereinabove stated (the payment and receipt whereof the assignors do and each of them doth hereby admit and acknowledge) the assignors do and each of them doth hereby assign and transfer unto the assignee for ever the said business of 'K. Tajkhanji & Co.' together with its goodwill and also the tenancy rights of the said premises and the full benefits, quota rights and advantages in respect of the said business or in any way concerning the said business hereby assigned and transferred to have, receive and take the said business and right to use and occupy the said premises and to use the goodwill thereof and all other premises hereby assigned and transferred or expressed so to be unto and for the full benefit, advantage and use of the assignee absolutely for ever but without and excluding the debts and liabilities and also the credits and outstandings in respect of the said business of 'K. Tajkhanji & Co.' incurred or existing till the date of these presents by the assignors or any of them .............
4. The assignors do and each of them doth hereby covenant with the assignee that they the assignors and each of them shall pay all debts and discharge all liabilities incurred by them or any of them in respect of the business of 'K. Tajkhanji & Co.' including the liability for sales tax and income-tax, if any, out of their own moneys and shall also be entitled to receive and recover all credits and outstandings in respect of the said business to which they are entitled till this day and shall also perform all engagements in respect of or in any way concerning the said business up to and including the date of these presents and the assignee is not and shall not be in any way liable or responsible for any debts, liabilities or engagements of the assignors or any of them in respect of the said business incurred by them till this day and the assignors and each of them shall indemnity the assignee against all actions, proceedings, claims, demands and costs thereof for non-payment of the same.'
3. After the deed of assignment was executed, the assignee carried on the business in the name and style of K. Tajkhanji & Co., the respondents herein. During the assessment periods from 24th February, 1956, to 7th October, 1957, and from 8th October, 1957, to 31st March, 1958, the respondents were not registered as dealers, the contention of the respondents being that their turnover did not exceed the minimum limit of Rs. 25,000. This contention of the respondents was negatived and they were assessed under section 14(6) of the said Act by the relevant Sales Tax Officer on the ground that the respondents were the transferees in respect of the said business within the purview of section 26(1) of the said Act. The said Sales Tax Officer also levied penalty under section 14(7) of the said Act. Against these decisions the respondents preferred appeals to the Assistant Commissioner of Sales Tax, who dismissed the said appeals. The respondents then preferred revision applications against the orders of the Assistant Commissioner of Sales Tax, but the same were dismissed by the Deputy Commissioner of Sales Tax. The respondents then went in further revision by way of two revision applications to the Sales Tax Tribunal at Bombay. These revision applications were allowed by the Tribunal. The Tribunal took the view that the ownership of the said business was not entirely transferred by the said assignors to the respondents and hence the respondents could not be treated as transferees under the provisions of section 26(1) of the said Act. These references have been made at the instance of the Commissioner of Sales Tax and arise out of the said decisions of the Tribunal.
4. The question referred to us in both these references is as follows :
'Whether, having regard to the facts and circumstances of the case and on a proper construction of the assignment deed, the Tribunal was justified in law in holding that the conditions of the entire transfer of business contemplated by section 26(1) of the Bombay Sales Tax Act, 1953 (amended) were not fulfilled and, as such, the respondents were not liable to pay tax as transferees ?'
5. As the arguments turn on the provisions of sub-section (1) of section 26 of the said Act, we propose to take note at this stage of the provisions of sub-section (1) of section 26, which ran as follows :
'Tax payable by transferee of business. - (1) When the ownership of the business of a dealer liable to pay the tax is entirely transferred, the transferor and the transferee shall jointly and severally be liable to pay any tax including penalty, if any, payable in respect of such business whether under the Bombay Sales Tax Act, 1946, the Bombay Sales Tax (No. 2) Ordinance, 1952, or this Act and remaining unpaid at the time of the transfer and the transferee shall also be liable to pay tax on the sales or purchases of goods effected by him with effect from the date of such transfer and shall within thirty days of the transfer apply for registration unless he already holds a certificate of registration.'
6. We may mention that sub-section (2) of section 26 of the said Act provides for a case where the ownership of a part of the business is transferred by the transferor to the transferee.
7. On a plain reading of the provisions of sub-section (1) of section 26 of the said Act it is clear that a transferee of a business can be assessed or held liable under this section only provided the ownership of the business of a dealer is entirely transferred to the transferee. This is the same as providing that such liability would be incurred by the transferee where the business of a dealer is entirely transferred to the transferee. The question, therefore, which arises is as to when it can be said that the ownership of the business of the assignors was entirely transferred to the assignee-respondent. In this connection, reference may be made to the decision of a Division Bench of this Court in Bherulal Maniklal Kothari v. State of Bombay  13 S.T.C. 703. In that case, a partnership-firm carrying on a bidi manufacturing business sold to the applicant, in satisfaction of a loan advanced by the applicant to the partnership-firm, the goodwill of the business and the right to use its ten bidi label marks. The question arose whether the applicant was a transferee of the entire business within the meaning of section 26(1) of the Bombay Sales Tax Act, 1953. It was held that both the goodwill and the trade marks taken together could not amount to the entire business of a trader and the transfer of these two things by themselves, without there being any other evidence, would not amount to the transfer of the entire business and, therefore, the applicant was not liable as a transferee under section 26(1) of the said Act. In this connection, it has been observed by the Division Bench that it is incumbent on the revenue to establish beyond doubt that the requirements of sub-section (1) of section 26 are established and one of these requirements which has to be established is that the person sought to be held liable is the transferee of the entire business owned by a dealer. In Tools and Machineries Ltd. v. State of Madras  7 S.T.C. 740, it was held by a Division Bench of the Madras High Court that where a dealer sold his entire stock-in-trade, but he continued to be in business and retained in his hands certain assets of the business, which would be included in the 'whole of the business', there could be no sale of the 'business as a whole' within the meaning of rule 5(1)(h) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939. Reference may also be made to the decision of a Division Bench of the Patna High Court in Hajipur Plywood Factory v. State of Bihar  34 S.T.C. 45, where it was held that in order to attract the provisions of section 20 of the Bihar Sales Tax Act, 1947, and to fasten the liability on the transferee, it has to be proved by the department that the ownership of the business in respect of which any tax has remained unpaid has been entirely transferred to the transferee. In order to attract liability under the section it is necessary to establish that the business as a running concern was transferred and nothing substantial was kept back by the vendor to impair the running of the business by the transferee. The expression used in the said section of the Bihar Sales Tax Act was that 'ownership of the business has been entirely transferred', and it was held that by this expression was meant the transfer of stock-in-trade, the business assets, ordinarily and generally its goodwill which meant not only the name but also the place and the other properties held by the concern for the purpose of carrying on the business. In that case, according to the petitioner, certain articles of furniture and minor office equipments were retained by the transferor and on that basis it was sought to be argued that the ownership of the business was not entirely transferred. This argument was rejected. Applying the test laid down in these various decisions and accepting the principle laid down by the Patna High Court in the above case, it appears to us that what we have really to see is whether in the present case there has been a transfer of the business of the assignors as a running concern to the respondents and that nothing substantial was kept back by the assignors which can be properly regarded as an asset of the business.
8. The submission of Mr. Naik, the learned counsel for the applicant, was that in view of clause 1 of the deed of assignment, which we have set out earlier, there was a transfer of the entire business of the assignors together with the goodwill and the tenancy rights of the premises where the business was carried on and including the benefit of quota rights and advantages to the respondents and hence the case was covered by the provisions of section 26(1) of the said Act. It was submitted by him that mere exclusion of the debts and liabilities and the credits and outstandings in respect of the said business of K. Tajkhanji & Co. did not make any difference, because what was transferred still continued to be the running business of K. Tajkhanji & Co. Mr. Naik also laid some emphasis on clause 2 of the deed of assignment which provides that the assignors would execute all such acts, deeds and things necessary for assigning and transferring the said business and the goodwill thereof as were reasonably required. Had the matter rested with these two clauses alone, there might have been some substance in the submission of Mr. Naik. But, we find that in clause 4 of the said deed of assignment, it has been specifically provided that the assignors would not only be entitled to all the credits and liable for all the debits of the said business up to the date of the said assignment, but it is further provided that it would be the assignors who would perform all engagements in respect of or in any way concerning the said business up to and including the date of the said assignment and the assignee would not in any manner be responsible for the said engagements. The provisions in this regard in clause 4 of the said deed of assignment on a plain reading clearly indicate that in respect of all pending contracts it would be the assignors who would not only be liable but also entitled to perform the same and, as a consequence, it appears they would be entitled to the benefit, if any, resulting from the performance of such contracts. If this is the position it is difficult to say that the transfer was of the entire business or that the ownership of the business was entirely transferred to the respondents. The right to perform the outstanding contracts as well as the liability to perform the same is a very essential part of a running business as such, and where this right and liability are reserved by the assignors to themselves and not transferred to the assignee, in our opinion, there is no transfer of the entire business as such. It was submitted by Mr. Naik that the expression 'engagements' used in the said clause refers only to the liabilities of the said business. This submission appears to be totally unfounded. The expression 'liabilities' has been specifically used in the same clause and provision has been made for the liabilities of the business. If it was intended to refer to the same thing as liabilities, there was no need for the author of the said deed of assignment to have used a different expression or as a matter of fact to have made a separate provision. We may point out that if it was the contention of the department that although there was a reference to 'engagements' in the said deed of assignment, there were in fact no outstanding contracts at the time when the assignment was made or that the volume of such contracts was insignificant, it was for the department to have led evidence of this, presumably from the books of account of the said business. But, the department has failed to lead any such evidence and it is not now open to the department to raise such a contention before us. In our view, by reason of these provisions it cannot be said that the ownership of the said business of K. Tajkhanji & Co. was entirely transferred by the assignors to the respondents and, in our opinion, the respondents cannot be held to be liable under the provisions of section 26(1) of the said Act.
9. Reliance was placed by Mr. Naik on the decision of the Supreme Court in A.C.A. & I. Society v. Workmen : (1962)IILLJ621SC . In that case the question arose in connection with section 25-FF of the Industrial Disputes Act, 1947, and the question was whether the transferee-society was a successor-in-interest of the transferor, a sugar manufacturing company. In our view, this decision is not of much assistance in the present case. The question there was whether the appellant was a successor-in-interest of the company, which question is different from the question before us. Moreover, that question arose in connection with an altogether different Act which was in the nature of a labour welfare legislation, viz., the Industrial Disputes Act, 1947, whereas in the case before us, we have to interpret a phrase occurring in a fiscal statute imposing a burden on an assessee. Quite apart from this, this decision has been considered by the Patna High Court in Hajipur Plywood Factory v. State of Bihar  34 S.T.C. 45, referred to above, and the principle in that case has been laid down after taking into consideration this decision of the Supreme Court. As we have pointed out earlier, we have followed the principle laid down by the Division Bench of the Patna High Court, with which we are in respectful agreement. Mr. Naik next relied on the decision of the Supreme Court in Commissioner of Income-tax v. K.H. Chambers : 55ITR674(SC) . The question there was whether there was any succession within the meaning of section 25(4) of the Indian Income-tax Act, 1922. This decision again does not help Mr. Naik in advancing his connection, because the question there was whether there was succession within the meaning of the said expression in section 25(4) of the Income-tax Act, 1922. Even in that case, it has been held that succession involves change of ownership, that is, the transferor goes out and the transferee comes in; it connotes that the whole business is transferred; it also implies that substantially the identity and the continuity of the business are preserved. If there is a transfer of a business, any arrangement between the transferor and the transferee in respect of some of the assets and liabilities not with a view to enable the transferor to run a part of the business transferred but to enable the transferee to run the business unhampered by the load of debts or for any other appropriate collateral purpose cannot detract from the totality of the succession. Even if this principle were to be applied to the present case, the reservation by the assignors in the case before us of the right as well as the liability to perform the outstanding contracts would clearly enable the assignors to run a part of the business transferred, and hence there could not be said to be a change of ownership of the business as to amount to succession. This decision also does not in any manner help Mr. Naik.
10. In the result, the question referred to us must be answered in the affirmative. The applicant must pay to the respondents the costs of the reference in S.T.R. No. 48 of 1969. There will be no order as to costs in S.T.R. No. 4 of 1974.
11. Reference answered in the affirmative.