1. This petition under Articles 226 and 227 of the Constitution raises an interesting question as to whether on the death of a dealer his heir or legal representative could be assessed to sales tax under the provisions of the Bombay Sales Tax Act, 1953, hereinafter referred to as 'the Act', on the ground that he continued the deceased dealer's business.
2. The short facts which have given rise to this petition are as under :-
The petitioner is the partnership firm of Messrs Champaklal and Sohanlal which carries on business of selling biris and cigarettes in Ahmedabad. Shivratan, the father of one of the partners, Champaklal, had migrated from Pakistan in 1947-48 and was carrying on business in biris, cigarettes etc. as a proprietor. He died in November, 1957, when Champaklal was aged about 13 or 14 years. Champaklal since 1958 continued this business in alleged partnership with Sohanlal. It appears that the premises of the business of the petitioner were raided on 18th August, 1963, as the petitioner was not registered and had not been assessed. The respondent-Sales Tax Officer thereafter issued a notice at annexure A, dated 31st October/2nd November, 1963, to the said Champaklal Shivratan as partner of the petitioner-firm asking him to show cause why the petitioner-firm should not be assessed with effect from 1st April, 1954, as the said Champaklal's father's business was of more than Rs. 25,000 and as Champaklal was his legal heir and had continued the business of the said Shivratan after his death. The said Champaklal in his reply to the said notice stated that he had no connection with his father's business. Thereafter the respondent issued another notice, dated 23rd March, 1965, at annexure B, again to Champaklal as partner of the petitioner-firm on the very same ground that he continued the business of his father after his father's death, which fact was admitted by him in his statement dated 18th June, 1963. The notice asked Champaklal to show cause why the firm should not be assessed, taking the sales for the year 1953-54 as exceeding Rs. 25,000 with effect from 1st April, 1954. Again, the petitioner reiterated the original contention in the reply dated 31st August, 1965, denying all connections with the said Shivratan. Another reply was submitted on 6th October, 1965. Thereafter the respondent-Sales Tax Officer assessed the petitioner's firm from 1st April, 1954, on the total sales up to 31st December, 1959. By his order, dated 30th October, 1959. In pursuance of the said assessment order at annexure C, a demand notice was issued to the petitioner-firm for the recovery of the tax along with the penalty as assessed, which came to about Rs. 12,723.52 P. The petitioner challenges the said assessment order along with the notice of demand on the ground that there is no provision in the Act which would enable the respondent to assess an heir of a deceased dealer and also on the ground that no opportunity had been given to the petitioner to controvert all the materials which had been collected at his back. At the hearing Mr. Kaji confined his attack only to the first ground. The respondent-Sales Tax Officer has filed his affidavit-in-reply, to which the petitioner has given a rejoinder.
3. The main question which, therefore, arises in this petition is whether the respondent had jurisdiction to assess an heir or a legal representative of a deceased dealer under the Act of 1953. We would at the outset consider the various sections and the rules which would be material for considering this question. Section 2(6) defines a dealer to mean any person who carries on the business of selling or buying goods in the pre-reorganisation State of Bombay, including the transferred territories, whether for commission, remuneration or otherwise and includes a State Government which carries on such business and any society, club or association which sells goods to or buys goods from its members. The charging section in the Act is section 5 which makes every dealer whose turnover exceeds the specified limit liable to pay tax under the Act on his turnover of sales and his turnover of purchases made on or after the appointed day. Section 11(1) provides that no dealer shall, while being liable to pay tax under the Act, carry on business as a dealer unless he has applied for registration within such period as may be prescribed. Section 11(2) provides for the application for registration. Section 11(4) then provides that the prescribed authority may from time to time amend any certificate of registration after considering the information furnished under section 25 or otherwise received. Section 11(6) provides that when -
'(a) any business in respect of which a certificate has been granted under this section has been discontinued or transferred, or
(b) in the case of a dealer, neither his turnover of sales nor his turnover of purchases has during any year exceeded the limits specified in sub-section (1) of section 5 and the dealer has applied in the prescribed manner for cancellation of his registration, the prescribed authority shall cancel the registration, with effect from the prescribed date.'
4. Section 25 provides that if any dealer to whom the provisions of the Act applied :
'(a) sells or otherwise disposes of his business or any part of his business, or effects or comes to know of any other change in the ownership of the business, or
(b) discontinues his business or changes his place of business or opens a new place of business, or
(c) changes the name or nature of his business or effects any change in the classes of goods sold by him,
(d) enters into partnership in regard to his business, he shall, within the prescribed time, inform the prescribed authority accordingly; and where any such dealer dies, his legal representative or where any such dealer is a partnership firm and the partnership is dissolved, every person who was a partner thereof,
shall in like manner, inform the said authority.'
5. Then comes section 26, which is material for our purpose. It runs as under :
'(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.
(2) When a dealer liable to pay the tax transfers the ownership of a part of his business the transferor shall be liable to pay the tax in respect of the stock of goods transferred along with that part of his business, which is not so transferred, as if the goods have been sold by him, unless the transferee holds a certificate of registration or obtains it within the prescribed period.'
6. The rest of the section is not material for our purpose. The relevant rules in relation to this section are to be found in the Bombay Sales Tax (Registration, Licensing and Authorization) Rules, 1954. Under rule 15(3) when any dealer dies, his legal representative shall deliver the certificate of registration, licence or authorization held by the dealer, to the registering authority or officer issuing the licence or authorization, as the case may be, within 60 days of the death of the dealer. Under rule 18(1) every dealer to whom the provisions of section 25 apply, shall within 30 days of the occurrence of any of the events mentioned in clause (a), (b), (c) or (d) of the said section send the information under the said section in writing together with his certificate of registration, licence and authorization, if any, to the registering authority. Under sub-section (2) when any such dealer dies, his legal representatives shall within 60 days of his death inform the registering authority about the date of the dealer's death and the names and addresses of his legal heirs.
7. From the aforesaid provisions of the Act and the rules it is clear that the 'dealer' is defined as a person who carries on the business of selling or buying goods in the State. There is no inclusive definition to include within the definition of dealer his heirs or legal representatives. The charging section 5 makes every dealer whose turnover exceeds the specified limit liable to pay tax under the Act. Therefore, on a plain construction of this charging section, the liability to pay tax is of the dealer, who must be a living person and there is nothing in the charging section 5 or in the definition of the word 'dealer', which would include within the ambit of this charging section, an heir or a legal representative. The learned Assistant Government Pleader, however, argued that sections 25 and 26 when read together would show that the Legislature has included heirs or legal representatives by providing for the liability of a transferee even by operation of law in the same manner as the original transferor, when the ownership of business has been entirely transferred even by reason of operation of law, including succession. We have, therefore, to consider whether sections 25 and 26 are capable of the aforesaid interpretation so as to extend the scope of the charging section 5 to bring in within its compass legal heirs or legal representatives of a 'dealer'.
8. Section 26(1) as it stands deals with the case of a transfer of the entire business and makes provision for liability of the original transferor and transferee. On a plain literal construction, section 26(1) would cover a case where there is a transferor and a transferee, who are made jointly and severally liable to pay tax, including penalty, which was payable in respect of the entire business and which remained unpaid at the time of the transfer. The learned Assistant Government Pleader, however, argued that the passive tense has been used in section 26(1), as distinguished from section 26(2), which would show that transfers by operation of law are also included. Section 26(1) opens with the words : 'when the ownership of the business of a dealer liable to pay the tax is entirely transferred'. Those words by themselves would be ambiguous and capable of including both a transfer inter vivos or a transfer by operation of law like succession. The Legislature, however, has given the indication of its intention in section 26(1) itself, which would show that a narrow meaning is intended by the Legislature, to deal with only a voluntary transfer inter vivos, and not to include the transfer by way of succession, so as to bring within its scope heirs or legal representatives of the deceased dealer. It must be kept in mind that the liability which is sought to be fastened under section 26(1) is a personal liability and is not restricted to the assets of the estate of the deceased. If these cases of succession were contemplated, prima facie, the liability would be restricted to the estate in the hands of the heirs. The learned Assistant Government Pleader, however, argued that the liability was not as heir or legal representative, but on the ground that the ownership of the business had been transferred and so, it was continuance of the business to which the heir succeeded that imposed this liability and, therefore, that would be no reason to accept the narrower meaning. Even then, the Legislature has specifically provided that both the transferor and transferee would be jointly and severally liable. That clause also envisages a distinct transferor and a distinct transferee who must be living persons. If the cases of succession were to be covered, the transferor would be already dead, when the heirs or the legal representatives would get ownership of the business transferred to them by operation of law. There is also a further indication in section 26(2), which shows that section 26 contemplates a transfer between a dealer and his purchaser, for the later part of section 26(2) provides a fiction that the transferor would be liable to pay tax as if the goods had been sold. That also indicates that the transaction of transfer which is contemplated is as between a dealer and a purchaser, i.e., it must be one of voluntary transfer inter vivos.
9. It was also argued on behalf of the Government that section 25 provides for all cases of transfers, where information has to be sent. Clauses (a), (b), (c) and (d) contemplate cases of sale or disposal by the dealer of the business, while in the case of a death, the legal representative is under an obligation to inform the authority of the death of the original dealer. The scheme of section 25 itself shows that the Legislature contemplates a distinction between cases of sale or other disposal of business and cases when the dealer dies. The case of death is separately dealt with for the purpose of such information. In accordance with the information submitted, it is open to the registering authority to amend the certificate under section 11(4) after considering that information. On the basis of this section 11(4), it was argued on behalf of the Government that once the information of death is conveyed, the registering authority would amend the certificate of the dealer and thereafter the heirs or the legal representatives alone would become registered dealers and would be liable to pay tax, for which the original dealer was liable, in respect of the business which stood transferred to them by operation of law by reason of the death of the original dealer. It was, therefore, argued that when section 11(4) is read along with section 26(1), there can be no doubt that cases of transfer by operation of law were clearly included in section 26(1) within the meaning of transfer. This contention ignores the specific provision in section 11(6)(a) which provides that when any business in respect of which a certificate has been granted under that section has been discontinued or transferred, the authority would cancel the certificate with effect from the prescribed date. Under rule 15(3), 60 days' period has been provided for surrendering the certificate. It is, therefore, clear that a specific provision is made in section 11(6) that in all cases where the business is transferred or discontinued the certificate would have to be cancelled. That is why section 26(1) in terms provides that the transferee shall within 30 days of transfer apply for registration, unless he holds already a certificate of registration. If, therefore, the cases of death were included within the scope of transfer, the certificate of registration would not be one as amended, but would be one which is a new certificate after cancelling the certificate of the original dealer. The learned Assistant Government Pleader in this connection argued that the heirs or purchasers having been required to inform the authority, when the authority amended the certificate under section 11(5), the heir or legal representative would become liable as a transferee under section 26(1) by reason of the change of the ownership of the business transferred to him by operation of law. If the provision of amendment applied, in that case, there would have been no necessity to provide in section 11(6) for cancelling the original certificate and for giving a fresh registration. We cannot, therefore, accept any of these contentions that on a plain reading of section 26, even in the context of sections 25 and 11(4), it is possible to hold that section 26(1) contemplates cases of transfer by operation of law, including succession. The section could be given full effect on the narrow construction that it covers voluntary transfers inter vivos only and that narrow construction would not make even the clause regarding transferor and transferee being jointly and severally liable redundant and which must be preferred. We are interpreting the charging section itself because according to this contention the effect of section 5 is enlarged by section 26 so as to fasten the tax liability on the transferee, which in this case would be the heir and legal representative. Therefore, the said charging section must always be strictly construed. In this context we must always bear in mind the distinction between the charging section and the section relating to the workability of the Act. While dealing with the charging section there is no question of intendment or equity. Unless charge is created by a specific provision of the statute the taxpayer cannot be taxed on an ambiguous provision. Therefore, even on the basis that there are two interpretations possible of section 26(1), charge would not be attracted on the heirs or legal representatives on the basis of such an ambiguous section.
10. Mr. Kaji in this connection relied upon the decision in Commissioner of Income-tax v. Reid : (1931)33BOMLR388 , by the Division Bench, consisting of Sir John Beaumont, C.J., and Barlee, J., where it was held that where an assessee had been asked to make a return of income under section 23(2) of the Indian Income-tax Act, but died before he did so, it was not competent to the Income-tax Officer to make an assessment under section 23(4) of the Act after the assessee's death. Sir John Beaumont, C.J., at page 391 pointed out that there appeared to be nothing in that charging section to suggest that a man who had once become liable to tax could avoid tax by dying, and in fact he could not see any intelligible reason why when tax was once charged upon a subject in respect of a period during which he was alive and enjoying the benefits of the proceeds of taxation, he should escape the liability by dying before the tax had been assessed or paid.
11. But one had to look at the rest of the Act to see whether there were any appropriate provisions for collecting tax from the estate of a deceased person. At page 393, it was pointed out that in construing a taxing Act the Court was not justified in straining the language in order to hold a subject liable to tax. If the Legislature intended to assess the estate of a deceased person to tax charged on the deceased in his lifetime, the Legislature must provide proper machinery and not leave it to the Court to endeavour to extract the appropriate machinery out of the very unsuitable language of the statute. Barlee, J., at page 398 pointed out that fiscal statutes must be interpreted strictly in favour of the subject, and that the treasury could not tax without the express permission of the Legislature. In fact, this question is now well settled after the decision of the Supreme Court in State of Punjab v. Jullundur Vegetables Syndicate ( 17 S.T.C. 326). In that case the relevant statute did not contain any provision expressly empowering the authority to assess a dissolved firm in respect of its turnover before its dissolution. At page 329 the Supreme Court pointed out that it was a settled rule of construction that in interpreting a fiscal statute the Court could not proceed to make good the deficiencies, if there be any, in the statute; it should interpret the statute as it stood and in case of doubt, it should interpret it in a manner favourable to the taxpayer. In considering a taxing Act, the Court was not justified in straining the language in order to hold a subject liable to tax. It was, therefore, held at page 331 that on the dissolution of the firm, it ceased to be a legal entity and on principle, thereafter, unless there was a statutory provision permitting the assessment of a dissolved firm, there was no longer any scope for assessing the firm, which ceased to have legal existence. Therefore, unless we interpret this section 26(1) as a specific provision, we cannot hold that after the death, an heir or legal representative of the deceased dealer could be taxed under the Act.
12. In fact, section 26(1) had been interpreted by K. K. Desai, J., in Rambali Bhuleshwar v. Sales Tax Officer ( 12 S.T.C. 595), At page 601, the learned Judge held that the transfer in section 26(1) did not include or refer to sales by the Collector in recovery proceedings. The transaction of change of ownership as mentioned in section 26(1) must be as between a dealer and his purchaser, the dealer having been referred to as the transferor, and the purchaser having been referred to as the transferee. This construction is consistent with the scheme of the Act and particularly, the scheme in section 25 as also in sub-sections (2), (3) and (4) of section 26. The learned Assistant Government Pleader relied upon the observations at page 599 where the learned Judge observed that section 25 attempted to envisage all possibilities of changes of ownership and dealings with his business by a dealer. It was, therefore, that reference was made in sub-section (4) of section 11 to section 25 with reference to changes to be made in the certificate of registration. The learned Judge observed that it appeared to him that the provisions in section 26 were intended to include and refer only to the same kinds of dealings with a business by a dealer as were mentioned in section 25. Obviously, section 25 did not refer to a sale of business by Collector in recovery proceedings. These observations are in the context of an involuntary sale and the emphasis is placed on the terms of section 25 to point out that involuntary sale is not within its scope. In fact, the learned Judge specifically referred to the joint liability of transferor and transferee as envisaged in section 26(1) and held at page 600 that the transferee must be liable for the arrears of tax jointly along with the transferor. Apparently the transferee mentioned in sub-section (1) would be entitled to be completely reimbursed by the transferor in respect of payments made in discharge of tax liability of the transferor. In the matter of sale by Collector in recovery proceedings a transferee-purchaser cannot be entitled to such a right against the transferor-Collector. It was clear that the transfer as mentioned in sub-section (1) did not include or refer to sales by the Collector in recovery proceedings, as the transferee-purchaser cannot be entitled to such right against the transferor-Collector. On a parity of reasoning, in case of succession also, this provision could not apply. This decision was followed by the Bombay High Court in The Commissioner of Sales Tax v. M/s. Allimullah Haji Salamat ( 22 S.T.C. 165), in Sales Tax Reference No. 47 of 1965, decided on 9th February, 1968, by the Division Bench, consisting of Abhyankar and Vimadalal, JJ. It is to be found at page 445 of the Compilation of Bombay Sales Tax Act, 1959, published by the Sales Tax Practitioners' Association, Bombay. The Division Bench in that case held that a legal heir could not be held liable to pay tax in respect of the business conducted by his father and that he could not be held to be a transferee within the meaning of section 26(1). We are in complete agreement with the said ratio.
13. The learned Assistant Government Pleader relied upon the decision in Collector of Sales Tax v. Parimal Brothers ( 13 S.T.C. 647) by the Maharashtra High Court. That was a case of a transfer. The Division Bench, consisting of Tambe and V. S. Desai, JJ., had only to interpret section 26(1) in the context of the liability fastened on the transferee. The Division Bench in that case held that section 26(1) dealt with the liability to pay tax and not with the quantified tax liability and, therefore, if the transferor at the date of transfer failed to discharge any tax obligation in respect of the business transferred by him, the transferee-dealer would be liable to discharge that obligation in the same manner and to the same extent as if he is the transferor-dealer himself. That question does not arise before us and that decision would hardly help the Government. In fact, at page 657 the Division Bench has referred to the decision in Rambali Bhuleshwar's case ( 12 S.T.C. 595) and has approved the ratio thereof that section 26(1) contemplated the transaction of change of ownership between the dealer and a purchaser, the dealer having been referred to as the transferor and the purchaser having been referred to as the transferee. The Court auction was not a transaction between the dealer and transferee and that is why it was held not to be covered by section 26(1). That decision, therefore, really approves the ratio laid down in Rambali Bhuleshwar's case ( 12 S.T.C. 595) and does not lay down any different proposition as contended on behalf of the Government. The learned Assistant Government Pleader finally relied upon the decision in Bibhas Chandra Gon v. State of West Bengal ( 15 S.T.C. 277), by the Division Bench, consisting of Bachawat, J. (as he then was), and Chatterjee, J. The Calcutta High Court in that case had to deal with section 17 of the Bengal Finance (Sales Tax) Act, 1941. That section as it stood at the relevant time after being amended by the West Bengal Act 19 of 1954, was as under :
'Where the ownership of the business of a registered dealer is transferred absolutely or transferred by way of lease and the transferee or the lessee carries on such business, either in its old name or in some other name, the transferee or the lessee shall for all the purposes of this Act (except for liabilities under this Act already discharged by such dealer) be deemed to be and to have always been registered (in the case of a lease for so long as the lease subsists) as if the registration certificate of such dealer had initially been granted to the transferee or the lessee; and the transferee or the lessee shall on application to the Commissioner be entitled to have the registration certificate amended accordingly.'
14. The expression 'transferred absolutely' in this section was interpreted to cover the case of an intestate succession, which was a transfer by operation of law. Whether a charging section could be so construed after the aforesaid decision of the Supreme Court in State of Punjab v. Jullundur Vegetables Syndicate ( 17 S.T.C. 326) is not a question on which we need express an opinion. It would be sufficient to say that this decision of the Calcutta High Court proceeds on a totally different footing. Section 17 in terms provides a fiction that the transferee shall be deemed to be and to have always been registered as if the registration certificate of such dealer had been granted to the transferee. As pointed out by Chatterjee, J., at page 289 there was provision in section 16(2) for information being provided in case of death and on such information the authority would amend the registration certificate under section 7(4) and consequently the legal representative would be liable under sections 10(2) and 11 to pay tax. In that context the extent and the liability of the legal representative both remained undefined and uncertain, if section 17 was to be confined only to transfer by act of parties. In that context it was held that the transfer could not be construed in the restricted sense of transfer by act of parties but should include transfer by operation of law as well. The Division Bench had further relied upon the fact that in the subsequent amendment in the statement of object clause the Legislature had stated that it was making the meaning of section 17 clearer by including within the meaning of transfers by sale, gift, bequest, inheritance or otherwise. That doctrine of Parliamentary exposition could not be invoked in the present case. In the later Act, viz., Bombay Sales Tax Act, 1959, section 19(1) clearly provides as under :
'Where a person who is or has been a dealer, liable to pay tax under this Act dies then, -
(a) if the business carried on by the dealer is continued after his death by his legal representative or any other person, such legal representative or other person shall be liable to pay the tax due from such dealer under this Act or under any earlier law, and
(b) if the business carried on by the dealer is discontinued, whether before or after his death, his legal representative shall be liable to pay out of the estate of the deceased, to the extent to which the estate is capable of meeting the charge, the tax (including any penalty) due from such dealer under this Act or under any earlier law,
whether such tax (including any penalty) has been assessed before his death but has remained unpaid, or is assessed after his death.'
15. Sub-section (4) provides as under :
'Where a dealer, liable to pay tax under this Act, transfers or otherwise disposes of his business in whole or in part, or effects any change in the ownership thereof, in consequence of which he is succeeded in the business or part thereof by any other person, the dealer and the person succeeding shall jointly and severally be liable to pay the tax (including any penalty) due from the dealer under this Act or under any earlier law, up to the time of such transfer, disposal or change, whether such tax (including any penalty) has been assessed before such transfer, disposal or change but has remained unpaid, or is assessed thereafter.'
16. Thus, specific provisions have now been made in the Act of 1959 to cover cases of heirs or legal representatives or where there is succession to the business. These words may now fill up the lacuna, but we are not concerned with that question. We are concerned with the Act of 1953 and we are unable to find any provision therein which would provide for the liability of the heirs or the legal representatives for the payment of the tax in respect of the business carried on by the deceased dealer. In the absence of any express provision in that behalf the taxpayer must escape the tax and an ambiguous provision cannot be interpreted or stretched by us in favour of the revenue by holding that transfer in section 26(1) includes succession, where there would be no question of transferor and transferee being jointly and severally liable. We must interpret the 'transfer' in section 26(1) only as a voluntary transfer inter vivos by the act of parties.
17. Therefore, in the absence of any statutory provision extending the charging section, the present order of assessment against the heir or legal representative cannot be supported.
18. It was argued on behalf of the Government that the order was a composite order and even if there was no provision to tax heir or legal representative for the period till the death of Shivratan in November 1957, the subsequent part of the order would remain intact. The order in the present case is a composite order and is not a severable one. The assessment proceedings were initiated in this case by a notice of the respondent on the basis that the assessee as an heir got the business from the father and continued the same. The whole assessment has been on the basis that the deceased was a dealer who became liable to tax from 1st April, 1954, when his turnover of sales exceeded the prescribed limit and that liability devolved on the petitioner as heir. The order is not on the footing that the present assessee-firm is a dealer in its own right and there has been no assessment on that basis when it became assessable qua only its sales. Such a composite order cannot be severed and, therefore, the entire order will have to be quashed.
19. In the result, this petition is allowed and a writ of certiorari is issued quashing the order of assessment, dated 31st October, 1965, at annexure C, along with the notice of demand dated 2nd November, 1965, and a writ of mandamus is issued restraining the respondent from recovering or taking steps for the recovery of the amount mentioned in the said notice of demand dated 2nd November, 1965. The respondent shall pay the costs of this petition to the petitioner. Rule accordingly made absolute with costs.
20. Petition allowed.