(1) This revision case is filed against the order of the Madras Sales Tax Appellate Tribunal in T. A. No. 21 of 1963 by the petitioners who are the assessees. The petitions are Mahendra Kumar Ishwarlal and Co., jaggery and foodgrains merchants at Tirupattur. The petitioners constitute a firm comprising of four partners, with shares noted against each as below:--
Rs. a. p.1. Chunilal Bhagvandas ... 0 2 02. Ranchoddas Ramdas ... 0 2 03. Mahendra Kumar Chunilal ... 0 6 04. Ishwarlal Ranchoddas ... 0 6 0
It may be mentioned that No. 3 is the son of No. 1 and No. 4 is the son of No. 2. There is a Bombay firm known as 'Chunilal Bhagvandas and Co.', comprising of the same partners, but with this difference, namely, that the share of each of the aforesaid partners is four annas.
(2) In the years of assessment, the Tirupattur firm claims to have transferred to the Bombay firm jaggery which has been valued at Rs. 4,40,675.87. It is with this part of the transactions that we are concerned in this revision case. The department took the view that this transfer of jaggery of the aforesaid value represented a sale by the Tirupattur firm to the Bombay firm and should be assessed to Central sales tax. On the other hand, it was contended by the assessee that since partners in both the firms are identical, in spite of the fact that their shares were different, there can by no sale at all, because on person cannot sell to himself.
(3) In the Madras General Sales Tax (1959), the definition of 'dealer' includes 'firm'. Section 2(n) of the same Act defines 'sale' as a transfer of property in goods by one person to another in the course of business for cash or deferred payment or other valuable consideration. The Central Sales Tax Act contains definitions for 'dealer' and 'sale' but it does not provide for a similar extension of the meaning of the word 'dealer' so as to cover firms as in the case of the Madras General Sales Tax Act. But in the case of 'sale', substantially the same definition as in the Madras General Sales Tax Act is found, namely, a transfer of property in goods by one person to another for cash or for deferred payment.
(4) As already stated, the department took the view that the Tirupattur firm effected a sale of the jaggery to the Bombay firm within the meaning of the definition of 'sale' in the Central Sales Tax Act and was assessable on that sale to sales tax under that Act. The assessee appealed to the Appellate Assistant Commissioner who confirmed the decision of the assessing authority. The Tribunal, to whom the assessee subsequently appealed, also confirmed that decision, holding that the transfer in this case amounted to a sale. In the view of the Tribunal, even though the two firms had the same partners, the fact that the profit-sharing ratio of the partners in the two firms was different, made a difference and that this difference would enable the two firms being viewed as two different persons, with the result that one firm could effectively sell goods to another, thereby attracting the levy of sales tax on the transaction. Against this decision, the assessees have filed this revision case.
(5) Several decisions have stressed the fact that a firm as such has no legal status as a person distinct from the partners who constitute the firm. It has been laid down often that the name 'firm' is only a compendious mode of designating the persons who agree to carry on a business in partnership. The fact that they own shares will not enable them to claim any particular share in any particular asset of the firm at any given time. The question of their owning shares will be relevant only when the profit and loss of the firm have to be determined and distributed among the partners from time to time and at the time of the dissolution of the partnership. This point has been stressed in a decision of the Supreme Court in Narayanappa v. Bhaskara Krishnappa, : 3SCR400 where the following observation is found:--
'No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and, in that sense, every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to any one. his right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain, after satisfying the liabilities set out in Cl. (a) and sub-cls. (i), (ii) and (iii) of Cl. (b) of Sec. 48.'
It will, therefore follow that during the subsistence of the partnership, it cannot be held that the four partners of the Tirupattur firm were interested in the stock transferred to the Bombay firm in any particular ratio, or that the difference in the ratio of the shares which they owned in the partnership of the Bombay firm and the Tirupattur firm would make any difference, and lead to the inference that the particular partners in the Tirupattur firm were transferring a particular interest in the jaggery in question to other persons in the Bombay firm, who constitute the partnership. So far as the assets are concerned, there is no evidence to show that the partners of the two firms at Tirupattur and Bombay respectively were entitled to any share other than a joint share; in other words, as regards a particular asset, all the partners stood in the same relationship of joint ownership, without it being possible to predicate that their individual shares were such and such. What emerges, therefore, from the above reasoning is that in regard to the present transaction, it is the case of the same group of four partners transferring a particular item of property, to which they were entitled, to themselves. In other words, the broad principle that a person cannot sell to himself will be attracted in regard to the present transaction also.
(6) This principle has been stressed in an earlier unreported decision of this Court to which one of us was a party. T.C. No. 40 of 1960 (Mad.), The State of Madras represented by the D.C.T.O., Harbour Circle, Madras v. Murugan Electricals, Madras. In the case, Murugan Electricals was a firm which comprised of two partners. The disputed turnover referred to the value of goods alleged to have been sold by the aforesaid firm to another firm, Electric Fabrication and Engineering Co., of which the partners were the same as those of the Murugan Electricals. But there was no evidence to show, as in this case, that the shares of the partners in the two firms were different. In that decision, the Bench observed that even though for the purpose of the Madras General Sales Tax Act a dealer will include a firm as an assessable entity, that would not make any difference in regard to the definition of 'sale'. For that purpose, there must be two different persons, without introducing the legal fiction of an assessable entity for the purpose of the taxing law. Then the Bench put its conclusion succinctly that in the case of the alleged sale of goods from the firm of Murugan Electricals to Electric Fabrication and Engineering Co. in the eye of the law, the transaction would be nothing more than the right hand taking the goods from the left.
(7) There is another decision of this Court reported in Raju Chettiar and Bros. v. State of Madras, (1955) 6 STC 131, which took a similar view. In that case, a firm dealing with bullion took as a partner one Ramalingam Chettiar on and from a particular date and a fresh deed of partnership was executed. It was clearly recited in the partnership deed that the new partner Ramalingam Chettiar had no right or interest in any of the properties belonging to the original firm and he was only concerned with the profit and loss. The question arose whether supplies of silver by the original firm to the latter firm constituted with Ramalingam Chettiar as an additional partner would attract sales tax on the ground that the transactions amounted to sales within the meaning of that Act. The Bench observed that even assuming that the new partnership consisting of Ramalingam Chettiar also, was an entity different from the plaintiff's firm, they did not think that there had been any transfer of goods for consideration by the plaintiff to the new partnership. If there was a transfer, it was by the partners of the plaintiff firm to themselves and such transfer would not obviously be a sale within the meaning of the definition in that Act.
(8) There is one more decision which was cited, State of Punjab v. Jullundur Vegetable Syndicate, : 2SCR457 . That, however, dealt with an entirely different matter. The question that arose for decision there was whether, on the dissolution of a firm, it could be assessed as a single legal entity. The Supreme Court observed that no amendment (assessment(?)) could be made on the company which has lost its character as an assessable entity by reason of its dissolution before the actual assessment and it made no difference to this principle whether the assessment proceedings had been initiated before the dissolution or after the dissolution, so long so the actual assessment itself was made after the dissolution.
(9) We are of opinion that the principles laid down in the first three decisions cited above will clearly apply to the present case. We have already referred to the fact that the definition of 'dealer' in the Central Sales Tax Act does not carry forward the terms of the explanation to the definition of 'dealer' in the Madras General Sales Tax Act so as to include a firm as an assessable entity. But we do not want to base our decision on this aspect of the definition of dealer. On the other hand, we will prefer to base our decision on the fact that the definition of 'sale' in substances is the same both in the Madras General Sales Tax Act and in the Central Sales Tax Act. The decisions we have cited above in support of our conclusion rely upon the definition of 'sale and that to constitute a sale there must be two different persons, in the ordinary sense of the term 'person'. When two partnerships have transferred goods from one to the other and the partners of the two firms are identical, it will be really a case of one person transferring goods to himself. There is, therefore, no 'sale' so far as the definition of 'sale' is concerned, whether it be under the Madras General Sales Tax Act or the Central Sales Tax Act. We have also commented on the fact that the difference in the shares of the four partners in the Tirupattur firm and the Bombay firm respectively will not make any difference to the principles set out above, because this difference in shares will have relevance only at the time when the profits and losses are ascertained and divided. But at intermediate stages when assets of the partnership are dealt with either for the purpose of acquisition or for sale, it cannot be predicated that the partners in question have specified shares in such assets. They have all got a common right of ownership in the property dealt with. From this point of view, the transfers in question in this case from the Tirupattur firm to the Bombay firm cannot be viewed as sales to attract the liability to sales tax under the Central Sales Tax Act.
(10) We, therefore, allow the revision case and set aside the assessment on the disputed turnover. The tax, if paid, will be ordered to be refunded to the petitioner. The petitioner will get their costs. Advocate's fee Rs. 100.
(11) Revision allowed.