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R. Baluswami Chettiar Vs. the Deputy Commercial Tax Officer - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case Number Writ Petition Nos. 945 to 948 of 1965
Judge
Reported in[1968]21STC412(Mad)
AppellantR. Baluswami Chettiar
RespondentThe Deputy Commercial Tax Officer
Appellant Advocate N. Krishnamurti, Adv. for ;Subbaraya Aiyar, ;Sethuraman, ;Padmanabhan and ; V. Ratnam, Advs.
Respondent Advocate N. Thiagarajan, Adv. for ;the Special Government Pleader
DispositionPetition allowed
Cases ReferredKhushi Ram Behari Lal & Co. v. Assessing Authority
Excerpt:
- - on the same day, four of the members of the quondam joint hindu family entered into a partnership agreement under which they agreed to carry on the business theretofore conducted by the joint family, as a partnership concern with effect from 6th september, 1963. thereafter, on 17th september, 1964, the officers of the department carried out an inspection of the business premises at angeripalayam, the rolling mills at pichampalayam and the residential premises of baluswami chettiar, one of the partners, as well as that of other persons, and recovered certain records and slips relating to the business carried on by the joint family and some relating to the partner of the petitioner-firm baluswami chettiar. if the legislature in enacting section 27 of the madras general sales tax act..........completed in respect of the aforesaid business in vessels at angeripalayam, the assessee being a joint hindu family which had been in charge of the business for over 35 years running it as a joint family concern. the assessment in respect of the turnover of the business for the aforesaid years was made on the kartha of the joint family, which was registered as a dealer under the provisions of the madras general sales tax act, 1959. the members of the joint family effected a partition on 6th september, 1963, by which they divided the entire assets, both movable and immovable, including the business. on the same day, four of the members of the quondam joint hindu family entered into a partnership agreement under which they agreed to carry on the business theretofore conducted by the.....
Judgment:
ORDER

Ramakrishnan, J.

1. The petitioner in these writ petitions, Messrs R. Baluswami Chettiar, is a partnership firm carrying on business as manufacturers and dealers in vessels at Angeripalayam in the Coimbatore district. These petitions are filed under Article 226 of the Constitution seeking for the issue of a writ of prohibition restraining the respondent, the Deputy Commercial Tax Officer, Tiruppur Rural, from proceeding further in pursuance of a notice issued by him to the petitioner on 31st January, 1965, for the purpose of reassessing the petitioner for escaped turnover for the years 1959-60, 1960-61, 1961-62 and 1962-63. The circumstances under which the writ petitions were filed, as revealed in the affidavit of the petitioner, are briefly the following: For the years mentioned above, assessments had already been completed in respect of the aforesaid business in vessels at Angeripalayam, the assessee being a joint Hindu family which had been in charge of the business for over 35 years running it as a joint family concern. The assessment in respect of the turnover of the business for the aforesaid years was made on the kartha of the joint family, which was registered as a dealer under the provisions of the Madras General Sales Tax Act, 1959. The members of the joint family effected a partition on 6th September, 1963, by which they divided the entire assets, both movable and immovable, including the business. On the same day, four of the members of the quondam joint Hindu family entered into a partnership agreement under which they agreed to carry on the business theretofore conducted by the joint family, as a partnership concern with effect from 6th September, 1963. Thereafter, on 17th September, 1964, the officers of the department carried out an inspection of the business premises at Angeripalayam, the rolling mills at Pichampalayam and the residential premises of Baluswami Chettiar, one of the partners, as well as that of other persons, and recovered certain records and slips relating to the business carried on by the joint family and some relating to the partner of the petitioner-firm Baluswami Chettiar. The impugned notice was issued by the respondent on 31st January, 1965, proposing to revise the original assessments made on the joint Hindu family by adding Rs. 56,000 for the assessment year 1959-60, Rs. 60,000 for 1960-61, Rs. 1,50,000 for 1961-62 and Rs. 2 lakhs for 1962-63 towards alleged suppressions based on omissions of purchases and sales said to have been discovered from the records seized on 17th September, 1964. There was also a proposal to levy penalty for each of the aforesaid years.

2. The petitioner contends that under Section 2(g)(i) of the Madras General Sales Tax Act, 1959, the definition of 'dealer' includes a Hindu undivided family which carries on the business. If the business is a joint family concern, every member of the joint family has got an interest in it. On partition what was a coparcenery interest of the members of the joint family in the business, is converted into a joint interest; but there is no transfer as such of any interest in the business from the joint Hindu family to the divided coparceners, when a partition takes place. Thereafter when four of the members of the quondam joint family agreed, as they have done in this case, to form a partnership firm to carry on the business, they constitute a new dealer for the purpose of assessment to sales tax. What is proposed in the notices in the present case is to assess the partnership-firm in the place of the Hindu undivided family, for the turnover which had escaped assessment when the business was conducted by the joint Hindu family. It is urged that unlike the Indian Income-tax Act, the Madras General Sales Tax Act contains no provision for assessing members of a joint Hindu family after partition, for a turnover which related to the joint Hindu family and which might have escaped assessment at the time when the joint Hindu family was assessed. To meet this argument, learned counsel for the respondent-department referred me to Section 27 of the Madras General Sales Tax Act, which reads thus:

27. Recovery of tax where business of dealer is transferred.-Where the ownership of the business of a dealer liable to pay tax or other amount is transferred, any tax or other amount payable under this Act in respect of such business and remaining unpaid at the time of the transfer and any tax or other amount due up to the date of transfer though unassessed may, without prejudice to any action that may be taken for its recovery from the transferor, be recovered from the transferee as if he were the dealer liable to pay such tax or other amount :

Provided that the recovery from the transferee of the arrears of taxes due for the period prior to the date of the transfer shall be limited to the value of the assets he obtained by transfer.

3. It is urged by the learned counsel for the petitioner that this section deals with transfer of the ownership of a business from one person to the other. The section contains the words 'transferred', 'transferor' and 'transferee'. Such a conception of transfer, transferee and transferor will not apply when a joint Hindu family, which owns a business, effects a partition. In that case, there is no transfer of the business from the joint Hindu family to the divided coparceners. They had all along an interest in each and every item of the joint family property, and therefore, they cannot in the course of a partition obtain by transfer an interest which they had already possessed. The elements of a transfer do not exist in such a situation. Thereafter, when some of the coparceners who obtained the business on partition, unite to form a partnership to carry on the business, there is also no question of the ownership of the business being transferred to the partnership. Therefore, it is urged, and in my opinion with justification, that Section 27 of the Madras General Sales Tax Act will not provide the department, with authority for assessing the petitioner-partnership concern for the turnover of the joint Hindu family, which had escaped assessment at the time when the joint Hindu family was in charge of the business and assessed to sales tax.

4. It may be useful here to refer to the corresponding.provisions of the Indian Income-tax Act where a similar situation is visualised and provided for by the statute. Section 25-A of the Indian Income-tax Act, 1922, provides for making an assessment after partition on a Hindu undivided family which theretofore had been assessed as an Hindu undivided family unit. It provides for an enquiry if a claim is made by virtue of such partition, and thereafter the individual members have to be assessed on their shares of the income. Section 25-A(3) provides the safeguard that where such an order for recognising the partition has not been passed, the Hindu undivided family shall be deemed to continue undivided for the purpose of income-tax assessment. When there is a transfer of a business, profession or vocation, Section 26(2) of the Indian Income-tax Act provides the method for dealing with the situation. But it uses words in a different way from Section 27 of the Madras General Sales Tax Act. Section 26(2) of the Income-tax Act reads :

Where a person carrying on any business...has been succeeded in such capacity by another person...

5. The word 'succeed' in Section 26(2) of the Income-tax Act must be considered to. be sufficiently wide to include not merely transfers but also cases where a previous dealer who owned the business is followed by another person, whether he obtains the business by transfer, inheritance or by any other method. If the Legislature in enacting Section 27 of the Madras General Sales Tax Act had used a similar language, instead of narrowing down the scope of the section exclusively to cases of transfer of ownership, it might be possible to rely upon that section for dealing with a situation like that which has arisen in these writ petitions. Unfortunately Section 27 of the Madras General Sales Tax Act in its present form cannot be used to meet the present situation. Section 53(1) of the Madras General Sales Tax Act enables the Government to make rules to carry out the purposes of the Act. Section 53(2)(c) deals with assessment to tax of business which is discontinued or the ownership of which has changed. But the respondent has not been able to show any rule framed for the purpose, which would enable the making of assessment, in a case where the ownership of a business has changed from a Hindu undivided family to a partnership of some of the former coparceners, after a division in the joint family.

6. In this connection reference can be made to the judgment of the Madhya Pradesh High Court in Kishanchand Govindram v. Commissioner of Sales Tax [1967] 19 S.T.C. 465. That decision dealt with Section 33 of the Madhya Pradesh General Sales Tax Act, 1958, which provides that in the case of a joint Hindu family, when the business of that family is discontinued, all its members are made liable, but the tax liability is confined to the period during which the joint family business was carried on. The section also provides that even after such dissolution of the joint family, the individual members could be assessed as dealers with respect to the joint family business qua members of the joint Hindu family for the past business. It is a joint and several liability as provided in Section 33(4)(a) of the Madhya Pradesh enactment. But there is no such provision in the Madras General Sales Tax Act, enabling the members of a joint Hindu family to be assessed individually after the discontinuance or dissolution of the joint Hindu family.

7. The Supreme Court in State of Punjab v. Jullundur Vegetables Syndicate [1966] 17 S.T.C. 326 dealt with a case where a firm was dissolved on July 11, 1953, and an intimation of the dissolution was sent to the department as required under Section 16 of the relevant General Sales Tax Act. Prior to the dissolution, the firm was assessed to sales tax in respect of a period anterior to the dissolution. That assessment was quashed and thereafter a fresh assessment was made on the turnover of the firm, on 3rd September, 1955, a date long after the dissolution. There was no provision in the relevant Sales Tax Act empowering the assessing authority to assess a dissolved firm in respect of its turnover before its dissolution. The Supreme Court in such circumstances held that the order of assessment dated 3rd September, 1955, was bad. This decision was followed by a later decision of the Supreme Court reported in Khushi Ram Behari Lal & Co. v. Assessing Authority [1967] 19 S.T.C. 381which also arose under the same Act, namely, Punjab General Sales Tax Act. It is urged by the learned counsel for the petitioner that the same analogy would apply to the present case prohibiting the department from assessing the members of a Hindu joint family after its dissolution in respect of the turnover of the joint family before the dissolution. As long as the Madras General Sales Tax Act contains no provision similar to the provisions in the Madhya Pradesh Act or the Indian Income-tax Act which will enable the authorities to assess such members after partition in respect of the turnover of business of the former Hindu undivided family before the partition, I am of the opinion that this argument is entitled to weight. Therefore, writs of prohibition will issue in these four writ petitions as prayed for. No order as to costs.


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