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Judgment
Sethuraman, J.—In this revision against the order of the Sales Tax Appellate Tribunal the only question that arises for consideration is
whether the assessee''s claim that the sale of a part of its business as a going concern fell within the language of rule 6(d) and therefore is exempt
from tax is correct. The assessee is a company. By an agreement dated 16th July, 1973, the assessee sold to another company called ""Mindia
Chemicals Limited"" the business in (i) distribution and dealership in rubber chemicals; (ii) agency, indent and resale business relating to rubber
chemicals; (iii) agency relating to other goods and products and services; and (iv) all other business of whatever nature (excluding the business of
manufacture and distribution of or dealership in agro-chemicals then carried on in India by the assessee, the vendor) as a going concern together
with all the assets, claims, debts and liabilities of the said business including the goodwill. The full benefit of pending contracts, engagements and
orders in connection with the said business and the corresponding obligations attached thereto were also transferred to the purchaser company.
The agreement was to come into effect on 1st August, 1973. The value of the chemicals and other goods as on the date of the taking over by the
purchaser company came to Rs. 2,59,276.
The assessing authority brought to tax a sum of Rs. 3,04,085.18 and also another sum of Rs. 11,079.87. The sum of Rs. 11,079.87 represents
the value of officer equipments. The assessee appealed to the Appellate Assistant Commissioner. As he found that the sum of Rs. 3,04,085.18
represented the market price of those goods and as he was of the opinion that the goods were only of the value of Rs. 2,59,276, the Appellate
Assistant Commissioner reduced the assessment accordingly. The assessee appealed to the Tribunal contending that there was no sale in the
course of business and that there was only a sale of the business as a whole falling within rule 6(d) of the Tamil Nadu General Sales Tax Rules,
1959. The Tribunal, after a discussion of the relevant materials, came to the conclusion that the assessee''s claim could not be accepted as there
was a sale of goods incidental to the carrying on of the business in the present case. The assessee has filed the revision contesting the correctness
of the Tribunal''s conclusion.
Apart from the agreement dated 16th July, 1973, there was a subsequent agreement dated 27th August, 1973, between the same parties.
Nothing turns on the second agreement. The total consideration paid to the assessee came to Rs. 18,18,859. That obviously represents the net
value of the assets taken over as a going concern. The assessing authority took the value of the chemicals and other goods as having been sold in
the course of business and did not accept the assessee''s claim that there was a sale of the business as a going concern. The question now before
us is whether this conclusion is right.
Rule 6 provides that in determining the taxable turnover the amounts specified in the several clauses thereof should be deducted from the total
turnover of a dealer. One of the items to be deducted is the amount realised by a dealer by the sale of his business. The question as to the scope
and ambit of rule 6(d) has been examined in Deputy Commissioner (C.T.), Coimbatore v. K. Behanan Thomas [1977] 39 STC 325. In that case
the assessee was carrying on business with a branch in Ooty. The branch business in Ooty was sold as a going concern. The deputy Commercial
Tax Officer, rejecting the assessee''s submission that the sale of the branch as a whole was exempt from tax, assessed the value of the stock of the
branch in Ooty, and added it to the turnover for the year and assessed the aggregate to sales tax. It was pointed out at page 330, after referring to
the definition provisions, as follows :
The combined effect of the definition of these expressions will show that for a turnover to come within the scope of the Act, it must be the
aggregate amount for which the goods are bought or sold, that is, bought or sold in the course of business, the business having the meaning as
defined in section 2(d) of the Act. When a person who is carrying on business sells the entire business or a branch of the business he sells the same
as a running business or a going concern. The sale proceeds of such a transaction cannot be said to constitute turnover as defined in the Act,
because the sale proceeds are not proceeds of sale of goods made in the course of business as defined in the Act. The closure of a branch by sale
thereof as a running concern to another person, apart from not constituting a sale of goods, cannot also be said to be a transaction in connection
with or incidental or ancillary to such trade, commerce, adventure or concern mentioned in section 2(d)(i) of the Act. Consequently, such sale
proceeds being totally outside the scope of the Act cannot form part of the turnover as defined in the Act and hence such turnover is not exigible to
tax under the provisions of the Act. If so, the question of such sale proceeds being deducted from the total turnover under rule 6(d) of the Tamil
Nadu General Sales Tax Rules, 1959, will not arise because that rule contemplates determination of the taxable turnover by deducting the items
mentioned therein from the total turnover of a dealer. Once it is found that the sale proceeds in question did not form part of the turnover at all,
there is no question of the same being deducted from the total turnover for the purpose of determining the taxable turnover.
Even on the basis of the applicability of rule 6(d), the matter was examined and at page 329 it was pointed out :
When once the Ooty branch is recognised as an independent unit, then vis-a-vis that unit of business, the assessee had closed down his business
as a whole. It is not found by any of the authorities that the assessee retained any part of the business at Ooty, so that it cannot be treated as a sale
of his business in that branch as a whole ......................
.................... In our opinion, for the purpose of application of rule 6(d), it is not necessary that the assessee should go out of the business
altogether, nor need there be a separate registration certificate with reference to the branch so as to make it a unit of business. Even the sale
proceeds of a branch which is an independent unit by itself would qualify for the exemption.
The only difference between that case and the one before us is that in that case there was a sale of a branch, while in the present case there is a
closure of a particular line of business. We do not consider that this distinction, on facts, affects the principle to be applied. A person may carry on
several lines of business and each line of business would be a unit of business by itself. If there is a sale of that unit of the business as a whole, then
the assessee would not be liable to be taxed either on the general principle that there is no sale in the course of business as closure of a line of
business cannot be incidental or ancillary to its carrying on or on the alternative basis of application of rule 6(d). We consider that, on the facts, the
assessee was eligible for the exemption in respect of the disputed turnover under either of those two grounds. The result is the revision petition
succeeds and is allowed and the assessee will be entitled to his costs. Counsel''s fee Rs. 250.
Petition allowed.