R. Baluswami Chettiar vs The Deputy Commercial Tax Officer

Ramakrishnan, J.—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

Pitchampalayam 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.

The petitioner contends that u/s 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:

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.

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.

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...

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.

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.

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 u/s 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. 381 which 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.