1959 (12) TMI 20 - HC - VAT and Sales Tax

Summary

Issues:
- Revision against the order of the Additional Collector of Sales Tax
- Liability of a partner for tax dues of the firm
- Entire transfer of business under section 26(1) of the Sales Tax Act

Revision against the order of the Additional Collector of Sales Tax:
The case involved an application for revision against the order of the Additional Collector of Sales Tax, which confirmed the dismissal of an appeal filed by the applicant with the Assistant Collector of Sales Tax (Appeals). The dispute arose from a notice demanding tax and penalty from a business called Messrs R. Maganlal & Co. The firm had undergone a change in ownership, but the Sales Tax Officer did not act on the information provided regarding this change. Various objections were raised against the service of the notice of demand, arguing that the applicant, a partner in the firm, should not be liable for the debts of the firm.

Liability of a partner for tax dues of the firm:
The argument put forth was that under the Indian Partnership Act, a partner's liability for the debts of a firm is limited to the duration of their partnership. However, under the Sales Tax Act, liability can be imposed irrespective of the Partnership Act provisions. The key issue was whether the change in ownership of the business constituted an entire transfer under section 26(1) of the Act. The transfer deed indicated a transfer of goodwill, office, and other assets to a new partnership, making the new partners liable for any tax remaining unpaid at the time of transfer.

Entire transfer of business under section 26(1) of the Sales Tax Act:
The court analyzed the transfer deed and concluded that there had been an entire transfer of the business to the new partnership, making the new partners liable for the unpaid tax. Citing relevant case law, the court emphasized that once an entire transfer of business is established, the provisions of section 26(1) apply. Additionally, the court held that recovery proceedings against a partner for tax dues were premature, directing the department to initially recover tax arrears from the partnership's assets. However, the partners were deemed individually liable for the firm's debts, allowing for recovery from any partner if tax dues were not fully realized from the firm's assets.

In conclusion, the court allowed the application in part, holding the partners liable for the firm's tax dues but directing the department to recover tax arrears initially from the partnership's assets before pursuing individual partners for any remaining balance.