1962 (4) TMI 68 - HC - VAT and Sales Tax

Issues Involved:
1. Interpretation of the phrase "any tax payable...... and remaining unpaid at the time of the transfer" in section 26 of the Sales Tax Act, 1953.
2. Liability of the transferee (Messrs Parimal Brothers) for taxes due by previous owners (Mrs. Kusum Mody and Sunways (India) Private Limited).
3. Applicability of section 26 to the period before the enactment of the Sales Tax Act, 1953.
4. Whether the transfer involved the entire business or only part of it.

Issue-Wise Detailed Analysis:

1. Interpretation of the Phrase "Any Tax Payable...... and Remaining Unpaid at the Time of the Transfer" in Section 26:
The core issue revolves around the interpretation of the phrase "any tax payable...... and remaining unpaid at the time of the transfer" in section 26 of the Sales Tax Act, 1953. The Tribunal had previously ruled in favor of Messrs Parimal Brothers, stating that tax must be assessed before it can be deemed payable under section 26. However, the High Court disagreed, stating that "tax payable" includes the obligation to pay tax, not just a quantified tax debt. The Court emphasized that the liability to pay tax arises from the charging section itself and is not dependent on assessment. This interpretation aligns with the principle that tax obligations are created by the charging section and are quantified later.

2. Liability of the Transferee for Taxes Due by Previous Owners:
The High Court examined whether Messrs Parimal Brothers, as transferees, were liable for the unpaid taxes of the previous owners, Mrs. Kusum Mody and Sunways (India) Private Limited. The Court held that under sub-section (1) of section 26, the transferee is liable for the tax obligations of the transferor at the time of the transfer. This includes any tax liability that the transferor was obligated to pay but had not discharged. The Court clarified that the liability is not limited to the period during which the transferor conducted the business but extends to any unpaid tax obligations transferred along with the business.

3. Applicability of Section 26 to the Period Before the Enactment of the Sales Tax Act, 1953:
The Court addressed the applicability of section 26 to the period before the enactment of the Sales Tax Act, 1953. It was conceded by the counsel for the Collector of Sales Tax that Messrs Parimal Brothers were not liable for the period from 1st January, 1953 to 31st March, 1953, as the liability for that period arose under the Ordinance of 1952, not under the Act. Therefore, section 26 did not apply to tax liabilities arising before the Act came into force.

4. Whether the Transfer Involved the Entire Business or Only Part of It:
The Court also considered whether the transfer from Sunways (India) Private Limited to Messrs Parimal Brothers involved the entire business or only part of it. This issue was raised by Mr. Ganatra, but the Court noted that it was a factual contention not previously raised before the Sales Tax Authorities or the Tribunal. Consequently, the Court did not allow arguments on this point, emphasizing that it did not arise from the Tribunal's order.

Conclusion:
The High Court concluded that Messrs Parimal Brothers were liable to pay the tax for the periods from 1st April, 1953 to 25th November, 1953, 26th November, 1953 to 31st March, 1954, 1st April, 1954 to 6th May, 1954, and 7th May, 1954 to 1st June, 1954, under section 26 of the Sales Tax Act, 1953. However, they were not liable for the period from 1st January, 1953 to 31st March, 1953. The Court ordered Messrs Parimal Brothers to pay the costs of the applicant, quantified at Rs. 500. The reference was answered accordingly.

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