1962 (11) TMI 36 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Applicability of Rule 44(f) of the U.P. Sales Tax Rules to the transfer of business as a whole.
2. Inclusion of sale proceeds of the business in the turnover for sales tax purposes.
3. Determination of turnover for tax assessment under the U.P. Sales Tax Act.
4. Authority of the State Government to make rules regarding turnover and tax exemptions.

Issue-Wise Detailed Analysis:

1. Applicability of Rule 44(f) of the U.P. Sales Tax Rules to the Transfer of Business as a Whole:
The court examined whether Rule 44(f) applies to the transfer of business as a whole in cases involving multi-point goods, single-point goods, and transfers made by persons not liable to pay tax. It concluded that Rule 44(f) is of general application and applies in all cases regardless of the type of goods involved. The rule states that "all amounts realized by a dealer on account of the sale of his business as a whole" should be deducted from the turnover. The court emphasized that the sale of a business itself is not considered "goods" and thus does not constitute a "turnover" subject to sales tax.

2. Inclusion of Sale Proceeds of the Business in the Turnover for Sales Tax Purposes:
The court clarified that the proceeds from the sale of a business are not to be included in the turnover for sales tax purposes. According to Section 2(h) of the U.P. Sales Tax Act, turnover is defined as the aggregate amount for which goods are supplied or distributed by way of sale. Since a business is not movable property, it does not fall under the definition of "goods." Therefore, the sale proceeds of a business do not constitute turnover and are not subject to sales tax under Section 3(1) of the Act.

3. Determination of Turnover for Tax Assessment under the U.P. Sales Tax Act:
The court discussed the process of determining the turnover for tax assessment. Section 7 of the Act assigns the duty of determining an assessee's turnover to the Sales Tax Officer. The State Government is empowered to make rules prescribing the manner in which the turnover is to be determined. However, the court noted that the State Government does not have the authority to make rules deciding which sale proceeds should be included or excluded from the turnover; this is a legislative function. The court emphasized that Rule 44 should only deal with the procedural aspects of determining the amount of taxable turnover, not with exempting certain proceeds from being included in the turnover.

4. Authority of the State Government to Make Rules Regarding Turnover and Tax Exemptions:
The court highlighted the limitations of the State Government's rule-making power. The Legislature itself has defined "turnover" and enacted provisions (Sections 3-A, 4) specifying which sale proceeds are exempt from tax. The State Government's role is limited to issuing notifications for exempting certain goods from tax, not making rules about what constitutes turnover. The court criticized Rule 44 for mixing up different matters, such as exempting goods from tax and deducting certain proceeds from turnover, which should have been handled separately to avoid redundancy and complications.

Conclusion:
The court concluded that the proceeds from the sale of a business are not to be included in the turnover for sales tax purposes. Rule 44(f) of the U.P. Sales Tax Rules applies generally and is not limited by the type of goods involved. The State Government's rule-making power is confined to procedural aspects of determining turnover, and it cannot legislate on what constitutes turnover or which proceeds are exempt from tax. The court directed that the judgment be communicated to the relevant authorities and awarded costs to the Commissioner of Sales Tax.

Reference Answered Accordingly:
The court answered the reference by stating that the proceeds from the sale of the business sold by the assessee are not to be included in the turnover for tax purposes, and Rule 44(f) applies in all cases, irrespective of the nature of the goods.