1964 (12) TMI 34 - HC - VAT and Sales Tax

Summary

Issues:
1. Interpretation of a deed of arrangement involving trusteeship of assets and properties of a firm.
2. Liability of trustees for payment of sales tax arrears of debtor firms.
3. Application of Section 39 of the Bombay Sales Tax Act, 1959 to the case.
4. Validity of notices issued by the Sales Tax Officer to the trustees' bankers.

Detailed Analysis:
1. The judgment involves the interpretation of a deed of arrangement where the petitioners were appointed as trustees to manage the assets and properties of a firm facing financial difficulties. The deed outlined the trustees' powers to realize and sell the properties to pay off the firm's debts to creditors. The deed assigned personal and immovable properties of the debtors to the trustees for the benefit of creditors, with specific instructions on debt repayment and distribution of sale proceeds among creditors. The trustees were not deemed as successors to the businesses but as legal owners of the assigned properties for the benefit of creditors.

2. The trustees were held liable for the sales tax arrears of two debtor firms, Harsh Radio Corporation and Union Radios, by the Sales Tax Officer. The officer issued notices to the trustees' bankers demanding payment of the tax amounts due from the debtor firms. The trustees challenged these notices, arguing that they were not holding the sale proceeds as agents of the firms or successors to the businesses. The court found that the trustees were not holding the moneys in the bank account on behalf of the debtor firms, and therefore, the conditions for invoking liability under Section 39 of the Bombay Sales Tax Act were not met.

3. The court analyzed Section 39 of the Bombay Sales Tax Act, 1959, which provides a special mode of recovery of tax arrears. It allows the Commissioner to require any person holding money for or on account of a dealer to pay the tax amount due by the dealer. In this case, the court determined that the trustees were not holding the funds for or on account of the debtor firms, as the deed of arrangement established them as trustees for the benefit of creditors, not as transferees of the businesses. Therefore, the provisions of Section 39 were held not applicable to the trustees in this scenario.

4. The court concluded that the notices issued by the Sales Tax Officer to the trustees' bankers were without jurisdiction and contrary to the provisions of Section 39. As a result, the petition was allowed, and the rule was made absolute. The respondent was directed to pay the costs of the petitioners. The judgment clarified the legal status of the trustees, the nature of the deed of arrangement, and the application of relevant statutory provisions in determining the trustees' liability for sales tax arrears of the debtor firms.