1974 (12) TMI 60 - HC - VAT and Sales Tax

Issues Involved:
1. Interpretation of Section 26(1) of the Bombay Sales Tax Act, 1953.
2. Construction of the agreement dated 31st August, 1953.
3. Determination of ownership and transfer of business.

Detailed Analysis:

1. Interpretation of Section 26(1) of the Bombay Sales Tax Act, 1953:
Section 26(1) seeks to make the transferee liable for payment of tax payable by the transferor. The provision expressly states that this liability is incurred when the ownership of the business of a transferor-dealer liable to pay the tax is entirely transferred to the transferee. The court emphasized that the applicant must establish that Bharucha became the owner of the business of the said hotel and that the ownership was entirely transferred to the respondents.

2. Construction of the Agreement dated 31st August, 1953:
The court examined the agreement between Davierwalla, Boywalla, and Bharucha in detail. The agreement referred to Davierwalla and Boywalla as "the owners" and Bharucha as "the contractor." Key clauses of the agreement included:
- Clause (1): Granted Bharucha a contract to run the hotel for three years with an option to extend for two more years.
- Clause (3): Required Bharucha to pay Rs. 350 monthly to the owners as hire for the use of the hotel's assets and as the owners' fixed share in the profits.
- Clause (6): Prohibited Bharucha from affecting or prejudicing the owners' rights and interests in the business.
- Clause (8): Obligated Bharucha to pay all income tax, sales tax, license fees, and other charges and to indemnify the owners against such liabilities.
- Clause (12): Restricted Bharucha from assigning or transferring his rights under the agreement without the owners' consent.
- Clause (15): Required Bharucha to engage and pay the hotel's staff.
- Clause (16): Required Bharucha to take over the owners' monthly customers and maintain the same quality of food.

3. Determination of Ownership and Transfer of Business:
The court concluded that the agreement did not transfer ownership of the business to Bharucha. The business remained the property of Davierwalla and Boywalla. Bharucha was merely given a contract to manage the business for a limited period. The court noted that the agreement included provisions to protect the owners' rights and interests, and Bharucha was required to indemnify the owners against any losses or liabilities. The court found that there was no transfer of ownership of the business or its assets to Bharucha.

The court rejected the applicant's reliance on various case laws, including the decision of the Calcutta High Court in Major Soap Co. Ltd. v. Assistant Commissioner of Commercial Taxes and the Supreme Court's decision in State of Andhra Pradesh v. Abdul Bakshi & Bros., as these cases did not support the argument that there was a transfer of ownership of the business without the transfer of its assets or goodwill.

The court held that Bharucha never became the owner of the business of Regal Parsi Hotel. Therefore, there could be no question of retransfer of ownership to the respondents. The agreement only created limited rights for Bharucha, which ceased upon the agreement's expiration. Consequently, the provisions of Section 26(1) of the Bombay Sales Tax Act, 1953, did not apply.

Conclusion:
The court answered the question in the affirmative, affirming that the Tribunal was justified in concluding that the respondents were not the transferees as contemplated by Section 26(1) of the Bombay Sales Tax Act, 1953. The applicant was ordered to pay the costs of the reference to the respondent.

Reference answered in the affirmative.

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