1991 (3) TMI 335 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the deed dated December 29, 1973, was a deed of dissolution or merely a deed of retirement of two partners.
2. Whether the applicants continued to be liable for payment of tax after their retirement due to the conditions stipulated in the deed and the provisions of Section 25 of the Gujarat Sales Tax Act, 1969.

Issue-wise Detailed Analysis:

Issue 1: Nature of the Deed (Dissolution vs. Retirement)
The first issue revolves around the interpretation of the deed dated December 29, 1973. The Tribunal framed the question of whether the deed was a deed of dissolution of M/s. Jalaram Engineering Works or merely a deed of retirement of the two applicants as partners.

Upon examining the terms and conditions of the deed, the court noted that although the deed was captioned as a "deed of dissolution," it explicitly allowed the remaining two partners to continue the business with the same assets. The applicants were described as "retiring partners," and the remaining partners as "continuing partners," indicating that the partnership firm did not come to an end. The court concluded that the deed was not a deed of dissolution but a "deed of retirement of two partners." Thus, the Tribunal was correct in holding that it was merely a deed of retirement.

Issue 2: Liability for Tax Post-Retirement
The second issue pertains to the interpretation of condition No. 4 of the deed and Section 25 of the Gujarat Sales Tax Act, 1969. Condition No. 4 stipulated that the continuing partners would take over the liabilities, including tax liabilities, from the date of retirement. However, Section 25 of the Act overrides any contract to the contrary, stating that each partner of a firm is jointly and severally liable for the payment of tax.

The court emphasized that a retiring partner must intimate the date of retirement to the Commissioner in writing within 15 days to terminate their liability for tax accruing after their retirement. Since the applicants did not provide such intimation, their liability continued despite their retirement. The court rejected the argument that a new firm came into existence post-retirement and that only the continuing partners were liable for tax. The Tribunal correctly held that the liability of the retiring partners continued due to their failure to notify the Commissioner as required by Section 25.

Conclusion
The court answered both questions in the affirmative, against the assessee and in favor of the department. The deed was determined to be a deed of retirement, not dissolution, and the applicants continued to be liable for the firm's tax liabilities due to their failure to notify the Commissioner of their retirement within the stipulated time. The reference was answered in the affirmative with no order as to costs.