1997 (10) TMI 378 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of rule 44(e) regarding the exclusion of sale amount from turnover for taxation purposes.
Determining whether the sale of a business as a whole includes land and building.
Applicability of precedent cases to support the exclusion of sale proceeds from turnover.

Analysis:
The judgment by the High Court of Allahabad delves into the interpretation of rule 44(e) concerning the exclusion of the sale amount from turnover for taxation purposes. The applicant, engaged in various commercial activities, sold leather industrial units at Akrampur and Panki to M/s. Haque Sons Leather Complex during the assessment year 1981-82. The applicant argued that the sale amount of the leather unit should be excluded from the turnover, citing rule 44(e). The applicant contended that the sale of the leather business as a whole to M/s. Haque Sons Leather Complex, including land and building at Akrampur, meant it should not be included in the total turnover.

The judgment references a decision of the Madras High Court in Monsanto Chemicals of India (P.) Limited v. State of Tamil Nadu, highlighting that the sale of a unit of business as a whole may exempt the assessee from taxation. Another case, Deputy Commissioner (C.T.) v. K. Behanan Thomas, was cited to support the applicant's case, emphasizing that the sale of a plant as a whole amounts to the sale of the business as a whole. These precedents were crucial in establishing the applicant's argument for the exclusion of the sale proceeds from turnover.

The court addressed the arguments presented by the department's Standing Counsel, emphasizing that the sale of land and building at Akrampur did not constitute the sale of the business as a whole. However, the court rejected this argument, stating that the sale of a business as a whole refers to the business of a particular unit, not necessarily including land and building. The judgment clarified that the sale of a business as a whole does not require the sale of goodwill or specific assets like land and building, as long as the business itself is sold as a going concern.

Ultimately, the court ruled in favor of the applicant, concluding that the sale of the leather unit as a whole to M/s. Haque Sons Leather Complex fell under the exception to rule 44(e) of the Rules. The order of the Tribunal was set aside, and any amount deposited on account of turnover of sales was directed to be refunded to the applicant. The judgment highlighted that the sale of a business as a whole does not necessarily entail the sale of specific assets like land and building, emphasizing the importance of selling the business itself as a going concern.