2010 (5) TMI 764 - HC - VAT and Sales Tax

Whether the transfer of motor car by the firm to its partners constitutes a sale under section 2(28) of the Bombay Sales Tax Act, 1959 and therefore, liable to tax? Held that - It is not possible to hold that the transfer of motor car by the firm to its partner constitutes a sale under section 2(28) of the BST Act, 1959 and therefore, liable to tax. Therefore, the question referred hereinabove is answered in favour of the applicant/assessee and against the respondent/Revenue.

Summary

Issues Involved:
1. Whether the transfer of a motor car by a firm to its partners constitutes a 'sale' under section 2(28) of the Bombay Sales Tax Act, 1959, and therefore, liable to tax?

Issue-wise Detailed Analysis:

1. Definition of 'Sale' under Section 2(28) of the BST Act, 1959:
The judgment begins by defining 'sale' under section 2(28) of the BST Act, 1959. The definition includes a sale of goods made within the State for cash, deferred payment, or other valuable consideration. It also includes specific instances such as supply by a society or club to its members, delivery of goods on hire-purchase, and transfer of property in goods for consideration. However, it excludes mortgage, hypothecation, charge, or pledge.

2. Facts and Procedural History:
The applicant, a partnership firm engaged in buying and selling yarn, dissolved on December 29, 1989. During the dissolution, a motor car was transferred to one of the partners. The Sales Tax Officer assessed this transfer as a sale and raised a tax demand. The applicant's appeals to the Assistant Commissioner of Sales Tax and the Maharashtra Sales Tax Tribunal were unsuccessful, leading to this reference to the High Court.

3. Submissions by the Applicant:
The applicant argued that the transfer of the motor car was part of the dissolution process and not a sale. The car was given to a partner as his share, and the value was adjusted in the books. The applicant cited judgments from the Supreme Court and the Madhya Pradesh High Court, which held that distribution of assets upon dissolution does not constitute a sale.

4. Submissions by the Respondent:
The respondent argued that the transaction was a sale because the car was transferred for valuable consideration, and the profit from the sale was distributed among the partners. They cited a Gujarat High Court judgment stating that a partnership firm can enter into a contract of sale with its partners.

5. Court's Consideration:
The court considered whether the transaction constituted a sale under the BST Act. It noted that under the Indian Partnership Act, a firm is not a separate legal entity from its partners. The assets of the firm are jointly owned by the partners, and distribution upon dissolution is a mutual adjustment of rights, not a sale. The court emphasized that for a transaction to be a sale, there must be an agreement to transfer title for monetary consideration.

6. Conclusion:
The court concluded that the transfer of the motor car to a partner upon dissolution did not constitute a sale under section 2(28) of the BST Act, 1959. The transaction was a distribution of partnership assets, not a sale. The court answered the question in favor of the applicant, holding that the transfer was not liable to tax.

Final Judgment:
The reference was disposed of, with the court ruling in favor of the applicant/assessee and against the respondent/Revenue. The transfer of the motor car by the firm to its partner was not considered a sale under the BST Act, 1959, and therefore, not liable to tax.