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TMI Blog1975 (9) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) of the 1959 Act which makes the erstwhile partners of a dissovled firm jointly and severally liable for the tax (including any penalty) due from the firm, was obviously enacted with that purpose; but making the partners liable for the dues of a dissolved firm does not mean that the dissolved firm as such can be assessed. Therefore the assessment orders made and the demand notices issued in the name of the dissolved firm in the instant case must be held to be invalid. - C.A. No. 1802 of 1970, - - - Dated:- 5-9-1975 - CHANDRACHUD Y.V., SARKARIA R.S. AND GUPTA A.C. JJ. -------------------------------------------------- The judgment of the Division Bench of the Bombay High Court consist- ing of PALEKAR and VAIDYA, JJ., in Miscellaneous Application No. 564 of 1965 dated 8th December, 1969, runs as follows: The judgment of the Court was delivered by VAIDYA, J. -These two petitions under article 226 of the Constitution of India raise an important question relating to assessment of a dissolved partnership-firm under the Bombay Sales Tax Act, 1953, and the Bombay Sales Tax Act, 1959. Miscellaneous Application No. 564 of 1965 is a petition filed on the original side ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... une, 1961, and, accordingly, the firm produced the said deed of dissolution after the said date and also surrendered their certificate of registration, authorisation and licences under the Bombay Sales Tax Act and also the Central Sales Tax Act to the Sales Tax Officer, B-11 Ward, Bombay, on 13th June, 1962, and as the firm had already closed its business as stated above in or about May, 1961, the Sales Tax Officer, B-11 Ward, had by his order dated 26th June, 1962, cancelled the central sales tax registration certificate as well as the registration certificate, authorisation and licence under the Bombay Sales Tax Act of the firm. In spite of this, however, on 20th November, 1963, the Sales Tax Officer (VIII), Enforcement Branch, who is respondent No. 1 in this petition, sent a notice to the firm to explain several items and discrepancies discovered in the books of accounts by him as a result of the verification of the seized account books and other documents. Another notice was also sent on the said day to the firm purporting to be under section 15 of the Bombay Sales Tax Act, 1953, calling upon the firm to show cause why the assessment already made for the period from 1st April, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of suppressed sales and purchases which escaped assessment (the firm having elected to pay sales tax). The second order was passed in respect of the period from 1st April, 1958, to 31st March, 1959, by which the petitioner-firm was held liable to pay sales tax of Rs. 2,20,070.08, and deducting therefrom Rs. 13,518.13, which the firm had paid along with the returns, the petitioner-firm was directed to pay the balance of Rs. 2,06,551.95. In the said order, respondent No. 1 gave detailed reasons for all the orders and gave a summary of the verification made by him of the books of account and other documents of petitioner No. I-firm. The third order was in respect of the period from 1st April, 1959, to 31st December, 1959, and by this order respondent No. 1 found that petitioner No. I-firm had suppressed transactions worth Rs. 32,82,340 in respect of sales and Rs. 32,88,442 in respect of purchases. Petitioner No. 1-firm was called upon to pay the balance of tax amounting to Rs. 1,60,074.53. By his fourth order which related to the period from 1st January, 1960, to 31st March, 1960, the petitioner-firm was held to be liable to pay Rs. 18,960.00, and after deducting Rs. 2,202 paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders and the demand notices on several grounds set out in para 17 of the petition which may be summarised as falling under three main heads, viz., (i) that the sales tax authorities had passed the impugned orders without giving a fair and proper opportunity to petitioner No. 1-firm notwithstanding that petitioner No. 1-firm had done everything to co-operate with the sales tax authorities in the course of the verification of the documents and account books since the time of the seizure on 10th November, 1960, and further that the orders passed were arbitrary and in violation of the principles of natural justice; (ii) that since the suit firm was dissolved prior to the various assessment orders, the said assessment and reassessment made by respondent No. 1 were without jurisdiction and contrary to the provisions of the Bombay Sales Tax Act, 1953, and the Bombay Sales Tax Act, 1959; and (iii) that the said orders were passed by respondent No. 1 without applying his mind properly to all the documentary evidence before him and on the basis of mere guess-work and conjectures without any legal evidence before him. The petition was filed against respondent No. 1, the Sales Tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further contended that the orders which he had passed were all validly passed after taking into consideration all the submissions and representations made on behalf of petitioner No. 1-firm by its representatives, and after applying his mind to all the transactions noted in the books of account and other documents which were seized from petitioner No. 1-firm in accordance with law. On behalf of petitioner No. 1-firm a further affidavit in rejoinder was filed by petitioner No. 5 reiterating the contentions in the petition. In view of these pleadings, the questions involved in the petition are (i) whether the impugned assessment orders and demand notices were authorised under the Bombay Sales Tax Act, 1953, and the Bombay Sales Tax Act, 1959, after the dissolution of petitioner No. 1-firm on 20th May, 1962; (ii) whether respondent No. 1 followed the procedure laid down by law in passing the said orders and issuing the said demand notices; and (iii) whether the assessment and reassessment made against petitioner No. 1-firm is proper and based on the turnovers of petitioner No. 1-firm as stated in the said orders. Although the petitioners approached this court under article 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1 in the petition, however, rejected the contentions of the petitioners and passed three orders on 31st March, 1966. By the first order which covered the period from 1st April, 1955, to 31st March, 1956, he held that during the period the firm was also liable to pay the purchase tax in respect of purchases worth Rs. 96,000 made from the Brihan Maharashtra Sugar Syndicate, and this liability was admitted by the dealer who appeared for the firm before him, and the dealer had no objection to the revision of the assessment order previously passed. After considering the submissions made on behalf of the firm, he ordered that a penalty of Rs. 3,000 and purchase tax of Rs. 3,000, totalling Rs. 6,000, was to be recovered from the firm. The second order related to the period from 1st April, 1956, to 31st March, 1957. By that order respondent No. 1 held that the firm was liable to pay the purchase tax amounting to Rs. 11,952 and penalty of Rs. 11,952, totalling Rs. 23,904. The third order related to the period from 1st April, 1957, to 31st March, 1958, and for the reasons stated in the first order, respondent No. 1 ordered that purchase tax of Rs. 3,251.85 should be paid by the firm in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appeals were not being decided by respondent No. 2 because the question of the validity of assessment of a dissolved firm was a subject-matter of a reference made by the Maharashtra Sales Tax Tribunal to this Court, and the reference and several other petitions are pending in this Court involving the same question. He submitted that although the firm of Messrs. Ramchand Motichand Phade was dissolved with effect from 28th October, 1962, it could still be assessed in view of the provisions of section 19 of the Bombay Sales Tax Act, 1959, which, according to the respondents, was an express provision authorising the assessment of a firm even after its dissolution under the earlier law, i.e., the Bombay Sales Tax Act, 1953. Respondent No. 2 denied the other contentions made on behalf of the petitioners and submitted that the petition was liable to be dismissed with costs. Even in this petition, as appeals already filed by petitioner No. 2 against the assessment orders are pending before respondent No. 2, we shall deal only with the question of the right of the sales tax authorities to assess a firm after its dissolution in respect of its pre-dissolution turnovers. As this qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essed during the said period is not less than Rs. 2,500; (iii) 'in the case of any other dealer, Rs. 25,000, shall be liable to pay the tax under this Act on his turnover of sales and his turnover of purchases made on or after the appointed day........" Then section 14, so far as relevant, is as follows: "(1) The amount of the tax due from a registered dealer shall be assessed separately for each year during which he is liable to pay the tax ......... (2) If the Collector is satisfied without requiring the presence of a dealer or the production by him of any evidence that the returns furnished in respect of any period are correct and complete, he shall assess the amount of the tax due from the dealer on the basis of such returns. (3)(a) If the Collector is not satisfied without requiring the presence of a dealer who has furnished his returns or the production of evidence that the returns furnished in respect of any period are correct and complete, he shall serve on such dealer a notice in the prescribed manner requiring him, on a date and at a place specified therein either to attend in person or to produce or to cause to be produced any evidence on which such dealer may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the tax is not paid by any dealer within the prescribed time, the dealer shall pay, by way of penalty in addition to the amount of tax, a sum equal to- (i) one per cent of the amount of tax for each month for the first three months after the expiry of the prescribed time, and (ii) two and one-half per cent for each month subsequent to the first three months as aforesaid, during which he continues to make default in the payment of the tax Provided that where the tax has not been paid by any dealer within the prescribed time but the dealer has filed an appeal or an application for revision in respect of such tax, the authority hearing the appeal or the application for revision may direct that the penalty in respect of any period shall be paid at such rate as it may think fit, the rate being not less than one per cent and not more than two and one-half per cent of the amount of tax for each month: Provided further that the Collector may, subject to such conditions as may be prescribed, remit the whole or part of the amount of the penalty pay- able by a dealer in respect of any period under this sub-section. (5) (i) The amount of tax- (a) due where the returns are furnished w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after its dissolution. In our opinion, this is a conclusion which clearly emerges on a careful consideration of the relevant provisions, scheme and object of the Bombay Sales Tax Act, 1953. The liability under the Act is imposed under section 5 on a dealer. That section, which is the charging section under the Act, makes a dealer liable to pay the tax under the provisions of the Act on his turnovers of sales and purchases. Section 6 lays down; "(1) Subject to any rules made under section 18B there shall be paid by every dealer who is liable to pay tax under this Act- (1a) sales tax or purchase tax on his sales or purchases in accordance with the provisions of section 7A, (a) a sales tax on his sales levied in accordance with the provisions of section 8, (b) a general sales tax on his sales levied in accordance with the provisions of section 9, and (c) a purchase tax on his purchases levied in accordance with the provisions of section 10, (d) a tax on his purchases levied in accordance with the provisions of section 10AA ...................." These sections are contained in Chapter III, which deals with the "incidence and levy of tax". Chapter IV deals with "registra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 on the dealers. What was meant by the legislature in referring to the dealer in all these sections is clearly indicated in section 26 which deals with the subject of the liability of a transferee of business to pay tax. Clause (1) of that section deals with a case where the entire ownership of the business of a dealer is transferred and holds both the transferor and the transferee jointly and severally liable to pay the tax. Clause (2) of that section deals with a case of a transfer of a part of the business. Clause (3), which is already quoted above, deals with the liability to pay the tax after dissolution of a firm or a partition of a Hindu joint family. The legislature knew very well that after the partition of a Hindu joint family, the joint family ceases to exist as such, and after the dissolution of a firm who was the dealer under the ordinary law, the firm would cease to exist as a firm under the general law except for the purpose of winding up and for making the former partners liable to third parties till publication of the notice of dissolution as required by law. In spite of this position under the general law, the legislature when enacting clause (3) of section 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany, as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly........" It will be difficult to hold that this liability to be prosecuted for the offences under the Act, which is imposed not only on the firm but also on its partners who were in-charge of, and responsible for, the firm for the conduct of its business, would come to an end the moment the firm comes to an end by a dissolution. It is true that the Bombay Sales Tax Act, 1953, does not expressly state that a firm will be deemed to be in existence for the purposes of assessment, recovery of tax and penalties, etc. On a proper consideration of the entire scheme of the Act and the aforesaid provisions, in our opinion, it must necessarily lead to the conclusion that the legislature clearly intended that once a firm was a dealer as defined in the Act liable to pay the tax, it was liable to pay the taxes and liable to be assessed as a separate assessable unit or legal entity even after its dissolution. It is manifest on a fair reading of the Act as a whole that a vinculam juris is established between a firm who is liable to pay tax under the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e liable to tax can avoid payment by dying, and I must confess that 1 do not myself see any intelligible reason why when tax is once charged upon a subject in respect of a period during which he was alive and enjoying the benefits of the proceeds of Taxation, he should escape liability by dying before the tax has been assessed or paid. But one has to look at the rest of the Act to see whether there are any appropriate provisions for collecting tax from the estate of a deceased person. I think there is nothing else material in the Act till one comes to sections 22 and 23, which are the sections dealing with the procedure for assessment." He then proceeded to consider the provisions of the Act and held that there was throughout the Act no reference to the decease of a person on whom the tax had been originally charged, and it was very difficult to suppose the omission to have been unintentional, and then went on to observe: "It must have been present to the mind of the legislature that whatever privileges the payment of income-tax may confer, the privilege of immortality is not amongst them. Every person liable to pay tax must necessarily die and, in practically every case, befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, because there was no provision under the Bombay Sales Tax Act, 1953, imposing a liability to pay taxes on the legal representative of a deceased dealer. That, however, is not the position so far as the firm is concerned, as pointed out above. It is made liable to pay tax after its dissolution. Hence the case is distinguishable. Reliance was also placed on a decision in Deputy Commissioner of Commercial Taxes, Guntur Division, Guntur v. K. Bakthavatsalam Naidu [1955] 6 S.T.C. 657., in which a Division Bench of the Andhra High Court consisting of Subba Rao, C.J., and Satyanarayana Raju, J., as they then were, held that under the Madras General Sales Tax Act a firm was a "dealer" and, therefore, in respect of a transaction done by a firm, which was in existence during the assessment year but was dissolved subsequently, it was the firm that was to be assessed to tax and not any of its partners in their individual capacity. That decision again turned upon a construction of the particular provisions in the Madras General Sales Tax Act, 1939, which did not charge the partners of the firm but charged only the firm, and hence it cannot help the petitioners in their contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm, particularly in view of the clear indication of the intention of the legislature in section 26(3), we are giving effect to the words used by the legislature without straining any language used by the statute. We have merely followed the well-known principles of construction of a taxing statute which may be stated in the words of Lord Morris, as expressed in Shop and Store Developments Ltd. v. Commissioners of Inland Revenue'. "My Lords, the decision in this case calls for a full and fair application of particular statutory language to particular facts as found. The desirability or the undesirability of one conclusion as compared with another cannot furnish a guide in reaching a decision. The result reached must be that which is directed by that which is enacted." We are definitely of the opinion that on a full and fair consideration of the provisions contained in the Bombay Sales Tax Act, 1953, the conclusion to which we have reached is one -which is directed by what is enacted by the legislature". Furthermore, we are concerned in these petitions with the orders of reassessment under section 15 and the orders of assessment under section 14 of the Bombay Sales Tax Act, 1953. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication by providing that the firm would continue to be liable to be assessed or reassessed, as the case may be, even after its dissolution as a legal entity or as an assessable unit. This, in our judgment, is made crystal clear by the language of section 26(3), where the legislature has in unmistakable terms made the firm liable for sales tax even after its dissolution in respect of the goods allotted to a partner. For these reasons, the contention on behalf of the petitioners that our conclusion regarding the machinery provided for enforcing the liability of a dissolved firm to pay taxes is contrary to the rules of construction of a taxing statute must be rejected. It was next contended that such a conclusion principally based on the wording of section 26(3) is erroneous, because section 26(3) was enacted by the legislature for the specific purpose of creating a legal fiction of sale regarding allotment of goods, and this legal fiction is held to be ultra vires the powers of the Bombay Legislature in State of Gujarat v. Ramanlal Sankalchand and Co. [1965] 16 S.T.C. 329; A.I.R. 1965 Guj. 60. In that case a Division Bench of the Gujarat High Court consisting of J.M. Shelat, C.J., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xes. When the section was enacted, it was an integral part of the statute, and we cannot refuse to see what is stated in the statute. We have to give full effect and meaning to all the words used by the legislature, and we have no difficulty in holding, as stated above, that section 26(3) clearly indicates the mind of the legislature to continue the firm as a legal entity after its dissolution for the purposes of assessment, reassessment or for imposing penalty under the Bombay Sales Tax Act, 1953. What is declared ultra vires by the Gujarat High Court is only the legal fiction which the legislature wanted to create by describing allotment of the goods of a firm amongst its partners as a sale. That object of the legislature might be in contravention or beyond the powers conferred on the legislature by entry 54 (Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List 1) contained in List 11 of the Seventh Schedule to the Constitution. Merely because that section is declared ultra vires, the words used by the legislature cannot be considered as wiped off the section for all purposes. We can take into consideration the words to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s retirement, and any tax due up to the date of retirement though un- assessed at that date." Section 19(3) is: "Where a dealer, liable to pay tax under this Act, is a firm, and the firm is dissolved, then every person who was a partner shall be jointly and severally liable to pay to the extent to which he is liable under section 18, the tax (including any penalty) due from the firm under this Act or under any earlier law, up to the time of dissolution, whether such tax (including any penalty) has been assessed before such dissolution but has remained unpaid or is assessed after dissolution"........... Just as in the case of the Bombay Sales Tax Act, 1953, the firm is made liable as a dealer to pay the tax subject to the conditions mentioned in section 3 of the Bombay Sales Tax Act, 1959. There are provisions for registration, licences, authorisations, recognitions, and permits relating to the firm as dealer under Chapter IV of the Act of 1959. Section 32 requires the dealer to file returns of turnovers done by the firms prior to their dissolution. Section 33 empowers the sales tax authorities to assess a dealer. Section 34 provides: "Where in respect of any tax (includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilities incurred under the earlier law by dealers. Hence, it would be legitimate to rely on the provisions of section 19(3) and hold that the legislature always intended and did provide a machinery for enforcing the liability of a firm which was a dealer under the earlier enactment, inasmuch as section 19(3) in effect provided that the firm continued to be a legal entity even after its dissolution for the purposes of assessment, reassessment, penalty, etc., under the earlier Act as well as under the Bombay Sales Tax Act, 1959. Section 19(3) deals expressly with the dissolved firm and lays down that after dissolution, every person who was a partner shall be jointly and severally liable to pay to the extent to which he is liable under section 18 the tax (including any penalty) due from the firm. The words "tax due" means tax ascertained after assessment (see the decision of the Supreme Court in the State of Rajasthan v. Ghasilal [1965] 16 S.T.C. 318 (S.C.). This necessarily implies that the legislature laid down that the firm could be assessed as a firm in spite of the dissolution. Section 19(3) refers to the liability of a partner as a liability to the extent to which he is liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted this contention observing: "It only imposes a joint and several liability on the dealer and its partners for the payment of tax, penalty or any amount due under the Act or the Rules. It does not provide for a case of the dissolution of a firm and the assessment of the dissolved firm. Nor the provisions of the Partnership Act can possibly be called in aid to resuscitate a dissolved firm for the purpose of assessment. They deal only with the relationship between the partners and their rights and liabilities. They have no bearing on the question of assessment under a different statute. There is, therefore, a lacuna in the Act, which was filled up later on by an amending Act; but the said amending Act, it is conceded, is not retrospective in operation." With respect, their Lordships were quite right in holding that rule 40 was not concerned with the dissolved firm and, as there was no other provision in the Act or the Rules providing a machinery, there was a lacuna therein. But that is not the position so far as the Acts with which we are concerned in these petitions. We have already pointed out above that the entire machinery for enforcing the liability of dealers is provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility notwithstanding discontinuance of the business of firms. By a fiction, the firm is deemed to continue after discontinuance for the purpose of assessment under Chapter IV" This effect has never been challenged in any later decision. On the contrary, the same interpretation is followed in Commissioner of Income-tax v. Angidi Chettiar [1962] 44 I.T.R. 739 (S.C.)., and the later decisions in Shivram Poddar v. Income-tax Officer, Central Circle 11, Calcutta [1964] 51 I.T.R. 823 (S.C.)., and Commissioner of Income-tax, Andhra Pradesh v. Raja Reddy Mallaram [1964] 51 I.T.R. 285 (S.C.). This court has also followed the decision in Abraham's case [1961] 41 I.T.R. 425 (S.C.)., in Commissioner of Income-tax (Central), Bombay v. Devidayal and Sons[1968] 68 I.T.R. 475. It is impossible to hold that even though the provisions contained in sections 18, 19(3) and 34 of the Bombay Sales Tax Act, 1959, are similar to the provisions of section 44 of the Indian Income-tax Act, 1922, before its amendment in 1958, and although it is well-established by weighty authority that the firm continues as a legal entity after its dissolution for the purposes of the Income-tax Act, it does not exist for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing their dissolution as if the firms continued to exist for all purposes under the said Acts. As stated above, we cannot deal with the other questions raised by the petitioners. They raise several questions of fact which cannot be gone into at this stage in any event and ordinarily in the exercise of the jurisdiction of this court under article 226 of the Constitution. Even the questions raised with regard to the legality of the procedure followed by the sales tax authorities can be agitated by the petitioners before the appellate authorities, and we must not be taken to have expressed any opinion on any questions other than the main question which we have discussed above. For the above reasons, we find no substance in these petitions and the petitions must be rejected. Rule in both the petitions discharged with costs. The petitioners in Miscellaneous Application No. 564 of 1965 shall pay costs on the long-cause scale to the respondents. The petitioners in Special Civil Application No. 2050 of 1969 shall pay Rs. 500 as costs of the respondents. The appellants preferred appeals to the Supreme Court against this decision of the High Court. S.T. Desai, Senior Advocate (H.K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d suddenly in Delhi and that the other partners would be back in Bombay by May. On May 26, 1965, respondent 1 addressed a notice to the firm stating that the hearing would be taken up from day to day from June 14, 1965, and that the partners should remain present at the hearings. There was considerable difficulty in serving the aforesaid notice, as another firm by the name of M/s. Murarilal Balkrishna had apparently started doing business at the place where the assessee-firm was carrying on its business. Intimations were sent to the registered address of the firm and an Inspector of the department went personally to effect the service. Eventually, on August 31, 1965, respondent 1 passed ex parte orders of reassessment for the period April 1, 1957, to March 31, 1958, and ex parte orders of assessment for the period April 1, 1958, to March 31, 1961. The assessment of the firm for the period subsequent to March 31, 1958, was pending ever since, as it had to await the result of inspection of the incriminating documents seized from the firm's office in November, 1960. On October 22, 1965, demand notices were pasted on the office of the firm at its Masjid Bunder Road address. M/s. Mura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition in the High Court of Bombay challenging the orders of reassessment and assessment on various grounds. In view of the fact that the appeals filed by the firm before the Assistant Commissioner of Sales Tax were pending, the High Court did not decide the question whether the procedure prescribed by law was followed in the assessment proceedings and whether the orders were justified on merits. The only question which the High Court considered was whether the impugned orders were without jurisdiction as having been passed against a dissolved firm. By its judgment dated December 8, 1969, the High Court rejected the contention of the firm and held that in view of the provisions contained in the Bombay Sales Tax Acts of 1953 and 1959, it was permissible to assess a dissolved firm. The correctness of that finding is challenged by the appellants in this appeal by special leave. The only question with which we are concerned in this appeal is whether the orders of reassessment and assessment passed by respondent 1 are without jurisdiction by reason of the fact that the assessee-firm was dissolved prior to the date on which those orders were passed. In fact, the very assessment and reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which defined a dealer to include a firm, the court held that though under the partnership law a firm was not a legal entity, the firm was an independent assessable unit for the purposes of the Punjab Act. If that be so, on dissolution, the firm ceased to be a legal entity and could not be assessed in the absence of a statutory provision permitting the assessment of a dissolved firm. The court found that there was a lacuna in the Punjab Act of 1948 which was filled up later by an amendment but that amendment was not retrospective. Finally, the court touched upon the conflicting decisions of the High Courts on the point and observed that all of those decisions were over-burdened with the consequences of a contrary construction on the incidence of taxation and also their mixing up the question of the statutory power of assessing a dissolved firm with the liability of the partners to pay the tax so assessed on the firm before its dissolution. The reasons given by some of the High Courts in support of a contrary conclusion were rejected by this court. The Jullundur Vegetables Syndicate case [1966] 17 S.T.C. 326 (S.C.); [1966] 2 S.C.R. 457., is a clear and direct authority for the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jab Act, to sustain the continuity of the firm as a legal entity until information of dissolution was given to the prescribed authority. No other provision of the C.P. Act, apart from section 17, appears to have been canvassed before this court in support of the argument that it was permissible under that Act to assess a dissolved firm. Applying the ratio in the Jullundur case', we must examine the provisions of the two Bombay Acts in order to find whether those provisions, expressly or by necessary implication, authorise the assessment of a dissolved firm. Turning first to the Act of 1953, section 2(6) of that Act defines a "dealer", in so far as relevant, to mean any "person" who carries on the business of selling or buying goods. This definition does not by itself make the firm a distinct assessable entity and the position obtaining under the general law that a firm is but compendious name for the partners who compose it remains outstanding. But section 3(35) of the Bombay General Clauses Act, 1904, defines "person" as including "any company or association or body of individuals, whether incorporated or not". The provisions of the Bombay General Clauses Act apply to the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivilege of immortality is not amongst them", and that it was very difficult to assume that the omission in the Act as regards the power to tax a dead assessee was unintentional. Section 24B which was introduced in the Income- tax Act, 1922, to remove the lacuna pointed out in the Bombay judgment extends the legal personality of a deceased assessee for the duration of a previous year, so that income received by an assessee during the previous year and the income received by his heirs and legal representatives after his death, but in the previous year, can be brought to tax after his death. In Commissioner of Income-tax, Bombay City v. Amarchand N. Shroff [1963] 48 I.T.R. 59 (S.C.)., this court observed that the individual assessee under the Income-tax Act has ordinarily to be a living person, that there can normally be no assessment of a person after his legal personality ceases and that, apart from section 24B, no assessment could be made on a dead person. We must, therefore, proceed on the basis that the first appellant-firm was an independent assessable entity under the Act of 1953 and that on its dissolution on May 20, 1962, its legal personality ceased to have existence. Is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the obligation to cancel the registration would arise not on the statement of an assessee that the business has been discontinued or transferred but on the satisfaction of the authority that this is truely so. In other words, by virtue of section 5(3), the mere fact of dissolution does not by itself bring to an end the firm's liability to be taxed. Section 15(1) of the 1953 Act has an important bearing on the question under consideration. That section reads thus: "15. (1) If in consequence of any information which has come into his possession the Collector is satisfied that any turnover in respect of sales or purchases of any goods chargeable to the tax has escaped assessment in any year or has been under-assessed or assessed at a lower rate or any deductions have been wrongly made therefrom, the Collector may, in any case where such turnover has escaped assessment or has been under-assessed or assessed at a lower rate for the reason that the provisions of sub-section (1) of section 2 of the Bombay Sales Tax (Validating Provisions) Act, 1957, were not then enacted, at any time, within eight years, and in any case where he has reason to believe that the dealer has concealed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e avoided by the erring firm by the simple expedient of winding up its affairs. Section 15(1) contains an important clause that action thereunder can be taken by the Collector after giving a notice to the assessee under section 14(3) of the Act within the prescribed period. Once such a notice is given, the Collector gets the jurisdiction to assess or reassess the amount of tax due from the dealer and all the provisions of the Act "shall apply accordingly as if the notice were a notice served under" section 14(3). Section 14(3) speaks of the power of the Collector to assess the amount of tax due from the dealer after giving notice to him, if the Collector is not satisfied that the returns furnished are correct and complete. The jurisdiction to assess or reassess which is conferred by section 15(1) is thus equated with the original jurisdiction to assess the dealer under section 14. By this method, the continuity of the legal personality of the assessee is maintained in order to enable the assessment of turnover which has escaped assessment. It is no answer to a notice under section 15 that the partners having dissolved the firm, the assessment cannot be reopened. It puts a premium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have a right to be heard because each of them would be interested in warding off a liability which may fall on them jointly and severally. But that is more a matter of procedure which the assessing authority must adopt in the assessment proceedings in order to give efficacy to the order which may eventually be passed in the proceedings. Who, in the assessment proceedings against a dissolved firm, has the right to be heard will not determine whether a dissolved firm can be assessed under the Act of 1953. Sub-sections (3)(i) and (3)(ii) of section 26 provide that when a firm liable to pay the tax is dissolved, it shall be liable to pay the tax on the goods allotted to any partner "as if" the goods had been sold to such partner, unless he holds a certificate of registration or obtains it within the prescribed period. This provision in terms envisages the assessment of a dissolved firm, though only to the limited extent and for the limited purpose that the goods allotted to a partner at the time of dissolution shall be deemed to have been sold to that partner. By the use of the words "as if", section 26(3)(ii) creates a fiction that the allotment of goods to a partner on dissolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple to remember that though the benefit of an ambiguity in a taxing provision must go to the subject and the taxing provision must receive a strict construction, "that is not the same thing as saying that a taxing provision should not receive a reasonable construction": Wealth-tax Commissioner v. Kripashankar [1971] 81 I.T.R. 763 (S.C.); [1971] 2 S.C.C. 570. If the statute contains a lacuna or a loophole, it is not the function of the court to plug it by a strained construction in reference to the supposed intention of the legislature. The legislature must then step in to resolve the ambiguity and so long as it does not do so, the taxpayer will get the benefit of that ambiguity. But, equally, courts ought not to be astute to hunt out ambiguities by an unnatural construction of a taxing section. Whether the statute, even a taxing statute, contains an ambiguity has to be determined by applying normal rules of construction for interpretation of statutes. As observed by Lord Cairns in Pryce v. Monmouthshire Canal and Railway Companies (1879) 4 App. Cas. 197., cases which have decided that taxing Acts are to be construed with strictness, and that no payment is to be exacted from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er was liable to be charged to sales tax, the firm can be assessed to tax after its dissolution. In other words, we are concerned with a provision which prescribes the machinery for the computation of tax and not with a charging provision of the Sales Tax Acts. In Commissioner of Income-tax, Bengal v. Mahaliram Ramjidas [1940] 8 I.T.R. 442 at 448 (P.C.); 67 I.A. 239 at 247,, it was held by the Privy Council that section 34 of the Income-tax Act, 1922, although a part of a taxing Act, imposed no charge on the subject but dealt merely with the machinery of assessment. Lord Normand who delivered the judgment of the Judicial Committee observed: "In interpreting provisions of this kind the rule is that that construction should be preferred which makes the machinery workable, ut res valeat potius quam pereat." In India United Mills v. Commissioner of Excess Profits Tax [1955] 27 I.T.R. 20 at 25 (S.C.); [1955] 1 S.C.R. 810,816., this court held that section 15 of the Excess Profits Tax Act was not a charging section but a machinery section, "and a machinery section should be so construed as to effectuate the charging sections". Section 15 was intended to vest in the Excess Profits Tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew taken in the cases cited above, the machinery sections ought to be construed so as to effectuate the charging sections. The construction which we have placed on the machinery provisions of the 1953 Act will give meaning and content to the charging sections, in the sense that our construction will effectuate the provision contained in the charging sections. The resourcefulness and ingenuity which go into well-timed dissolution of firms ought not to be allowed to be used as convenient instruments of tax evasion. As observed by Lord Dunedin in Whitney v. Commissioners of Inland Revenue(1925) 10 Tax Cas. 88.: "A statute is designed to be workable, and the interpretation thereof by a court should be to secure that object, unless crucial omission or clear direction makes that end unattainable." Far from there being any crucial omission or a clear direction in the present case which would make the end unattainable, the various provisions to which we have drawn attention leave it in no doubt that a dissolved firm can be assessed on its pre-dissolution turnover. The Bombay Sales Tax Act, 1959, presents no difficulty as its provisions are even clearer than those of the 1953 Act. Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 1959 Act defines "earlier law" to mean, inter alia, the Bombay Sales Tax Act, 1953. Thus, one of the postulates of section 19(3) at any rate is that a dissolved firm could be assessed under the 1953 Act. Such a postulate accords with the principle that if the legislature provided for a charge of sales tax, it could not have intended to render that charge ineffective by permitting the partners to dissolve the firm, an easy enough thing to do. Nothing, in fact, would be easier to evade a tax liability than to declare that the firm, admittedly liable to pay tax, has been dissolved. Section 19(3) of the 1959 Act not only makes clear what was necessarily implied in the 1953 Act, but it throws additional light on the true construction of the earlier law. But we thought it advisable to keep section 19(3) of the 1959 Act apart while construing the 1953 Act because it is the courts, not the legislature, who have to construe the laws of the land authoritatively. As said in Craies on Statute Law, "except as a parliamentary exposition, subsequent Acts are not to be relied on as an aid to the construction of prior unambiguous Acts" (6th Ed., p. 146). The limited use which may be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f documents from the office of the firm. According to the appellants, the firm discontinued its business from the month of May, 1961. On May 20, 1962, the firm was dissolved. On June 26, 1962, the Sales Tax Officer cancelled the firm's registration certificate under the Central Sales Tax Act as well as the registration certificate, authorisation and licence under the Bombay Sales Tax Act which the partners of the firm had surrendered. On November 20,1963, the Sales Tax Officer issued two notices to the firm, one asking for elucidation of certain items in the books of account seized, and the other under section 15 of the 1953 Act calling upon the firm to show cause why the assessment already made for the period April 1, 1957, to March 31, 1958, should not be reopened. It is not relevant to the question arising for decision in this case and therefore not necessary to recount all that happened before August 31, 1965, on which date the Sales Tax Officer passed five orders, all against the dissolved firm: the first was a reassessment order for the year April 1, 1957, to March 31, 1958, on the ground that certain sales and purchases during that period had been concealed, and the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General Clauses Act, 1904, defines "person" in section 3(35) as including "any company or association or body of individuals, whether incorporated or not". This definition of "person" will include a firm which is a body of individuals "unless there is anything repugnant in the subject or context" as the opening words of section 3 of the Bombay General Clauses Act indicate. It is thus necessary to find out if there is any provision in the 1953 Act which repels the notion of a firm being a "person". In this case, as stated earlier, the firm was registered as a dealer both under the 1953 and 1959 Acts, but the question remains whether the registration certificate was legally for the benefit of the partners and not the firm as such. Section 5 of the 1953 Act provides, inter alia, that every dealer whose turnover exceeds the amount specified in the section is liable to pay tax under this Act on his turnover. Section 11 requires that a dealer carrying on business and liable to pay tax under the Act must apply for registration and get a certificate of registration from the prescribed authority. Section 11(6) provides that the prescribed authority shall cancel the registration of a dealer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x and who is an undivided Hindu family, an association or a club, society, firm or company or who carries on business as the guardian or trustee or otherwise on behalf of another person, shall within the prescribed period send to the prescribed authority a declaration in the prescribed manner stating the name of the person who shall be deemed to be the manager of such dealer's business for the purposes of this Act. Such declaration may be revised from time to time." This section requires every dealer who is liable to pay the tax and who is an undivided Hindu family, an association or a club, a society, a firm or a company to declare in the prescribed manner the name of the manager of such dealer's business. Section 24 thus makes it clear that a firm can be a dealer, and does not seem to be limited in its application to such firms that buy goods from or sell goods to their partners. Section 26(3) which is also relevant in this context provides that when "a firm liable to pay the tax is dissolved" or when an undivided Hindu family liable to pay the tax is partitioned, "such firm or family, as the case may be, shall be liable to pay the tax on the goods allotted to any partner or me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay the tax and the penalty (if any) remaining unpaid at the time of his retirement, and any tax due up to the date of retirement though unassessed at that date." In plain terms this section recognizes the liability of a firm to pay tax as distinct from the liability of its partners. Clearly, therefore, a firm can be a dealer also under the 1959 Act. The question that now remains to be answered is whether a firm as such continues to be liable to pay tax under these Acts even after its dissolution on its pre-dissolution turnovers. Section 15 of the 1953 Act provides, inter alia, that in the case of escaped assessment or under-assessment or assessment at a lower rate or where any deductions have been wrongly made from the turnover, the Collector may within the period specified in the section proceed to assess or reassess the amount of the tax due after serving a notice on the dealer concerned. This is a provision, it was argued, which shows that it is permissible to proceed against a dissolved firm because under the section the Collector can proceed to assess or reassess the amount of tax due within the prescribed period, and no exception has been made for firms which may have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that assessment or recovery proceedings may be initiated or continued against a firm as such even after its dissolution. A Full Bench of the Madras High Court in Sales Tax Officer v. K.M.S. Mari Chettiar [1975] 35 S.T.C. 148., held that section 19(3) of the Bombay Sales Tax Act, 1959, provides a procedure for assessing a defunct firm by deeming it as continuing to exist for purposes of assessment. This is what the Full Bench observed: "It seems to us that the expression 'whether such tax has been assessed before such dissolution but has remained unpaid or is assessed after dissolution' is clearly indicative of the fact that the legislature addressed its mind to assessment and collection of tax not only from an existing firm but also from a defunct firm in respect of its transactions when the firm existed. There can be no doubt that charge, assessment and collection, though they are all related, have got to be separately provided for. But such provision may be express or implied. The implication must be clear and the circumstances should warrant it to be necessary. The words 'is assessed after dissolution', to our minds, are not ambiguous and are capable of being understood as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall in respect of such liability apply to such person also, as if he were the dealer himself." Therefore all the provisions relating to the assessment or recovery of tax including provisions requiring service of notice on the assessee would, in the case of a dissolved firm, apply to the erstwhile partners and all proceedings intended against the firm must be taken against them. Neither the 1953 Act nor the 1959 Act contains any provision permitting assessment or recovery proceedings being taken against a dissolved firm. The cases cited at the Bar on this question may now be examined. The appellants' case rests on the decision of this court in State of Punjab v. M/s. Jullundur Vegetables Syndicate [1966] 17 S.T.C. 326 (S.C.); [1966] 2 S.C.R. 457. In this case the respondent-firm liable to pay sales tax under the East Punjab General Sales Tax Act, 1948, was dissolved before assessment was made. The Sales Tax Officer however proceeded to complete the assessment against the dissolved firm. The question therefore arose as to the statutory right of a taxing authority to assess a dissolved firm in respect of its pre-dissolution turnover. In the aforesaid Act, "dealer" was defined a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Provinces and Berar Sales Tax Act, 1947. It was contended before us on behalf of the respondents that though the 1953 Act and the 1959 Act contained no express provision permitting a dissolved firm to be taxed, it should be held that the Acts authorised such a course by necessary implication. In answer the appellants relied on A.V. Fernandez v. State of Kerala [1957] 8 S.T.C. 561 (S.C.); [1957] S.C.R. 837., in which it was held that if the revenue satisfies the court that the case falls strictly within the provisions of the law, then only the subject can be taxed and that no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter. This decision was followed by this court in Commissioner of Income-tax v. Provident Investment Company Ltd. [1957] 32 I.T.R. 190 (S.C.)., where it was held that in construing fiscal statutes and in determining the liability of the subject to tax, one must have regard to the strict letter of the law and the true legal position arising out of the transaction in question. Counsel for the respondents pointed out that this court in Gursahai Saigal v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the liability had arisen before the dissolution. I have already said that it is open to the legislature by a legal fiction to keep alive a dissolved firm for some definite purpose. I have also referred to the relevant provisions of the Acts, including those making the erstwhile partners liable for the dues of the dissolved firm. I have found no provision like section 189(1) of the Indian Income-tax Act, 1961, in these Acts, and nothing that expressly or by implication permits action against the dissolved firm itself. A dissolved firm may be equated with a dead person; both cease to be assessable units. The apprehension that the firm may be dissolved voluntarily in order to avoid liability should not, in my opinion, make any difference in principle; a man who takes his own life is in no worse position than one who dies of a natural cause, so far as the tax dues are concerned. As for aviodance of liability, it is up to the legislature that created the liability to prevent evasion. Section 19(3) of the 1959 Act which makes the erstwhile partners of a dissovled firm jointly and severally liable for the tax (including any penalty) due from the firm, was obviously enacted with tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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