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TMI Blog1968 (7) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... tnership firm, on 1st April, 1955, for a period of one year with option to renew the same. Thereafter from time to time under new tenders, by fresh leases, the factory continued to remain with the said lessee, viz. C.S.A. The last lease was executed on 30th April, 1963, for the period from 1st October, 1962, to 30th September, 1964. Under the said lease the factory was let out with machinery, plant and building and the lessee got the benefit of the trade marks and the quota rights of the lessor-company. The C.S.A. came into financial difficulties and it closed the factory on 31st March, 1964, and retrenched its employees on 2nd May, 1964. Thereafter insolvency proceedings started against C.S.A. and the C.S.A. under the supervision of the Court Receiver sold some of its goods. It appears that a portion of the goods to the tune of Rs. 32,751 had been purchased by the petitioner-firm. The company by a notice dated 11th April, 1964, terminated the lease even before its term expired on 30th September, 1964, under the power vested in it under the lease. The C.S.A. in pursuance thereof surrendered possession of the factory to the lessor-company on 15th April, 1964. The factory remained cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealer from the petitioner-firm in flagrant violation of section 19(4) of the Bombay Sales Tax Act, 1959, hereinafter referred to as "the Act". Section 2(11) defines a dealer as a person carrying on business of buying or selling goods in the State. Section 2(19) says that a person includes a firm. The charging section 3 makes every dealer, whose turnover either of all sales or of purchases exceeds the prescribed limit, liable to pay tax under the Act. This charging section is further extended by the special provision enacted in section 19, which provides for liability to pay tax in certain special cases. Section 19(1) deals with those cases where the dealer dies. Section 19(4) runs as under: "Where a dealer, liable to pay tax under this Act, transfers or otherwise disposes of his business in whole or in part, or effects any change in the ownership thereof, in consequence of which he is succeeded in the business or part thereof by any other person, the dealer and the person succeeding shall jointly and severally be liable to pay the tax (including any penalty) due from the dealer under this Act or under any earlier law, up to the time of such transfer, disposal or change, whether s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the factory. The C.S.A. accordingly handed over possession of the factory to the company on 15th April, 1964. The factory remained entirely idle from 1st April, 1964, to 1st November, 1964, i.e. for a period of seven months. These averments are not denied in the affidavit of the Sales Tax Officer. In para. 8 of his affidavit it is in terms admitted that Messrs C.S.A. having suffered a loss, their business was closed, and according to the petitioner their factory from 15th April, 1964, was surrendered to the original owner, i.e., the company. Even the respondent in his order in terms relies on the facts that the lessee had surrendered the factory to the lessor and the factory owner had in the new season given the factory on a fresh lease and, therefore, the factory was continuously in operation and the business could be considered as having continued. Even subsequently the respondent has mentioned that the question in the present case is regarding the two lessees, when the business of one lessee was over at the same place and another lessee has started business. He, therefore, became successor because the place of the factory, the name of the business, trade marks, quota rights e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould never be said that the petitioner-firm was a transferee of the whole or part of the business of running the factory, which right had already come to an end on 15th April, 1964, so far as the C.S.A. was concerned. In fact, the right to run its factory and to utilise its trade marks and quota rights was derived by the petitioner-firm by a lease-deed which was executed in its favour by the lessor-company on 2nd November, 1964. The business which the petitioner-firm started from 2nd November, 1964, on these premises was in consequence of the transfer of the leasehold rights made by the lessor-company, and it was not in consequence of any transfer from the C.S.A. The right to trade in these premises with the help of the same factory and its trade marks and quota rights was derived by the petitioner-firm not by any act of the C.S.A. which was liable to pay tax, but by the lease executed in its favour by the lessor-company on 2nd November, 1964. There was a complete hiatus for the period from 15th April, 1964, to 1st November, 1964. During that period the rights to this business of running this factory with its trade marks and quota rights remained vested in the company, which never ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by the firm of Shroff Parekh Co. In December, 1952, Shroff Parekh Co. transferred its business as a going concern to one Mrs. Kusum Mody, who in her turn transferred the business to the Sunways (India) Private Limited. On 2nd June, 1954, the Sunways (India) Private Limited transferred the business as a going concern to Messrs Parimal Brothers. On these facts at page 657 the Division Bench held that under section 26(1) the liability that is fastened on to the transferee of a business was the liability of the transferor in respect of the business transferred by him, and not the tax liability of the transferor in respect of the business transacted by himself. In view of the chain of transfers from one successor to another as a going concern of the same business, it was held that under section 26(1) the tax liability of Mrs. Mody was fastened on the Sunways (India) Private Limited on 26th November, 1953, and on 2nd June, 1954, when Sunways (India) Private Limited transferred the business to Parimal Brothers, the tax payable by the Sunways (India) Private Limited in respect of the business transferred by it, consisted of not only the tax liability of the period during which the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en over; (4) the treatment on transfer of the stock and debts of the transferor; (5) whether there was an interval in the carrying on of the trade as a result of the transfer." At page 974 their Lordships further pointed out that succession involved change of ownership; that is, the transferor went out and the transferee came in; it connoted that the whole business was transferred; it also implied that substantially the identity and the continuity of the business were preserved. Further proceeding at page 975 their Lordships pointed out that the tests of change of ownership, integrity, identity and continuity of a business had to be satisfied before it could be said that a person "succeeded" to the business of another. We must keep in mind section 19(4) wherein the word "business" is referred to along with even the part of the business. On the basis of this decision it was argued that the taxing authority had applied these relevant tests to determine succession and when these settled principles were applied to find out identity and continuity of the business, the decision that the petitioner-firm was successor could not be attacked in these proceedings, as it would be a questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aler liable to pay tax, viz., the C.S.A. The order of the taxing authority is, therefore, patently erroneous. The order could also be said to be completely lacking jurisdiction. The taxing authority could tax persons other than dealers by applying the extended provisions in section 19(4), only if the person concerned came within the scope of section 19(4). In the present case even though the two mandatory conditions required for attracting section 19(4) had not been fulfilled, in plain violation of section 19(4), the taxing authority proceeded to hold the petitioner-firm liable for sales tax dues of the predecessor-dealer, viz. C.S.A. This order of the taxing authority was, therefore, clearly without jurisdiction and ultra vires section 19(4) and in plain violation thereof. This is not a case where the taxing authority could be said to be exercising jurisdiction under the Act so that the taxpayer must be left to his ordinary remedy under the taxing statute. The case is clearly one of total lack of jurisdiction and also of a patent error of law and this Court would have the power and duty to interfere in such cases and grant relief to the citizen. In the result this petition must ..... X X X X Extracts X X X X X X X X Extracts X X X X
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