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TMI Blog1991 (7) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... y 14, 1976, the above referred firm was the sole proprietary business and it was being carried on by the sole remaining partner, namely, Prabhashankar Joshi. The petitioner had joined the said Prabhashankar Joshi as a partner with effect from May 14, 1976, as a result of which the sole proprietary concern, namely, Energy Electrical Corporation came to be converted into, once again, a partnership firm on the joining of the petitioner as a partner with effect from May 14, 1976. On August 26, 1976, the said Prabhashankar Joshi retired from the partnership business and thereafter, the present petitioner has become the sole owner of the business. The notice of recovery which is being challenged by the present petitioner in the petition is for an amount of Rs. 59,112 and it pertains to the period before the petitioner joined the abovesaid business. The notice regarding the recovery which is being challenged is at annexure A dated September 2, 1985, and calls upon the present petitioner to pay the amount mentioned therein. It is not in dispute that the abovesaid recovery or demand is in respect of the sales tax dues of the business for the period before the petitioner had joined the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that three partners had retired and Prabhashankar Joshi had remained as a sole proprietor it does not appear to be in consonance with the legal position. It appears that the three other partners had gone out of the partnership business, and therefore, there was a dissolution of the partnership business. Anyhow in the present petition we are not concerned with the abovesaid nicety regarding the dissolution of a partnership business or the retirement of the partners. But the fact remains that some time in January, 1971, the three partners had walked out of the business and Prabhashankar Joshi was in charge of the business. The third part which is not in dispute is that the present petitioner has joined the business on May 14, 1976. It can be said that the business which was being carried on by Prabhashankar Joshi as the sole proprietor was converted into a partnership business. The partnership was constituted of two persons, namely, Prabhashankar Joshi and the present petitioner, which came into existence on May 14, 1976. The fourth fact which is not again in dispute is the fact that Prabhashankar Joshi had retired with effect from August 26, 1976. In other words Prabhashankar Joshi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the business with effect from August 26, 1976. From the sequence of the transactions as noticed above it becomes clear that the business which was being run in the name of M/s. Energy Electrical Corporation was sought to be transferred to the present petitioner and the desired effect has been brought about by the abovesaid three transactions. Section 26(4) of the Act speaks of the transfer of the business in whole or in part by sale, lease, leave or licence, hire or "in any other manner whatsoever". Looking to the abovesaid sequence of transactions it becomes clear that there is a transfer of business which would fall within the meaning of "in any other manner whatsoever" as envisaged by the provisions contained under section 26(4) of the Act. Mr. Pathak, learned counsel who appears on behalf of the petitioner, has placed heavy reliance upon the Supreme Court decision in Sunil Siddharthbhai v. Commissioner of Income-tax [1985] 156 ITR 509. In that decision before the Supreme Court a partner of the firm had made over capital assets which were held by him to a firm as his contribution towards the capital. The question was as to whether there was a transfer of capital assets within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken into regard when the Income-tax Officer enters upon a scrutiny of the transaction, for, in the task of determining whether a transaction is a sham or illusory transaction or a device or ruse, he is entitled to penetrate the veil covering it and ascertain the truth." Therefore the Supreme Court has stated very clearly that the income-tax authority while considering the question as to whether a transaction is a sham or a device or ruse, is entitled to penetrate the veil covering it and ascertain the truth. The abovesaid observation made by the Supreme Court would lend support in our effort to find out from the abovesaid documents the real purpose and intent of the parties who had entered into the transaction. The reliance was also sought to be placed on the Gujarat High Court decision in New Saurashtra Vanaspati Co. v. B.A. Maharaja, Sales Tax Officer [1969] 24 STC 92. In that decision, before the Bench of this High Court the question was regarding the liability of the petitioner and the question was as to whether he could have been said to have succeeded to the business which was being carried on by some other firm. The facts are entirely different. One limited company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , at page 3, in which it has been stated very clearly that the partnership had come into existence in the year 1965 and the partnership business was known as Energy Electrical Corporation and that three partners had retired therefrom and Prabhashankar Joshi had continued the said business as the sole proprietary concern. These averments which find place in para 4.2 of the petition go to show clearly without any manner of doubt that the business was transferred or was taken over by Prabhashankar Joshi when the three partners had walked out of the business. In the same way in the very next para, that is, para 4.3 of the petition the petitioner has further stated that the petitioner had joined the said Prabhashankar Joshi as a partner with effect from May 14, 1976, as a result thereof the sole proprietary concern came to be converted into a partnership business on the joining of the petitioner as a partner therein with effect from May 14, 1976. At para 4.12 also once again the petitioner has stated that the petitioner wanted to start a new business and therefore the petitioner stopped the said proprietary concern in 1980 which he continued right from August 26, 1976. A joint reading o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not concerned with the other eventualities which are also taken care of by the provisions contained under section 26 of the Act. But sub-section (4) of section 26 of the Act clearly speaks of the eventuality which arise in case of a transfer of a business in whole or in part. When such a question arises the provisions contained under section 26(4) of the Act of 1969 would have precedence over the general provisions contained under section 31 of the Indian Partnership Act, 1932. In view of this position the abovesaid contention raised by Mr. Pathak also cannot be accepted. The conclusion therefore is that by the series of transactions there is a transfer of the business which was being run in the name of M/s. Energy Electrical Corporation to the present petitioner within the meaning of section 26(4) and, therefore, the petitioner would not be in a position to successfully challenge the notice of recovery or demand which is at annexure A. The petition therefore fails and requires to be dismissed. The petition is, therefore, accordingly dismissed. The ad interim relief, if any, operative up to date shall stand vacated. Rule discharged. Petition dismissed. - - TaxTMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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