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PETITIONER: STATE OF PUNJAB

       Vs.

RESPONDENT: M/S.  JULLUNDER VEGETABLES SYNDICATE

DATE OF JUDGMENT: 01/11/1965

BENCH: WANCHOO, K.N. BENCH: WANCHOO, K.N. SUBBARAO, K. SUBBARAO, K. SHAH, J.C. SIKRI, S.M. GAJENDRAGADKAR, P.B. (CJ) HIDAYATULLAH, M. SHAH, J.C. SIKRI, S.M.

CITATION:  1966 AIR 1295            1966 SCR  (2) 457  CITATOR INFO :  R          1976 SC 313  (10,12,13,19,50,51,52,53)  RF         1976 SC2372  (2)  R          1979 SC1588  (6)  D          1985 SC1143  (3,5)

ACT: East  Punjab General Sales Tax Act (46 of 1948), s.  16  and East Punjab General Sales Tax Rules, 1949, r. 40--Assessment of  dissolved  firm  with  respect  to  its   predissolution turnover--Validity.

HEADNOTE: The  respondent firm was assessed to sales-tax in  1953  but the  order  was  set aside by  the  Financial  Commissioner, because,  the  authority  who made  the  assessment  had  no jurisdiction to do so.  Fresh proceedings we’re then started for assessment, but the respondent firm was dissolved before the  proceedings  were  initiated.   The  Sales-tax  Officer however  however made the assessment.  The turnover and  tax were  reduced on appeal and the Financial  Commissioner,  in revision, confirmed the appellate order.  But the High Court on  a  -reference, held in favour of the respondent  on  the ground  that a firm was a separate assessable  entity  under the  Act and that there was no machinery provided under  the Act for assessing a firm after its dissolution in respect of its turnover of business before the dissolution. In appeal to this Court, HELD  :  The  High  Court was  right  in  holding  that  the assessment  order  on  the  dissolved  firm  could  not   be supported under the provisions of the Act. [464 E] Though  under  the  partnership law a firm is  not  a  legal entity, for the purposes of sales-tax, under the Act, it  is a  legal  entity.  If that be so, on dissolution,  the  firm ceases  to  be a legal entity.   Thereafter,  on  principle, unless  there  is  a  statutory  provision  permitting   the

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assessment of a dissolved firm, there is no longer any scope for  assessing  the  firm  which ceased  to  have,  a  legal existence.  There is no provision in the Act, as it stood in 1953 expressly empowering the assessing authority to  assess a  dissolved  firm  in respect of its  turnover  before  its dissolution.   Neither  s. 16 of the Act, nor r. 40  of  the Rules  made  thereunder,  provide for the  assessment  of  a dissolved  firm  and the provisions of the  Partnership  Act have  no bearing on the question of assessment. [461 G;  462 C-D, F, G, H] As  in the present case, admittedly the firm  was  dissolved before the order of assessment was made, the said order  was bad  and  it made no difference whether the  proceeding  was initiated before the dissolution or thereafter. [462 E] Jagat Behari Tandon v. The Sales Tax Officer, Etawah, (1955) 6  S.T.C.  125, Lalji v. The Assistant  Commissioner,  Sales Tax,  Raipur,  (1958) 9 S.T.C. 571, R. D. Fernandez  In  re. (1957) 8 S.T.C. 368 and Ponnuswami Gramani v. The  Collector of Chingleput District, (1960) 11 S.T.C. 80, disapproved.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 588 of 1964. 4 58 Appeal from the judgment and order dated February 6, 1962 of the Punjab High Court in Sales Tax Reference No. 1 of 1959. K.   S. Chawla and R. N. Sachthey, for the appellant. M.   S. Gupta, for the respondent. The Judgment of the Court was delivered by Subba  Rao,  J. This appeal on a certificate issued  by  the High  Court  of  Punjab at Chandigarh  raises  the  question whether  a firm could be assessed to sales-tax after it  was dissolved. The  facts  may  briefly  be  stated.   Messrs.    Jullunder Vegetables Syndicate was a firm doing business in  Jullunder from October 4, 1952 to July 11, 1953.  It was dissolved  on July 11, 1953.  An intimation of the dissolution of the firm under S. 16 of the East Punjab General Sales Tax Act,  1948, hereinafter  called the Act, was sent to the  Department  on July  18, 1953.  The firm was assessed to sales-tax  on  May 30,  1953, by the Sales-tax Officer under the provisions  of the  Act in respect of its turnover for the  period  between October 4, 1952 and March 31, 1953; but the said  assessment order  was quashed on April 11, 1955, by the Financial  Com- missioner  on the ground that the authority which  made  the assessment  had no jurisdiction to do so.  On  September  3, 1955,  the Sales-tax Officer made a fresh assessment on  the turnover  of the said firm.  Its taxable turnover was  fixed at Rs. 15,04,091-11-3 and was assessed to sales-tax in a sum of Rs. 47,002-14-0.  It is not clear from the record whether after   the  order  of  the  Financial  Commissioner   fresh proceedings  were  initiated  by the  Sales-tax  Officer  or whether the earlier proceedings initiated by him before  the dissolution of the firm were continued thereafter.  But from the  question formulated for the decision of the Full  Bench of  the  High  Court, which is the  subject-matter  of  this appeal,  it appears that the firm was dissolved  before  the proceedings for the assessment were initiated.  The frame of the question indicates that after the order of the Financial Commissioner  quashing the original order of  assessment  on the ground that the assessing authority had no jurisdiction, fresh  proceeding  were stated for  assessment.   We  shall, therefore,  proceed to consider the question raised  in  the appeal on that assumption.  On appeal, the Deputy Excise and

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Taxation Commissioner, by his order dated October 20,  1956, reduced  the  figure of turnover  and  also  correspondingly reduced  the  tax payable to a sum of Rs.  30,049-12-0.   On revision,   the   Financial  Commissioner,   rejecting   the contention of the firm that the assessment proceedings could not be taken against a firm after its dissolution, confirmed the assess- 4 5 9 ment.   At  the  instance  of  the  assessee  the  following question  was  referred to the High Court for  its  decision under S. 22 of the Act               "Whether  a  partnership  firm,  which  is   a               registered  firm under the provisions  of  the               Punjab   Sales  Tax  Act  and  which  was   in               existence  throughout  the  period  for  which               assessment of sales tax has to be made, ceased               to  be  liable to the said assessment  by  the               mere  fact  that it has dissolved  before  the               proceedings for assessment are initiated." A Full Bench of the Punjab High Court answered the  question in  the  affirmative.  The main reason given by it  for  its decision  was that a firm was a separate  assessable  entity under the Act and that there was no machinery provided under the  Act  for  assessing a firm  after  its  dissolution  in respect  of  its  turnover  of  business  before  the   said dissolution.   The State of Punjab, on a certificate  issued by the High Court, has preferred the present appeal to  this Court. Mr.  K.  S. Chawla, learned counsel for  the  State,  raised before us the following points : (1) a firm under the Act is not  a separate legal entity and, therefore,  an  assessment thereunder  can  be  made  on  the  group  of  partners  who constituted the firm before it was dissolved; (2) even if it was  a separate assessable unit, dissolution of a firm  does not  put  an end to its liability for  assessment  till  its registration  certificate  is cancelled by  the  appropriate authority; (3) the High Court proceeded on a misapprehension that the assessment proceedings were initiated afresh  after the  order  of the assessing authority was  quashed  by  the Financial Commissioner, but in fact after the said order  of the  Financial  Commissioner,  the  assessment   proceedings started  before the dissolution of the firm were  continued. On  that  assumption,  the  argument  proceeded,  that   the proceedings   validly  started  against  a  firm  could   be continued though the said firm was dissolved and the  notice of such a dissolution was given to the appropriate authority till the registration of the firm was cancelled. Mr.  M.  S. Gupta, learned counsel for the  firm,  contended that a firm under the Act, just like a firm under the Indian Income-tax  Act, was a separate assessable legal entity  and that,  unlike  under  the  Income-tax  Act,  there  was   no machinery  provided under the Act for making the  assessment on such a firm after its dissolution and that,  irrespective of the fact whether the proceedings were initiated before or after its dissolution, the assessing authority had no  power or jurisdiction to assess the firm after such a dissolution. He  further argued that in the present case the  High  Court proceeded on the assumption that the assessment  proceedings were started 460 denovo  after the order of the Financial  Commissioner  and, therefore,  this  Court should not permit the  appellant  to contend  that  the  assessment  proceedings  were  only  the continuation of the earlier proceedings, particularly in the absence  of any material on the record supporting  the  said

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fact. Before  we  advert  to  the rival  contentions  it  will  be convenient  to  clear the ground.  It is a settled  rule  of construction that in interpreting a fiscal statute the court cannot  proceed to make good the deficiencies, if  there  be any,  in the statute : it shall interpret the statute as  it stands  and  in case of doubt, it shall interpret  it  in  a manner  favourable  to the tax payer: see  C.A.  Abraham  v. Incometax  Officer,  Kottayam(1).  In considering  a  taxing Act, the court is not justified in straining the language in order to hold a subject liable to tax. We  are  concerned in this appeal with the question  of  the statutory  right of a taxing authority under the  provisions of the Act to assess a dissolved firm in respect of its pre- dissolution turnover.  That question falls to be decided  on the  relevant provisions of the Act.  The provisions of  the Indian Partnership Act regulating the relationship  -between the  partners  and their liability to  third  parties  have, except  in  so far as those provisions are expressly  or  by necessary implication incorporated in the provisions of  the Act, no relevance to the present appeal.  The question  also falls to be decided on the provisions of the Act as it stood in 1953.  Further, we cannot discover any distinction in the matter  of assessability of a dissolved firm between a  case where  the proceedings were initiated before and that  after the  said  dissolution.   We shall  proceed,  therefore,  to consider the question irrespective of that distinction.               The relevant provisions of the Act may now  be               read               Section  2.  In  this  Act,  unless  there  is               anything repugnant in the subject or; context-               (d)   "dealer" means any person, firm or Hindu               joint   family,engaged  in  the  business   of               selling    or   supplying   goods   in    East               Punjab;..........               Section  4. (1) Subject to the  provisions  of               sections  5  and 6, every dealer  whose  gross               turnover during the year immediately preceding               the  commencement  of this  Act  exceeded  the               taxable  quantum  shall be liable to  pay  tax               under this Act on all sales effected after the               coming into force of this Act.               (1)   [1961] 2 S.C.R. 765                461               Section  7. (1) No dealer shall,  while  being               liable  to  pay tax under this Act,  carry  on               business  as  a  dealer  unless  he  has  been               registered   and  possesses   a   registration               certificate.               Section  16.   If  any  dealer  to  whom   the               provisions  of sub-section,(2) of  section  10               apply-               (b)   discontinues his business or changes his               place  of  business or opens a  new  place  of               business, he shall within the prescribed  time               inform  the prescribed authority  accordingly;               and  if  any  such  dealer  dies,  his   legal               representatives  shall in like  manner  inform               the said authority.               Section   17.   When  the  ownership  of   the               business    of   a   registered   dealer    is               transferred,  any  tax payable in  respect  of               such business remaining unpaid at the time  of               the   transfer   shall  be  payable   by   the               transferee as if he was the registered dealer;

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             and the transferee shall within 30 days of the               transfer apply for registration under  Section               7.               Rule  40 of the East Punjab General Sales  Tax               Rules, 1949, reads               (1)   A  dealer  and his partner  or  partners               shall be jointly and severally responsible for               payment of the tax penalty, or any amount  due               under the Act or these rules. The scheme of the Act is a simple one.  A firm is a  dealer; the said dealer is assessable to tax on its turnover, if its turnover  exceeds  the  prescribed  limit.   It  cannot   do business while being liable to pay tax under the Act without getting  itself  registered and  possessing  a  registration certificate.   It is assessed to tax under s. 11 of the  Act in the manner prescribed thereunder.  If it discontinues its business, it shall within the specified time inform the pre- scribed  authority accordingly.  A dealer and  its  partners are  jointly  and  severally  responsible  to  pay  the  tax assessed on the dealer.  But there is no provision expressly empowering  the  assessing authority to assess  a  dissolved firm in respect of its turnover before its dissolution.  The question  is  whether  such  a  power  can  be  gathered  by necessary implication from the other provisions of the Act. The  first  question  is  whether  a  firm  is  a   separate assessable entity for the purposes of the Act or whether  it is  only  a  compendious  term used to  denote  a  group  of partners.   The  definition  of  "dealer"  takes  in   three categories of assessable units, namely, person, 462 firm  or  a  Hindu Joint family.  The  substantive  and  the procedural  provisions  of  the Act prescribe  the  mode  of assessment  and  realization of the tax assessed on  such  a dealer.  If we read the expression "firm" in substitution of the  word  "dealer", it will be apparent that a firm  is  an independent  assessable  unit for the purposes of  the  Act. Indeed, a firm has been given the same status under the  Act as  is given to it under the Income-tax Act.  Under S. 3  of the Income-tax Act "firm" is treated as a unit of assessment and as a distinct   assessable  entity.   Though  under  the partnership law a firm is not a   legal  entity   but   only consists of individual partners for the time being, for  tax law, income-tax as well as sales-tax, it is a legal  entity. If  that be so, on dissolution, the firm ceases to be  be  a legal  entity.  Thereafter, on principle, unless there is  a statutory provision permitting the assessment of a dissolved firm,  there is no -longer any scope for assessing the  firm which  ceased to have a legal existence.  As in the  present case, admittedly, the firm was dissolved before the order of assessment was made, the said order -was bad. In this context, as we have stated earlier, there cannot  be a  distinction on principle between an assessment made on  a firm  under ,a proceeding initiated before  the  dissolution and that made in a proceeding started after the dissolution. In  either  case, unless there is an express  provision,  no assessment  can  be  made  on a  firm  which  has  lost  its character as an assessable entity. To  get over this legal position, a strong plea was made  on the  basis  of S. 16 of the Act.  Section 16, so far  as  is relevant to the present enquiry, only says that if a  dealer discontinues  his business, ’it shall within the  prescribed time  inform  the prescribed  authority  accordingly.   This section  does  not  expressly state that  a  dealer,  if  it happens to be a firm, continues to have legal existence even if it has ceased to be a firm.  Nor does the section  permit

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a  necessary implication to that effect.  It serves  only  a limited purpose.  It is enacted for administrative  purposes so  that  the appropriate authority may take  the  necessary action. Nor  does r. 40 of the East Punjab General Sales Tax  Rules, 1949, carry the matter further.  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  provision of the Partnership Act can  possibly  be called  ’in  aid  to resuscitate a dissolved  firm  for  the purpose of assessment.  463 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. The decisions cited at the Bar reflect conflicting views  on the  question.  We have carefully gone through them.  It  is enough it we briefly touch upon them. The Allahabad High Court in Jagat Bahari Tandon v. The Sales Tax  Officer,  Etawah(1)  maintained  the  assessment  of  a dissolved  firm  on the ground that it was  not  a  separate entity.   The  Madhya  Pradesh High Court in  Lalji  v.  The Assistant Commissioner, Salestax, Raipur (2 ) relied upon S. 17 of the C.P. and Berar Sales Tax Act, 1947, similar to  S. 16  of the present Act, to sustain the continuity of a  firm as a legal entity till a notice contemplated by that section was  given.   The Madras High Court in R.  D.  Fernandes  in re(1)  relied upon the provisions of the Partnership Act  to reach the desired end.  The Punjab High Court in Khushi  Ram Behari  Lal  & Co. v. The Assessing Authority Sangrur  (4  ) distinguished the Full Bench decision, which is the  subject matter  of the present appeal before us, on the ground  that the  dissolution of the firm in the case before it was  long after  the assessment proceedings were initiated.   It  also relied upon S. 16 of the Act to support its conclusion  that the  liability of the firm continued till  the  registration was cancelled.  It may also be noticed that the question  in that  case  arose after the amended definition  wherein  the expression "firm" was omitted.  The Madras High Court in  R. Poonuswami Gramani v     :   The  Collector  of   Chingleput District(1) followed the earlier decision of that Court; and it  does  not contain any reasoning on  the  question.   The Bombay  High  Court in Bankatlal Badruka v.  The,  State  of Bombay (1)based its conclusion only on the circumstance that the  notice  of  dissolution under r. 35  of  the  Hyderabad General  Sales  Tax Rules’ 1950, was not  given  before  the assessment.  The Orissa High Court in Commissioner of Sales- tax,  Orissa v. Aurbinde Auto Service(7) also sustained  the assessment after dissolution inter alia, on the ground  that no  notice of dissolution was given under s. 18 (b)  of  the Orissa  Sales Tax Act, 1947, read with r. 14 of  the  Orissa Sales  Tax  Rules,  1947.   But the  main  reason  for  that decision was based upon s. 19(3) of the Orissa Sales Tax Act      (1) [1955] 6 S.T.C. 125       (2) [1958] 9 S.T.C. 571      (3) [1957] 8 S.T.C. 368       (4) [1954] 15 S.T.C. 165      (5) [1960] 11 S.T.C. 80.      (6) [1961] 12 S.T.C. 405,      (7)  [1963] 14 S.T.C. 46. L2Sup.CI/66-16 464

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which  is  pari materia with S. 44 of  the  Income-tax  Act, which has been construed by this Court to confer a power  on the  assessing  authority to make such an  assessment.   All these  decisions,  if  we  may say  so  with  respect,  were overburdened   with   the   consequences   of   a   contrary construction on the incidence of taxation and also by  their mixing up the question of the statutory power of assessing a dissolved firm with the liability of the partners thereof to pay the tax so assessed on the firm before dissolution.  For the reasons we have already given earlier, we cannot  accept the validity of the reasons given in the said judgments  for maintaining an assessment ,on a dissolved firm, whether  the proceedings  were  initiated before or after  the  firm  was dissolved. Strong reliance was placed upon two judgments of this Court. This   Court  in  C.  A.  Abraham  v.  Income-tax   Officer, Kottayam(1),  speaking through Shah, J., held that S. 44  of the Income-tax Act set up a machinery for assessing the  tax liability  of firms which have discontinued their  business. This  was  followed by this Court again in  Commissioner  of Income-tax,  Madras v. S. V. Angidi Chettiar(2).  These  two decisions are of no help to the Revenue in the present case. Indeed, in a sense they are against it.  The Income-tax  Act contains  an  express provision for  assessing  a  dissolved firm.  Indeed, but for that provision no assessment could be made under that Act on dissolved firms. For  the foregoing reasons we hold that the High  Court  was right in holding that the assessment order on the  dissolved firm could not be supported under the provisions of the Act. The  High Court has given a correct answer to  the  question propounded for its decision. In the result, the appeal fails and is dismissed with costs. Appeal dismissed. (1) [1961] 2 S.C.R. 765         (2) [1962] 44 I.T.R. 739. 465