# [1967] 3 S.C.R. 661

- **Citation:** [1967] 3 S.C.R. 661
- **Court:** Supreme Court of India
- **Decided:** 1967-04-17
- **Bench:** J. C. Shah, S. M. Sikri, V. Ramaswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1967-3-s-c-r-661-3990
- **Pages:** 7

## Headnote

Madras General Sales Tax Act IX of 1939---<1. 19(1), (2) (c)-Whether purchaser of business of 'dealer' liable for arrears of sales-tax due
from dealer prior to ·amending Act I of 1959.
By a registered instrument dated October
5, 1956, the respondent
purchased the business carried on by a dealer as defined in. the Madras
General Sales Tax Act IX of 1939. The dealer had been assessed to 8'8les
tax in respect of his turnover for the years 1948-49 and 1949-50 and had
paid a part of the sales tax determined as due from him with the balance
amount remaining in arrears. The sales tax authorities. attempted to recover the arrears from the respondent as the purchaser of the business
and although he denied liability, his contention was overruled by the
Deputy Commercial Tax Officer. His appeal to the Board of Revenue
was also dismissed and he thereafter filed a Writ Petition under Art. 226
of the Constitutlon1 challenging the orders of· the C.T.O. and the Board.
A Single Bench or the High Court dismissed the appeal but a Division
Bench allowed a Letters Patent Appeal holding that Rule 21·A of the
Sales Tax Rules under which the arrears were sought to be recovered
from the respondent, was illegal and ultra vlres the Act.
In the appeal to the Supreme Court it was contended, Inter a/ia, on
behalf of the department (i) that Rule 21-A was valid having been made
in exercise of the rule making power granted to the State Government
under ss. 19(1) and 19(2)(c) of the Act whereby it could make rules
for the assessment to tax under the Act of businesses which were discontinued or the ownership of which had changed; (ii) that further more
under s. 10, the whole of the amount outstanding on the date of the default was charged on the property of the person liable to pay the tax;
therefore, in the present case, the business which was transferred to the
respondent was charged with the payment of sales tax and it was open
to the sales tax authorities to proceed against the a!l'lets of the business
for realillng the amount of sales tax due; and (iii) that upon a true construction of the registered Instrument dated October S, 1956, the respondent lll!dertoOk to pay all liabilities like sales tax Imposed in regard to
the business.
HELD : dismissing ihe appeal :
(i) Rule 21-A was beyond the rule making power of the State Government either under s. 19(1) or s. 19(2)(c) and was therefore ultra
vires the Act. [666 E-F]
Although by the amending Act I of 1959, an express provision was
inserted by which the transfer.ee of the business was made liable for the
arrears of sales tax due .from the transferor, there was no such provision
in the Act during the period covered by the present case.
[664 DJ
It is manifest that the person who purchases a business as a 'dealer'
.can be ~essed to sales tax only in respect of his turnover and under the
scheme of the charging provision of the Act, the purchaser of the busi-
SUPREME COURT REPORTS
[1967) 3 s.c.R.
ness has nothing to do with the sales effected by the seller of the business.
The turnover in respect of such sales remains. therefore, the turn ..
over of the transferor and not of the transferee.
[664 CJ
Although s. 19(2) (c) deals with the assessment to tax of businesses
which are discontinued or the· ownership of which has changed, in the
context and background of other sections of the Act, the word "assessment" used in para 19(2) (c) does not include the. power of recovering
tax assessed from a person other than the assessee.
[664 F-0; 66S B.Cl
Blldridus Duga v. CJ.,T., [1949] J.T.R. 209, 211; Chatluram v. C.l.T.
Biluir. 119471 F.C.R. 116; and Whitney v. Commi.isio11ers of Inland Revenue, 11926] A.C. 37, relied on.
(ii) S. JO of the Act as amended and sought to be relied upon had
not come into force until October 8. 1956; in the present case the registered instrument by which the business was transferred to the respondent
was dated October S, 1956 and the amended section therefore had no
application.
[666 Fl
(iii)

## Text

A
DEPUTY COMMERCIAL TAX OFFICER & ANR.
B
c
D
E
F
G
H
v.
SHA SUKHRAJ PEERAJEE
April 17, 1967
[J. C. SHAH, S. M. SIKRI AND V. RAMASWAMI, JJ.]
Madras General Sales Tax Act IX of 1939---<1. 19(1), (2) (c)-Whether purchaser of business of 'dealer' liable for arrears of sales-tax due
from dealer prior to ·amending Act I of 1959.
By a registered instrument dated October
5, 1956, the respondent
purchased the business carried on by a dealer as defined in. the Madras
General Sales Tax Act IX of 1939. The dealer had been assessed to 8'8les
tax in respect of his turnover for the years 1948-49 and 1949-50 and had
paid a part of the sales tax determined as due from him with the balance
amount remaining in arrears. The sales tax authorities. attempted to recover the arrears from the respondent as the purchaser of the business
and although he denied liability, his contention was overruled by the
Deputy Commercial Tax Officer. His appeal to the Board of Revenue
was also dismissed and he thereafter filed a Writ Petition under Art. 226
of the Constitutlon1 challenging the orders of· the C.T.O. and the Board.
A Single Bench or the High Court dismissed the appeal but a Division
Bench allowed a Letters Patent Appeal holding that Rule 21·A of the
Sales Tax Rules under which the arrears were sought to be recovered
from the respondent, was illegal and ultra vlres the Act.
In the appeal to the Supreme Court it was contended, Inter a/ia, on
behalf of the department (i) that Rule 21-A was valid having been made
in exercise of the rule making power granted to the State Government
under ss. 19(1) and 19(2)(c) of the Act whereby it could make rules
for the assessment to tax under the Act of businesses which were discontinued or the ownership of which had changed; (ii) that further more
under s. 10, the whole of the amount outstanding on the date of the default was charged on the property of the person liable to pay the tax;
therefore, in the present case, the business which was transferred to the
respondent was charged with the payment of sales tax and it was open
to the sales tax authorities to proceed against the a!l'lets of the business
for realillng the amount of sales tax due; and (iii) that upon a true construction of the registered Instrument dated October S, 1956, the respondent lll!dertoOk to pay all liabilities like sales tax Imposed in regard to
the business.
HELD : dismissing ihe appeal :
(i) Rule 21-A was beyond the rule making power of the State Government either under s. 19(1) or s. 19(2)(c) and was therefore ultra
vires the Act. [666 E-F]
Although by the amending Act I of 1959, an express provision was
inserted by which the transfer.ee of the business was made liable for the
arrears of sales tax due .from the transferor, there was no such provision
in the Act during the period covered by the present case.
[664 DJ
It is manifest that the person who purchases a business as a 'dealer'
.can be ~essed to sales tax only in respect of his turnover and under the
scheme of the charging provision of the Act, the purchaser of the busi-
SUPREME COURT REPORTS
[1967) 3 s.c.R.
ness has nothing to do with the sales effected by the seller of the business.
The turnover in respect of such sales remains. therefore, the turn ..
over of the transferor and not of the transferee.
[664 CJ
Although s. 19(2) (c) deals with the assessment to tax of businesses
which are discontinued or the· ownership of which has changed, in the
context and background of other sections of the Act, the word "assessment" used in para 19(2) (c) does not include the. power of recovering
tax assessed from a person other than the assessee.
[664 F-0; 66S B.Cl
Blldridus Duga v. CJ.,T., [1949] J.T.R. 209, 211; Chatluram v. C.l.T.
Biluir. 119471 F.C.R. 116; and Whitney v. Commi.isio11ers of Inland Revenue, 11926] A.C. 37, relied on.
(ii) S. JO of the Act as amended and sought to be relied upon had
not come into force until October 8. 1956; in the present case the registered instrument by which the business was transferred to the respondent
was dated October S, 1956 and the amended section therefore had no
application.
[666 Fl
(iii) It was not open to the State Government to rely on the lnstrumcn.t Inter v/vo.1· between the transferor and the transferee and to contend that there was any contractual
obligation between tho transferee
and the State Government who was not a party to tho instrument.
[667 B·
CJ
CrvrL APPELLATE JuR1so1cT10N : Civil Appeal No. 696 of
1966.
Appeal by special leave from the judgment and order dated
Sl!ptembcr 13, 1963 of the Madras High Court in Writ Appeal No.
10 of 1962.
A
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P. Ram Reddy and A. V. Rangam, for the appellant.
E
R. Gcmapathy l,yer, for the respondent.
The Judgment of the Court was delivered by
Ramaswami, J,
The question of law involved in this appeal
is whether the purchaser of business carried on by a dealer as defined in the Madras General Sales Tax Act, 1939 (Madras Act
F
No. lX of 1939), hereinafter called the 'Act', can be made liable
for arrears of sales-tax due from the dealer in respect of transactions of sale which took place before the transfer of the business
under Rule 21-A of the Rules framed in exercise of the powers
conferred on the State Government by s. 19 of the Act.
The respondent purchased, by a registered instrument dated
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October 5, 1956, the business carried on by one Purushottam
Raju under the name-All India Trading Company. Purushottam
Raju was the sole proprietor of the business and had been assessed
to sales-tax in respecu of his turnover for the years 1948-49 and
1949-50. The assessee paid some amounts towards sales-tax thus
~~'.e~~~n~-Ob~~r t~~%s~%~~i~~dR~~~~l~~~e-~sfo~f i5~l~:~i~ 4~~
U
Sales-tax authorities attempted to recover the arrears of tax from
the respondent as the purchaser of the business. The respondent
'
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C.T.O. v. SHA SUKHRAJ (Ramaswami, J.)
663
denied liability to pay sales-tax but his contention was over-ruled
by the Deputy Commercial Tax Officer. The respondent appealed
to the Commercial Tax Officer as well as to the Board of Revenue,
but the appeals were dismissed. The respondent thereafter moved
the Madras High Court under Art. 226 of the Constitution for the
issue of a writ in the nature of certiorari to quash the orders of the
Commercial Tail: Officer and the Board of Rev!nue. Ganapatia
Pillai, J. who heard the petition dismissed it. The respondent took
the matter in appeal under the Letters Patent. The Division Bench
consisting of S. Ramachandra Iyer, C.J. and Ramakrishnan, J. reversed the judgment of the Single Judge, holding that Rule 21-A
of the SalCs-T~ Rules was illegal and ultra vires and the respoadent was not liable to pay the sales-tax due from his predecessorin-title, Purttshottam Raju.
This appeal is brought, by special leave, from the judgment of
the Division Bench of the Madras High Court dated September
13, 1963 in, Writ Appeal No. 10 of 1962.
Rule 21-A was framed by the State Government under the rulemaking power granted to it under s. 19(1) and (2) of the Act.
Rule 21-A reads as follows:
"When the ownership of the business of a dealer liable
to pay the tax under the Act is entirely transferred, any
tax payable in respect of such business and remaining
unpaid at the time of the transfer shall be recoverable
from the transferor or the transferee as if they were the
dealers liable to pay such tax, provided that the recovery
.from the transferee of the arrears of taxes due prior to
the date of the transfer shall be only to the extent of the
value of the business he obtained by transfer. The transferee s)\all also be liable to pay tax under the Act on the
sales of goods effected by him with effect from the date
of such transfer and shall within thirty days of the transfer
apply for registration or licence, as the case may be,
unless he already holds a certificate of registration or
licence, as the case may be."
Section 19(1) and 19(2)(c) are to the following effect:
"19. (1) The State Government may make rules to
carry out the purposes of this Act.
. (2) In particula~ and without prejudice to the generality of the foregomg power, such rules may provide
for-· ............ ·.· ......................... .
(c) the assessment to tax u,nder this Act of businesses
which are discontinued or the ownership .of which has
changed;"
664
SUPRBMB COURT RBPORTS
(1967) 3 S.C.K.
The first question to be considered in this appeal is whether
Rule 21-A is intra vires of the power of the State Government
under ss. 19(1) and (2) of the Act. Section 3(1) of the Act is the
charging section. It imposes a liability to pay sales-tax on every
dealer for each year, and the tax is to be calculated on his total
turnover for that year. Section 2(b) of the Act defines a "dealer"
as "a person who carries on the business of buying, selling • • . •. •
. goods". The word "turnover" is defined in s. 2(i) of the Act to
. mean "the aggregate amount for which goods are either bought or
sold l!>y a dealer, whether for cash or for deferred payment or other
valuable consideration .... ".
It is manifest that a person who
' purchases a business as a 'dealer' can be assessed to sales-tax only
·in respect of his turnover and under the scheme of the charging
provision of the Act the purchaser of the business has nothing to
do with the sales effected by the seller of the business. The turnover in respect of such sales remains therefore the turnover of the
transferor and not of the transferee. By the amending Act of 1959
(Act I of 1959) an express provision was inserted by which the
transfer.ee of the business was made liable for the arrears of salestax due from the transferor. But there is no such provision in the
Act for the period with which we are concerned in the·present case.
The question is whether the State Government has authority under
its rule-making power under s. 19 of the Act to create a legal
fiction by which the transferee of the business is constituted as the
dealer liable to pay the tax in respect of the turnover of the transferor. On behalf of the appellants Mr. Ram Reddy suggested that
the State Government has power under s. 19(1) and 19(2) (c) of
the Act to frame the impugned rule. We are unable to accept this.
argument as correct. Section 19(1) of the Act empowers the State
Government to make rules to carry out the purposes of the Act,
but the section cannot be utilised to enlarge the scope of s. 1 O
regarding recovery and payment of tax from some other person
other than a "dealer" under the Act. We also consider that the
State Government has no authority under s. 19(2)(c) of the Act
to enact the rule.
Section 19(2)(c) deals with the assessment to
tax of businesses which are discontinued or the ownership of which
has changed. It is true that the word "assessment" in the scheme
of sales-tax and income-tax J.egislation is a term of varying import.
The word is used sometimes to mean the computation of income;
sometimes the determination of the amount of tax payable, and
sometimes the whole procedure laid down in the Income-tax Act
for imposing liability on the tax-payer. As the Judicial Committee, however, said in Badridas Daga v. C.l.T.( 1), the words 'assess'
and 'assessment' refer primarily to the computation of the amount
of income. In Chatturam v. C.I.T. Bihar(2 ), the Federal Court
pointed out, relying upon the decision of the House of Lords in
(I) [1949] l.T.R. 209, 211.
(2) [19471 F.C.R. 116.
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C.T.O. v. SHA SUKHRAJ (Ramaswami, J.)
665
Whitney v. Comm1'ssioners of Inland Revenue('), that the liability
to tax does not depend upon assessment. The liability is definitely
created by ss. 3 and 4 of the Income-tax Act which are the charging sections and the assessment order under s. 23 only quantifies
the liability which has already been definitely and finally created
by the charging sections and the provision in regard to assessment
relates only to the machinery of taxation. In our opinion, the
principle of these decisions applies to the interpretation of the
Act in the present case.
We consider that, in the context and
background of other sections of the Act, the word 'assessment'
used in s. 19(2)(c) does not include the power of recovering tax
assessed from a person other than the assessee. It follows therefore
that Rule 21-A is beyond the rule-making power of the State
Government either under s. 19(1) or s. 19(2)(c) of the Act. It
was then submitted by Mr. Ram Reddy that Rule 21-A may be
supported by the language of s. 10(1) of the Act which states:
"10. Payment and recovery of tax.-(1) The tax
assessed under this Act shall be paid in such manner and
in such instalments, if any, and within such time, as may
be specified in the notice of assessment, not being less
than fifteen days from the date of service of the notice.
If default is made in paying according to the notice of
assessment, the whole of the amount outstanding on the
date of default shall become immediately due and shall
be a charge on the properties of the person or persons
liable to pay the tax under this Act."
It was contended that under this section the whole of the amount
m1tstanding on the date of default is charged on the property of
the person liable to pay the tax. In the present case, the business
which was transferred to the respondent was hence charged with
the payment of sales-tax and it was open to sales-tax authorities
to proceed against the assets
of the business for realising the
amou~t of sales-tax due.. In our opinion, there is no justification
for this argument. Section 10 of the Act as it stood before the
Madras General Sales-tax (3rd amendment) Act, 1956 (Act No.
XV of 19 5 6) read as follows :
"The tax assessed under this Act shall be paid in
such ~anner and in such instalments, if any, and within
such time, as may be specified in the notice of assessment, not being less than fifteen days from the date of
service of the notice. In default of such payment, the
whole of the amount then remaining due may be recovered as if it were an arrear of land revenue."
This section was amended by s. 8 of the Madras General Salcstax (3rd amendment) Act, 1956 which reads as follows:
(I) [1926] A.C. 37.
666
SUPREME COURT REPORTS
[1967] 3 S.C.R.
"Substitution
of new section
for section
IO in
Madras Act IX of 1939.-For section 10 of the principal Act, the following section shall be substituted,
namely:-
"10. Payment and recovery of tait.-( 1) The tax
assessed under this Act shall be paid in such manner and
in such instalments, if any, and within such time, as may
be specified fn the notice of assessment, not being less
than fifteen days from the date of service of the notice.
If default is made in paying according to the notice of
assessment, the whole of the amount outstanding on the
date of default shall become immediately due and shall
be a charge on the properties of the person or persons
liable to pay the tax under this Act. ....... :-...... ; "
'~3-~ ·-:!:.
The 3rd Amendment Act, 1956 received the assent of the President on October 1, 1956 but it was published in the Madras
Gazette on October 8, 1956. Section 5 of the Madras General
Clauses Act (Madras Act No. 1 of 1891) provides as follows:
"5. (I) Where any Act to which this Chapter ap
plies is not expressed to come into operation, on a particular day, then, it shall come into operation on the day
on which the assent thereto of the Governor, the Governor-General or the President, as the case may require,
is first published in the Official Gazette."
In the present case, the Act is not expressed to come into oper11tion on any particular date, but as it was published in the Madras
Gazette on October 8, 1956, the Act came into operation on that
date and not before. In the present case, the registered instrument by which the business was transferred to the respondent is
dated October 5, 1956 and the amending Act has therefore no application.
We accordingly reject the argument of the appellants
on this aspect of the case and hold that Rule 21-A is ultra vires of
the rule-making power of the State Government under the Act.
It was next argued on behalf of the appellants that upon a true
construction of the registered instrument dated October 5, 1956
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the respondent undertook to pay not only Sch. I liabilities but also
other liabilities like sales-tax imposed in regard to the business. It
was, however, disputed by Mr. Ganapathy Iyer on behalf of the
respondent that there was any undertaking on the part of the resH
pondent to discharge the liabilities in regard to arrears of sales-tax.
But!)ven on the assumption that the respondent undertook to pay
the arrears of sales-tax due by the transferor, it does not follow
C.T.O. v SHA SUKHRAJ (Ramaswami, J.)
667
A
that there is a liability created inter se between the State Govern·
menL on the one hand and the transferee on the other hand. To
put it differently, it is not open to the State Government to rely
. on the instrwnent inter vivas between the transferor and the transferee and to contend that there is any contractual obligation between· the transferee and the State Government who is not a party
B
to the instrument. We accordingly reject the argument of the apc
pellants on this aspect of the case also.
For these reasons we hold that the judgment of the Division
Bench of the High Court dated September 13, 1963 is correct and
this appeal must be dismissed with costs.
R.K.P.S.
Appeal dismissed.