# [1976] 1 S.C.R. 689

- **Citation:** [1976] 1 S.C.R. 689
- **Court:** Supreme Court of India
- **Decided:** 1975-09-05
- **Case number:** Civil Appeal No. 1802 of 1970
- **Bench:** Y. V. CllANDRACHUD, R. S. Sarkaria, A. C. ()Upta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1976-1-s-c-r-689-6659
- **Pages:** 26

## Headnote

Bombay Sales Tax Act, 1953, Sections 2(6), 5, 11(5), 14(3), 15, 15A,
24, 26(3) (i), 26{3) (ii) and 35 and Bombay Sales Tax Act, 1959,
Sections
2(11), 2(19), 19(3), 35, 35A and 62 and Bombay G•neral Clauses Act, 1904,
Section 3(35)-Assessment and re-assessment to sal.es tax of pre-dissolution
turnover of the dissolved firm-Assessment .and re-assessment, if without ju1isdiction.
The first appellant was a partnership finn constituted under a deed of part•
nersbip dated December 3, 1953. The· firm was registered as a dealer under
the Bombay Sales Tax Acts of 1953. and 1959. The finn consi.sted of five
partners appellan1s two to five and one other who died in 1965. The finn used
to carry on business at Bombay as importers and commission agents and also
as wholesale dealers in chemicals. dyes and various other goods.
It had been
assessed by the Sales Tax authorities for the· period from July, 1953 to ·March
31, 1958 on the basis of the returns filed by it. Qn Nowmber 10, 1960, the
Sales Tax Officer seized ·a number of documents from the office of the firm.
On May 20, 1962, the firm was dissolved. On June 26, 1962 the Sales Tax
Officer cancelled the firm's registration certfficate 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 tho firm had surrendered. On
November 20, 1963, the Sales Tax Officer issued two notices to the firm, one
asking for elucidation of certain itenlS in the books of accounts seized, and
the other underi sec. 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, 19i58
should not be opened. On August 31, 1965. the Sales Tax Officer passed five
orders, all against the dissolved. firm : the first ·was a re-assessment order for
the year April 1, 1957 to· March 31, 1958 on the ground that certain s::,i.les and
purchases during that period
had been concealed and the other four were
assessment orders for subsequent years covering the· period from April 1. 1958
to March, 1961. On these five· orders a total sum of Rs. 6,561365 /47p. was
found ·due from the firm. On October 22, 1965, the demand notices is.sued
upon these assessment orders. all in the· name of the dissolved firm, were
affixed to the· premises in which the firm had its office before it was dissolved.
On November 24, 1965, the appellants filed a writ petition in the High
Court of Bombay cha11enging the orders of re-assessment and assessment on
various Q"ounds. 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 Jaw was followed
in the assessment proceedings and whether the orders were justified on merits.
The Dnly -question which tire· 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 19'53 and 1959, it was permissible to assess
a dissolved firm,
Dismissing the appeal by special leave,
HEW : (per Chandrachud and Sarkaria, JJ.)
(i) In Jul/under Vegetables Syndicate case, [1966] 2 S.C.R. 457 this Court·
held: (1) A dissolved firm cannot be assessed to sales. tax unless the statUte
under which the assessment is rriade authorises the a~S&inent either expressly or
by necessary implicatfon; (2) If, -by definition, a firm is a dealer under an Act,
it beoomes a legal entity or an indeP'~ndent assessable unit for the purposes
of that Act. If that be so, the firm ceases to be a legal entity Qn dissolution
690
SUPREME COURT REPORTS
[1976] I S.C.R.
and thereafter, on principle it cannot be assessed to sales tax unless the statute
so a.u!horises express!¥ or by necessary implication; (3) Neither a prov

## Text

_Characters 0–39,877 of 85,578. This is a partial read: ask again with offset=39877 for what follows._

A
..
B
c
D
F
•
G
H
689
MURARILAL MAHABIR PRASAD & ORS.
·1·.
SHRI B. R. V AD & ORS .
September 5, 1975
[Y. V. CllANDRACHUD, R. S. SARKARIA AND A. C. ()UPTA, JJ.]
Bombay Sales Tax Act, 1953, Sections 2(6), 5, 11(5), 14(3), 15, 15A,
24, 26(3) (i), 26{3) (ii) and 35 and Bombay Sales Tax Act, 1959,
Sections
2(11), 2(19), 19(3), 35, 35A and 62 and Bombay G•neral Clauses Act, 1904,
Section 3(35)-Assessment and re-assessment to sal.es tax of pre-dissolution
turnover of the dissolved firm-Assessment .and re-assessment, if without ju1isdiction.
The first appellant was a partnership finn constituted under a deed of part•
nersbip dated December 3, 1953. The· firm was registered as a dealer under
the Bombay Sales Tax Acts of 1953. and 1959. The finn consi.sted of five
partners appellan1s two to five and one other who died in 1965. The finn used
to carry on business at Bombay as importers and commission agents and also
as wholesale dealers in chemicals. dyes and various other goods.
It had been
assessed by the Sales Tax authorities for the· period from July, 1953 to ·March
31, 1958 on the basis of the returns filed by it. Qn Nowmber 10, 1960, the
Sales Tax Officer seized ·a number of documents from the office of the firm.
On May 20, 1962, the firm was dissolved. On June 26, 1962 the Sales Tax
Officer cancelled the firm's registration certfficate 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 tho firm had surrendered. On
November 20, 1963, the Sales Tax Officer issued two notices to the firm, one
asking for elucidation of certain itenlS in the books of accounts seized, and
the other underi sec. 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, 19i58
should not be opened. On August 31, 1965. the Sales Tax Officer passed five
orders, all against the dissolved. firm : the first ·was a re-assessment order for
the year April 1, 1957 to· March 31, 1958 on the ground that certain s::,i.les and
purchases during that period
had been concealed and the other four were
assessment orders for subsequent years covering the· period from April 1. 1958
to March, 1961. On these five· orders a total sum of Rs. 6,561365 /47p. was
found ·due from the firm. On October 22, 1965, the demand notices is.sued
upon these assessment orders. all in the· name of the dissolved firm, were
affixed to the· premises in which the firm had its office before it was dissolved.
On November 24, 1965, the appellants filed a writ petition in the High
Court of Bombay cha11enging the orders of re-assessment and assessment on
various Q"ounds. 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 Jaw was followed
in the assessment proceedings and whether the orders were justified on merits.
The Dnly -question which tire· 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 19'53 and 1959, it was permissible to assess
a dissolved firm,
Dismissing the appeal by special leave,
HEW : (per Chandrachud and Sarkaria, JJ.)
(i) In Jul/under Vegetables Syndicate case, [1966] 2 S.C.R. 457 this Court·
held: (1) A dissolved firm cannot be assessed to sales. tax unless the statUte
under which the assessment is rriade authorises the a~S&inent either expressly or
by necessary implicatfon; (2) If, -by definition, a firm is a dealer under an Act,
it beoomes a legal entity or an indeP'~ndent assessable unit for the purposes
of that Act. If that be so, the firm ceases to be a legal entity Qn dissolution
690
SUPREME COURT REPORTS
[1976] I S.C.R.
and thereafter, on principle it cannot be assessed to sales tax unless the statute
so a.u!horises express!¥ or by necessary implication; (3) Neither a provision
requiring a dealer to inform the authorities if it discontinues its business nor
a provision in1posing a joint and several liabilitv on the dealer and its pa;tners
for the payment of tax, penalty or any other an1ount due under the· Actr or
rules tan be interpreted as conferring jurisdiction to assess a dissolved firm·
and ( 4) In i_nterpreting a fiscal statute the court cannot proceed to make good
the deficiencies, if any, in the statute : it shall interpret it in a manner favour~
able to the tax payer. The language of a taxing Act cannot be strained in
order to hold a subject liable to tax. [694 D, 695 C-E]
Khushi Ram Behari Lal & Cd. v. Tlze Assessing Authority, Sangrur and
Another, (19167) 19 S\.T.C. 381; Additidnal Ta~sildar, Raipur and Ors. v.
Gendalal, (1968) 21 S.T.C. 263, and Lalji v. The Assistant Comn1issioner, Sales
Tax, Raipur, (1958) 9 S.T.C. 571. referred to.
(ii) The provisions of the Bombay General Clauses A·ct apply to the inter~
pretation of the Bombay A.els unless there is anything repugnant in the subject
or context of the Act of 1953. There is no repugnancy between the definition
of dealer in section 2(6) which is defined to mean any 'person' who carries
on the business of selling or buying goods and definitfon of 'person' in s.3(35)
of the Bombay General Clauses _Act, 1904 and, therefore, the V.'Ol'd 'person'
in s. 2( 6) must be taken to include a 'body of individuals' that a firm is.
S. 24 of the Act which. provides that every dealel1 who is liable· to pay tax and
who is an individual Hindu family, an associaton or a club. society, firm or·
company, shall send to the prescribed authority ~ declaration stating the narneof the person who shall be deemed to be the manager of such dealer's business
furnishes a strong indication for saying that the framers of the .. Act intended
to recognise. the firm as a legal entity. This section will be meaningless in
its reference to a firm, unless the fundamental assumption of the provision
was that a firm as distinct from its partners is an independent assessable entity.
[696 C-FJ
(iii) Since the Act of 1953 considers ai partnership firm tn be a legal entity,
on the dissolution of the firn11 its legal personality would cease to exist.
On
, the furn ceasing to have existence in_ the eye of law, there can be no assessment of the firm as such for, in the absence of an express statutory provision
or a clear statutory intendment, a dead person cannot be assessed.
[696 F-G]
Ellis C. Reid v. Commissioner of lnco1ne-tax. (1930)5 I.T.C. 100 and ThP
Com1nissioner of lncon1e-tox, Bo1nbay City v. Amarchand N. Shroff [1963]
48 I.T.R. 59 referred to.
(iv) S. 5(3) shows that if a firm has incurred the liability to pay sales-tax,
that liability continues until the canceUation of the registration. Again, it is
a clear and necessary implication of s. 15(1) of the Act of 1953 that ~ven
a dissolved furn can be assessed or re-assessed within the period mentioned
therein.
S. 15( 1) contai'ns an important clause that action thereunder can be
taken by the. Collector after giving a notice to the assessee under s, 14(3) of the
A-ct within the prescribed period.
Once such a notice is given, the Collector
gets the jurisdiction to assess or re-assess 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 s.
14(3)" S.
15A conf.errinl! analogous po\vers to
assess or re-assess a dealer for taxes due prior to November 21, 1956 when
the States were reorganised if any turnover had escaped assessment and provisions
of sub-sectioris 3(i) and 3'(ii) of S. 26 providing that when a firm, liable to
pay.the tax i"s dissolved. it shall be liable to pay the tax on the goods allotted
to anv 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. are in the
schem~ of the Act that the assessment of a dissolved firm is within the clear
intendment of the statute.
[697-H. 639 C, E, 700 A-B, FJ
(v) Though equitable construction may be admissible in relation to other.
statutes or other provisions of a ·taxi'ng statute, 5Uch a construcion is
not
admissibl~ in the interpretation of a charging or taxing provision in a taxin~
statute. [702-D]
A
B
c
D
E
F
G
..
J ,
II
A
•
B
; )'
c
D
E
•
F
G
H
MURARILAL V. B. R. VAD
691
Cape Brandy Syndicare v. Co1nmissioner of Inland Revenue (1921) 12 Tax
Case> 358; A. V. Fernandez v. The State of Kera/a, [1957) S.C.R. 637; The
Con1n1issioner of Jncome ... tax, Bombay v. The Provident lnvestn1ent Co. Ltd.
[1957] S.C.R. 1141; Com1nissioner of Income-tax, Madras v. Ajax. Products Ltd.,
through its Liquidator, [1965] 1 S.C.R.
700;
Conunission.er of lncome-oox,
Gujarat v. Mis. B. M. Kharwar, [1969) 1 S.C.R. 651; Commissioner of lncon1etax, West Bengal v. Vegetable Products Ltd. [1973) 1 S.C.R. 442; Wealth Tm
Conunissioner v. Kripashc..nker. [1971] 2 S.C.C. 570.
Pryce v. Mommonthshire
Canal and Railway Companies [1879] 4 A.C. 197; C.l.T., Bengal v. Mahaliram .
Rpmjeedas, 61 I.A. 239, 247; India United Mills v. Co1nn1issioner of Excess
Profits Tax [1955] 1 S.C.R. 810, 816; Gursahai Saigal v. C.I.T. Punjab, [1963)
3 S.C.R. 893 and Whitney v. Commissioners of lnla1id Re\-·enue, [1'925) 10 T.C.
88, referred to.
(vi) Under the Bombay Sal-es Tax Act, 1959 also provisions of
section
2( 11) and 2(9) respectively containing the definition of "dealer" and "person"
make it clear that aJ firm is a distinct assessable entity. The joint and several
liability of the partners in resirect of taxes which the firm is liable to pay
is provided by s.18.
The purpose of s. 19(3) is to make the parners jointl)I
and severally liable, even if the firm is as9essed to sale tax after its dissolution.
S. 19(3) would otherwise be otiose. S. 19(3) of the 1959 Act makes explicit
what was im,plict in the Act of 1953.
The Act of 1959 contains provisions
in sections 35, 35A and 62 which are similar to those provisions which are
contained in sections 15, 15A and 35 of 1953 Act. [703 H, 704 A, D, 705 B-CJ
The Sales Tax Officer (XIX), Enforce1nent Branch, Bon1ba)'; v. K.M.S. Mari
Chettiar, ( 19·75) 35 S.T.C. 148 appropved.
Per Gupta~ J. (Dlsstnting)
(i) A firm is a seperate· legal entity and a di'stinct assessable unit under
the Acts of 1953 and 1959. Neither the 1953 Act nor the 1959 Act contains
any provision permitting assessment or
recovery · proceedings being taken
against a dissolved firm.
It i~ open to the Legislature by a legal fiction to
keep alive a dissolved firm for some definite purpose, but here the legislature
has not chosen to do so.
No provision similar to that contained in s. 189(i)
of the Income-Tax Act, 1961 is to be found in either of these two Acts. [708 H,
711 G. 713 H & 714 A]
(ii) 'Dealer' has been defined in the Acts as a person who carries on
the business of selling or buying goods.
S. 15 of the 1953 Act which deals
With escaped assessment or under~assessment requires the Collector to serve
a notice, on the dealer concerned before proceeding against him but where
the dealer was a firm dissolved before the notice was is;ued, there is
no
Person carrying on the business of selling or buying ,goods on whom notice can
be served.
S. 35 of the 195~ Act is similar to s. 15 of the 1953 Act.
A
dis.solved firm may be equated with a dead person; both cease to be assessable
umts. [706 H, 709· D-H, 710 A, 714 BJ
(iii) S.19 (3) of the 1959 Act which makes the erstwhile partners jointly
and severally liable for the tax due ·from a dissolved firm. does not say that
· assessment or recovery proceedings may be initiated or continued against
a
firm as such even after its dissolution.
It is not permissible to read in this
provision the· additional words "as if the firin exists".
To provide that the
tax due from a firm may be assessed or collected after its dissolution is not
the same thing as allowing the assessment ·or recovery proceeding to be startedor continued against the disoolved firm.
The power of assessing a dissolved
firm i; no to be mixed up with the liability of the partners. [710 E-F, 711-BJ
The provisions relating to the assessment or recovery of the tax including
pro':'isions 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. [711-G]
.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1802 of 1970.
Appeal by Special Leave from the Judgment and Order dated the
8th December, 1969, of. the Bombay High Court in Misc. Petition No.
564 of 1965.
692
SUPREME COURT REPORTS
[1976] 1 S.C.R.
S. T. Desai, H. K. Shah, A. C. Meneses and Mahendra fl, Gani
& K. J. l ohn for the Appellants.
M. C. Bhandare., Vazir Singh and M. N. Shroff for Respondents.
The_ Jndgment of Y. v. CHANDRACHUD and R. s. SARKARIA, lJ.
wa~ ~elivered by CHANDRACHUD, J. A. C. GUPTA, J. gave a dissenting
Opm10n.
CiIANDRACHUD, J.
The question whic.h arises
for
decision in
this appeal is whether miler the Bombay Sales Tax Act, 1953 and the
Bombay Sales Tax Act, 1959 a dissolved Jinn can be assessed or re-
. assessed to sales-tax in respect of its pre-dissolution turnover .
. The first a~pellant Mis. Murarilal Mahabirprasad was a partner-
:ship firm conslituted under a deed of partnership dated December 3,
1'!'53. It was doing business at 30-Commercial Chambers,
Masjid
Bunder Road,. Bombay, as importers, commission agents, indenting
a!\{'nts, delcreders agents and financiers and also as wholesale dealers
in colours, chemicals, dyes etc.
The firm consisted of 5 partners
·appellants 2 to 5 and one other who died in 1965.
The firm wa~
registered as a dealer under the Acts of 1953 and 1959.
Under diverse orders of assessment passed prior to its dissolution,
the firm was assessed to sales-tax for the period July 1953 to March
31, 1958.
On November 10, 1960 the Sales Tax Officer
(VIII),
Enflorcement Branch, Bombay, seized certain documents 11rom the
fum's office.
Notices. were issued to the firm from time to time for
attendance to• explain these documents.
Over sixty meetings
took
place between the firm's representatives and the authorities, at the end
of which, two notices dated November 20, ·1963 came to be issued
to th« firm. By the first of these notices, the firm was asked to explain
certain discrepancies in its books of account. The second notice was
issued under section 15 of the Act of 1953, by which the firm was
asked to show cause why the assessment already made for the period
1-4-1957 to 31-3-1958 should not be re-opened on the ground that
certain sales were suppressed by the firm as a result of which a part
of its turnover had escaped assessment. Respondent 1, the Sales Tax
Officer (VIII), En£orcement Branch Greater Bombay, fixed the hearing of the assessment proceeding on April I,' 1965 .but the firm requested by its Jetter dated April 3, for an adjournment till May on
the ground that one of the partners had died suddenly in Delhi and
that the other partners would be back in Bombay by May. On May
26, 1965 respondent 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 haJ
apparently starte~ doing: business at th.e place where the assesse.e firm
was carrying on its busmess. Inttmat10ns were sent to the registered
address of the firm and an Inspector of the D~partment went pcrsenally to effect the service. Eventually, on August 31, !965 respondent I pa"IBed ex-parte orders of re-assessment £or the penod 1-4-1~57
to 31-3-1958 and ex-parte orders of
assessment for the penod
1-4-1958 to 31-3-1961.
The assessment of the firm for the period
A
B
c
D
E
F
G
•
H
..
•
•
•
A
B
c
D
E
F
G
MURARILAL v. B. R. VAD (Chandrachud, J.)
693
subsequent to 31-3-1958 was pending ever since, as it had to await
the result of inspection of the incriminating docmnents 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. Murarilal Balkrishna who were doing business
there are said to have informed a partner of the firm that demand
notices were so pasted.
By the revised assessment order, respondent 1 held that .flor the
period 1-4-1957 to 31-1-1958, the turnover of suppressed sales which
had escaped assessment was Rs .. 41,47,090. He assessed
on this
turnover an additional tax of Rs. 1,95,582.47. Respondent 1 found
that for subsequent periods also a large part of the turnover was
suppressed by the firm.
On that footing, he assessed the sales tax
for the period 1-4-1'?68 to 31-3-1961, breaking up the period in
four assessments.
By the demand notices, the firm was called upon
to pay a total tax of Rs. 6,70,969.96, inclusive of the sales tax quantified in the revised assessment. The notices apprised the firm of its
liability to• pay penalty if the tax was not paid within the stated
period.
The assessment for the period 1-4-1957 to 31-12-1959 was made
under the Act of 1953. The tax due for this period comes to
Rs. 5,63,900 and odd.
The assessment for the period 1-1-1960 to
31-3-1961 was made under the Act of 1959.
The tax dne for this
period comes to Rs. 92,300 and odd. The firm has filed appeals
against the aforesaid orders, which are pending before the Assistant
Commissioner, Sales Tax, Bombay.
In view 0£ those
appeals the
recovery proceedings were stayed by the appellate· authority.
. During the pendency of the assessment proceedings, no foffilal
intimation appears to· have been given by or on behalf of the firm to
the assessing authority that the firm was
dissolved. It was on
December 21, 1964 that in a letter written to respondent 1, one of
the partners made a casual and fleeting reference to that fact : "you
will also appreciate that the firm was dissolved ·4 years back". It is
however futile to pursue this line of inquiry because, on being called
upon to produce the deed of dissolution, the partners did produce a
deed showing that the firm was dissolved on May 20, 1962. Responc
dent 1 appears to have accepted the authenticity
o~ the deed of
dissolution and in fact, acting upon it, the Siales-tax authorities cancelled the registration of the firm under the Sales Tax Acts with effect
from June 16, 1962. We cannot now go behind the-position that the
firm was dissolved' on May 20, 1962.
On November 24,. 1965 the appellants filed a writ petition in the
High Court of Bombay challenging the orders of re-assessment and
assessment on varions grounds. In view of the fact that the appeals
filed by the firm before the Assistant Commissioner of Sales Tax were
H
pending, !lie High Court did not decide the question whether the procedure prescribed by law was followed in the assessment proceedings
and whefuer the orders were justified on merits. The only question
which the High Court considered was whether the impugned orders
694
SUPREME COURT REPORTS
[1976] 1 S.C.R.
were without jurisdiction as having been passed a~ainst a dissolved
firm.
By its judgment dated December 8 1969 the Hirrh Court rej7cted the ~ontemion 0£ the firm and held that in view ~f the provis10ns conta~ed m the Bombay Sales Tax Acts of 1953 and 1959, it
was pernuss1ble 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 re-assessment 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 re-assessment proceedings
for the relevant years were commenced after the dissolution of the
firm. The notice under which those proceedings were started is dated
November 20, 1963 while the firm was dissolved on May 20, 1962.
We may mention that in a judgment to which we must immediately
turn, this Court has taken the view that if under a statute a dissolved
firm cannot be assessed to Sales Tax, it does not make any difference
whether the proceeding was initiated be£ore or after the dissolution.
Thus, the true question for decision is whether a dissolved firm can
A
B
D
be assessed or re-assessed under the Bombay Sales Tax Act, 1953 and
the Bombay Sales Tax Act, 1959._
D
A similar question came up for decision before this Court in State
of Punjab v. M/s. Jullundur Vegetables Syndicate('). That was a case
under the East Punjab General Sales Tax Act, 1948. The respondent
firm therein was assessed to sales tax in 1953 but that order was set
aside for want of jurisdiction.
Fresh proceedings were then started
for assessment but the firm was dissolved before the commencement
of those proceedings. The firm was thereafter assessed and the order
of the Sales-Tax Officer was confirmed in further proceedings with
some modifications. On a reference the Punjab High Court set aside
the assessment on the ground that the East Punjab General Sales-Tax
Act, 1948 did not provide for a machinery for assessing a dissolved
firm in respect of its pre-dissolution turnover.
The judgment of the
High Court was oonfirtned by this Court.
Since the learned counsel for the appellants has relied heavily on
E
F
the aforesaid decision, it ,is necessary to analyse it closely. The Court,
'Speaking through Subba Rao, J., observed at the outset that the question as regards the validity of the assessment depended upon the relevant provisions 0it the particular Act.
On examining the relevant
provisions, namely, sections 2(d), 4(1), 7(1), 16(b), 17 and Rule 40
G
the Court held that there was no provision in the statute expressly
authorising the assessing authority to assess a dissolved firm.
The.
Court then proceeded to find whether such a power could be gathered
by neeessary implication from the other provisions o~ the Act and
held in the negative.
Thus, by reason of the language and scheme
of the Punjab Act, a dissolved firm could not be assessed. Relying on
'Section 2(d) which deJined a dealer lo include a firm, the Court held
H
that though under the partnership law a firm was not a legal entity,
(1). [1966] 2 S.C.R. 457.
··-
..
•
\ •
1
..
J
A
"
B
..
c
0
E
•
•
MURARJLAL v. B. R. VAD (Chandrachud, !.)
695
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 asses~ment of a dis.solved 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 o~
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 fil'm 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 Jullundut Vegetable• Syndicate ·case is a clear and direct
authority for the following propositions: (1) A dissolved firm cannot
be. assessed to sales tax unless the statute under which the assessment
is made authorise~ the assessment either expressly or by necessary
implication; (2) If, by definition, a fi1111 is a dealer under an Act, it
becomes a legal entity or an independent assessable unit for the
.purposes of that Act. If that be so, the firm ceases to be a legal entity on dissolution and thereafter, on principle it cannot be assessed
to sales tax unless the statute so authorises expressly or by necessary
implication; (3) Neither a provision requiring a dealer to infocm the
authorities. if it discontinues its business, nor a provision imposing a
joint and several liability on the deialer and its partners for the. payment of tax, penalty or any either amount due under the Act or rules
can be interpreted as conferring jurisdiction to assess
a
dissolved
firm; (4) In interpreting a fiscal statute the court cannot proceed to
make good the deficiencies, if 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.
The language of a taxing Act
cannot be strained in order to bold ;i subject liable to tax.
·
The deoision in the Jullundur case was followed by this Court,
without more, in Khmhi Ram Behari Lal & Co.
v.
The Assessing
Authority, Sangrur, and Anr.(1'); and in Addit,ional Tahsildar, Raipur,
and Ors. v. Gendalal(2).
Khushi Ram's case arose under the East
Punjab General Sales Tax Act, 1948, the provisions of which were
considered by this Court in the Jul/undur case. Gendalal's case arose
under the Central Provinces and Berar Sales Tax Act, 194 7.
The
court did not examine the provisions of that Act separately, presumably because those provisions were considered by the M.P. High Court
in Lalji v. The Assistant Commissioner, Sales-tax, Raipur(').
and
the decision of the Madhya Pradesh High Court was express! y disapproved by this Court in the Jul/undur case. The Madhya Pradesh
High Court had relied upon section 17 of the C.P. and Berar Sales
Tax Act, corresponding to section ! 6(b) o~ the East Punjab Act, to
(I) [1967] 19 S.T.C. 381.
(2) [1968] 21 S.T.C 263.
(3) [1938] 9 S.T.C. 571.
696
SUPREME COURT REPORTS
(1976] 1 S.C.R.
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 assessed dissolved firm.
A
Applying the1 ratio in the Jullundur case was must examine the
B
provisions of the two Bombay Acts in order to find whether those
provisions, expres.sly 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
C
itsel.E 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 cf the Bombay General Clauses
Act apply to the interpretation of the Bombay Acts unless there is
o
anything repugnant in the subject or context of the Act under review.
There is no such repugnancy and therefore the word 'person' in section 2(6) of the Act of 1953 must be taken to include a 'body of
individuals' that a firm is.
Not only is there nothing in the Act of
1953 which is repugnant to the notion that the firm could be a dealer,
but section 24 ofl that Act furnishes a strong indication for saying that
the framers of the Act intended to recognise firms as a legal entity.
E
That section provides that every dealer who is liable to pay the tax .
and who is an undivided Hindu family, an association or a club,
society, firm or company, shall send to the prescribed authority
a
declaration stating the name of the person who shall be deemed to be
the manager of such dealer's business. Section 241 would be meaningless in its reference to a 'firm', unless the fundamental assumption of
the provision was that a firm as distinct from its partners is an inde-
• F
pendent assessable entity.
That assumption is made good by the
combined operation of section 2(6) of the Act oll 1953 and section
3(35) of the Bombay General Clauses Act.
Since the Act of 1953 considers a partnership firm to be a legal
entity, on the dissolutiou of the firm its legal personality would cease
to exist.
On the firm ceasing to have existence in the eye <>f law,
there can be no assessment of the firm as such for, in the absence of
an express statutory provision or a clear statutory intendment, a dead
person." cannot be assessed.
G
Section 2(2) of the Income-tax Act, 1922 defined an assessee as
"a person by whom income-tax is payable".
The Bombay High
Court, in Ellis C. !Reid v. Commissioner of Income:-tax,(')
held
that the definition in terms applied to living persons onlv, that the
H
treasury had no power to tax without the express permission ofl the
(1) [19301 I.T.C. 100.
..
•
..
•
• •
A
B
c
D
MURARJLAL v. B. R. VAD (Chandrachud, l.)
697
legislature and therefore if an assessee failed to make a return of his
income under section 22(2), the income-tax officer had no power to
make as assessment under section 23(4) after the assessee's death. Seeing that, originally, in the Income-tax Act, 1922 there was no reference
to the decease of a person on whom the tax was charged, the l~amed
Chief Justice observed : "It must have been present to the mmd of
the legislature that whatever privileges the payment of income-tax
may confer, the privilege of immortality is not amongst them", and
that it was very 'difficult to assume that the omission in th~ 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(') this Court observed that the individual assessee under the
Income-tax Act has -0rdinarily 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 there then any provision in the 1953 Act which
permits or contemplates the assessment of a firm after its dissolution ?
If not, the general rule would apply that a dead person cannot be
E
assessed.
It is plausible that a distinction ought to be made between the
death of an individual and the dissolution of a firm. Human beings,
as assessees, are not generally known to court death to' evade taxes.
Death, normally, is not volitional and it is understandable that on the
death of an individual, his liability to be assessed to tax should come
F
to an end unless the statute provides to the contrary. With firms it
is different, because a firm which incurs during its existence a liability
to pay sales-tax may, with a little ingenuity evade its liability by the
voluntary act of dissolution.
The dissolution of a firm could therefore be viewed differently from the death of an individual and the
partners could be denied the advantage ofi their own wrong.
But we
do not want to strike this new path because the Jullundur case and
G
the two cases which follow it have likened the dissolution of a firm
to the death of an individual.
Let us therefore proceed to examine
the other pro"isions of the 1953 Act.
Section 5 of the 1953 Act provides that every dealer whose turnover exceeds the limits therein mentioned shall be liable to pay salestax. Snb-section (3) of section 5 says that every dealer who has thus
become liable to pay the tax "shall continue to be so liable until cati
H
cellation of his registration under sub-section (6) of section 11, and
(I) [1963] 48 I. T.R. 59.
14-I.925SupCI/75
698
SUPREME COURT REPORTS
11976.J l S.C.R.
upon such cancellation his liability to pay the tax shall cease". This
proviswn shows that if a firm has incurred the liability to pay salestax, that liability continues until the cancellation of the registration.
There may be a hiatus between the dissolution of the firm and the
cancellation of its registration and during this interregnum the liability of the firm is expressly kept alive by the statute. Under section
11(6), the prescribed authority has to cancel the registration with effect
from the prescribed date if, inter alia, the business in respect of which
a certificate has been granted under section 11 has been discontinued
or transferred.
On being satisfied that the business has been discontinued or transferred, the authority concerned has undoubtedly to cancel the registration but 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 truly 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 o~ sub-section (I) of section 2 of the Bomb<\y 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 the particulars of such sales or purchases or has knowingly ~urnished inc:mcct returns, at any
time within eigl1t years and in any other case, at any time
within five years of the end of that year, serve on the dealer
liable to pay the tax in respect of such turnover a notice
containing all or any of the requirements which may be included in a notice under sub-section (3) of section 14 and
may proceed to assess or re-assess the amount of the tax
due from such dealer and the provisions 0£ this Act shall
apply accordingly as if the notice were a notice served under
that sub-section :
Provided that the amount of the tax shall be assessed
after making the deductions permitted .from time to .time
under the Bombay Sales Tax Act, 1946, the Bombay Sales
Tax (No. 2) Ordinance, 1952; and this Act, as the case may
be, at the rates at which it would have been assessed had the
turno¥cr not escaped assessment or full assessment as the
case may be:
A
B
•
c
D
E
ll
G
• .,
H
A
ll
)>
)
c
•
0
E
F
' G
H
MURARILAL v. B. R. YAO (Chandrachud, J.)
699
Provided further that where in respect of such turnover
or deduction, as the case may be, an order has already been
passed under section 30 or section 31, the ·collector shall
make a report to the appropriate appellate or revising authority, as the case may be, which shall thereupon after giving
the dealer concerned a reasonable
opportunity of being
heard, pass such order as it deems fit."
This provision leaves no doubt that the dissolution of a firm cannot
operate as a bar to a tresh assessment of the turnover which
had
escaped assessment, provided that the action contemplated therein is
taken within th" specified period.
In substance, section 15(1) provides that if the Collector is satisfied that any turnover has escaped
assessment or has been under-assessed or assessed at a lower rate or
any deductions have been wrongly made therefrom,
he can after
serving a notice on the assessee proceed to assess or re-assess the
amount of the tax due from him. It is a dear and necessary implication of section 15(1) that even a dissolved firm can be assessed or reassessed within the period mentioned therein. The dissolution cannot
operate as a bar to the exercise by the Collector of his power to reopen an assessment and indeed it is difficult to conceive that in matters as vital to the administration of sales-tax as the assessment of
suppressed turnovers, the legislature could have coritemplated that the
liability to re-assessment could be 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) ofi the Act within the prescribed period. Once
such a notice is given, the Collector gets the jurisdiction to assess or
re>-assess 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 ColleCtior to "'5Sess 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 confurred 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 asses&ment of turnover which has escaped a.ssessment. 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 on one's credulity to accept that having created a
special jurisdiction to assess or re-assess an escaped turnover, the
legislature permitted that salutary jurisdiction to be defeated by the
device of dissolution.
The argument of the appellants really comes
to this : suppress the turnover, evade the sales-tax, dissolve the firm
and earn your freedom from taxation.
Importantly, the notice dated November 21, 1963 for re-opening
the assessment for the period 1-4-1957 to 31-3-1958 was served on
the firm under section ]5. On re-assessment, the firm was assessed
to a sales-tax of Rs. 1,95,582.47 on sales suppressed during that
period.
700
SUPREME COURT REPORTS
[l 976J l S.C.R.
Section 15A confers on the Collector analogous powers to aS.Sess
or re-assess a dealer for taxes due prior to November 21, 1956 whe:1
the States were reorganised, if either no assessment was made for tb
prior period or if any turnover had escaped assessment.
This provision like the one contained in section 15, is of general application and
makes no exception in favour of dissolved firms. Therefore, if a firm
was not assessed prior to the re-organisation of States or if any part
0£ its turnover had escaped assessment, it is competent to the Collector
to assess or re-assess the firn1 notwithstanding its subsequent dissolution. This is the necessary inlplication of section 15A. It must follow
as a corollary that the power to rectify a mistake apparent from the
record can be exercised by the Collector under section 35 of the Act
of 1953 even after the dissolution of an assessed firm,
though on
conditions specified in the section. The section contains a compelling
implication that evident errors can be corrected no matter whether
the firm is in existence or is dissolved.