# Jagat Behai·i Tandon v. The Sales

- **Citation:** [1966] 2 S.C.R. 457
- **Court:** Supreme Court of India
- **Decided:** 1966
- **Bench:** K. SuBBA RAo, J. C. Shah, S. M. SrKRI
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/jagat-behai-i-tandon-v-the-sales-3593
- **Pages:** 8

## Headnote

East Punjab General Sales Tax Act ( 46 of
1948), s. 16 and Eau
Punjab General Sales Tax Rules, 1949, r. 40-Assessment of dissolved
firm lVith respect to hs predissolution turnover-Validity.
The respondent firm was assessed to sales-tax in 1953 but th_e order
was set aside by the Financial· commissioner, because, the authority ~ho
made the assessment had no jurisdiction to do so.
Fresh
proceedings
were then started for assessment, but the respondent firm was dissolved
before the proceedings were initiated.
The Sales-tax Officer
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 as~ess~
ing 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 partne'fship 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 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
or<ler of assessment was made, the said order was bad and it made no
difference \vhether the proceeding was initiated before the dissolution or
thereafter. [462 E]
Jagat Behai·i Tandon v. The Sales
Tax Officer, Etawah,
(1955) 6
S.T.C. 125, la[ji v. The Assistant
Co1nmissioner,
Sales Tax,
Raipur.
(1958) 9 S.T.C. 571, R. D. Fernandez, In re. (1957) 8 S.T.C. 368 and
P<tnnuswami Gramani v. The Collector of Chingleput District, (1960)
H
11 S.T.C. 80, disapproved.

## Text

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STATE OF PUNJAB
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M/S. JULLUNDER VEGETABLES SYNDICATE
November I, 1965
[K. SuBBA RAo, J. C. SHAH AND S. M. SrKRI, JJ.]
East Punjab General Sales Tax Act ( 46 of
1948), s. 16 and Eau
Punjab General Sales Tax Rules, 1949, r. 40-Assessment of dissolved
firm lVith respect to hs predissolution turnover-Validity.
The respondent firm was assessed to sales-tax in 1953 but th_e order
was set aside by the Financial· commissioner, because, the authority ~ho
made the assessment had no jurisdiction to do so.
Fresh
proceedings
were then started for assessment, but the respondent firm was dissolved
before the proceedings were initiated.
The Sales-tax Officer
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 as~ess~
ing 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 partne'fship 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 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
or<ler of assessment was made, the said order was bad and it made no
difference \vhether the proceeding was initiated before the dissolution or
thereafter. [462 E]
Jagat Behai·i Tandon v. The Sales
Tax Officer, Etawah,
(1955) 6
S.T.C. 125, la[ji v. The Assistant
Co1nmissioner,
Sales Tax,
Raipur.
(1958) 9 S.T.C. 571, R. D. Fernandez, In re. (1957) 8 S.T.C. 368 and
P<tnnuswami Gramani v. The Collector of Chingleput District, (1960)
H
11 S.T.C. 80, disapproved.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 588 of
1964.
458
SUPREME COURT REPORTS
[1966] 2 S.C.R.
Appeal from the judgment and order dated February 6, 1962
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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
Sobba 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 assesB
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sed to sales-tax on May 30, 1953, by the Sales-tax Officer under the
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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 Commissioner 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
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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
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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 Taxation Commissioner,
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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-i2-0. On revision, the Financial Commissioner, rejectH
ing the contention of the firm that the assessment proceedings could
not be taken against a firm after its dissolution, confirmed the assess-
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PUNJAB v. VEGETABLE SYNDICATE (Subba Rao, J.)
459
Ihent. 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 givm by it for its decision was
that a firm was a separate assessable entity under the Act and that
C there was no machinery provided nuder the Act for assessing a
firm after its dissolution in respect of its turnover of bu~iness before
the said dissolution. The State of Punjab, on a certificate issued by
·the High Court, has preferred the present appeal to this Court.
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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, dissolutio,1
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. a~te'. its dissolution, the assessing authority had
no power or 1unsd1ction 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
SUPREME
COURT REPORTS
[1966] 2 S.C.R.
denovo after the order of the Financial Commissioner and, thereA
fore, 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
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record supporting the said 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.
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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
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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,
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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. (!) 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.
(I) [19611 2 S.C.R. 765
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PUNJAB v. VEGETABLE SYNDICATE (Subba Rao, !.)
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Section 7. (1) No dealer shall, while being liable
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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 io 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; and the transferee shall within
30 days of the transfer apply for registration under
Section 7.
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Rule 40 of the East Punjab General Sales Tax Rules, 1949, reads:·
(1) A dealer and his partner or partners shall be
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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
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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 prescril!>ed
authority accordingly.
A dealer and its partners are jointly and
G 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.
Th~ que.stio.n is whether such a power can be gathered
by necessary impltcation from the other provisions of the Act.
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. 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
Th d fi 't'
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"d I "
k
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e e Ill 10n o
ea er ta es m three categories of assessable units, namely, person,
462
SUPREME COURT REPORTS
[1966] 2 S.C.R.
finn 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 a:co "firm" is treated as a unit of assessment and
as a distinct assessable entity. Though under the partnership Jaw
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 ceas~s to 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.
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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.
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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 busi11.ess,
it shall within the prescribed time inform the prescribed authority
accordingly. This section does not expressly state that a dealer,
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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 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 anv 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
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dissolved firm.
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Nor the provision of the Partnership Act can possibly be called
in aid to resuscitate a dissolved firm for the purpose of assessment.
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PUNJAB v. VEGETABLE SYNDICATE (Subba Rao, J.)
463
A 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
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operation.
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The decisions cited at the Bar reflect conflicting views on the
question. We have carefully gone through them. It is enough if
we briefly touch upon them.
The Allahabad High Court in Jagat Bahari Tandon v. The Sales
Tax Officer, Etawah(') 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(') 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 (3) 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
E 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
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v. The Collector of Ching/eput District(') followed the earlier de~
cision 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 (6 ) based its conclusion only on the circumstance
that the notice of dissolution under r. 35 of the Hyderabad Generat<
Sales Tax Rules, 1950, was not given before the assessment. The·
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Orissa High Court in Commissiner of Sales-tax, Orissa v. Aurobinde Auto Service(') also ,sustained the assessment after dissolu--
tion inter alia, on the ground that no notice of dissolution was
given under s. 18 (b) of the Orissa Sales Tax Act, 194 7, 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 AcL
(1) [1955) 6 S.T.C. 125
(2) [19581 9 S.T.C. 571
(3) [19571 8 S.T.C. 368
(4) [1954] 15 S.T.C. 1~5
(5) [!9601 11 S.T.C. 80.
(6) [19611 12 S.T.C. .W5 ..
(7) [1963] 14 S.T.C. 46.
L2Sup.Cl/66-16
464
SUPREME COURT REPORTS
1966] 2 S.C.R.
which is pari materia with s. 44 of the Income-tax Act, which has. A
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
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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('),
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 agaill
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in Commissioner of Income-tax, Madras v. S. V. Angidi D
Chettiar( 2 ). These two decisions are of no help to. the Reyenue
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.
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In the result, the appeal fails and is dismissed with costs.
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(l) [1961] 2 S.C.R. 765
Appeal dismissed.
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(2l [1962] 44 l.T.R. 739,
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