Case: Deputy Commercial Tax Officer &amp; Anr Vs. Sha Sukhraj Peerajee

Lords in Whitney v. Commissioners of Inland Revenue 1926 AC 37 that the liability to tax does not depend upon assessment. The liability is definitely created by Sections 3 and 4 of the Income-tax Act which are the charging Sections and the assessment order under Section 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 caseWe consider that, in the context and background of other Sections of the Act, the word assessment used in Section. 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 Section 19 (1) or Section 19 (2) (c) of the Act. It was then submitted by Mr. Rama Reddy that Rule 21-A may be supported by the language of Section 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 outstanding 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 amount 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 1956) read as follows :"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. 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 Section 8 of the Madras General Sales Tax (3rd Amendment) Act, 1956 which reads as follows."Substitution of new Section for Section 10 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 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......................................"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. (1) Where any Act to which this Chapter applies 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 operation 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, l956 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.6. It was next argued on behalf of the appellants that upon a true construction of the registered instrument dated October 5, l956 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 respondent to discharge the liabilities in regard to arrears of sales-tax.But even on the assumption that the respondent undertook to pay the arrears of sales tax due by the transferor, it does not follow that there is a liability created inter se between the State Government 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 instrument inter vivos 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 to the instrument. We accordingly reject the argument of the appellants on this aspect of the case also.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]But there is no such provision in the Act for the period with which we are concerned in the presentare 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 Section 10 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 Section 19 (2) (c) of the Act to enact the rule. Section 19 (2) (c) deals with the assessment to tax of business 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 legislation 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 theour opinion, the principle of these decisions applies to the interpretation of the Act in the presentconsider that, in the context and background of other Sections of the Act, the word assessment used in Section. 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 Section 19 (1) or Section 19 (2) (c) of the Act.In our opinion there is no justification for thisthe present case, the Act is not expressed to come into operation 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, l956 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 theeven on the assumption that the respondent undertook to pay the arrears of sales tax due by the transferor, it does not follow that there is a liability created inter se between the State Government 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 instrument inter vivos 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 to the instrument. We accordingly reject the argument of the appellants on this aspect of the case also.