Case: State Of Punjab Vs. M/S. Jullunder Vegetables Syndicate

no assessment can be made on a firm which has lost its character as an assessable entity.10. To get over this legal position, a strong plea was made on the basis of S. 16 of the Act. Section 16, so far relevant to the present enquiry, only says that if a dealer discontinues his business, it shall within the prescribed time inform the prescribed authority accordingly. This section does not expressly state that a dealer, if it happens to be a firm, continues to have legal existence even if it has ceased to be a firm. Nor does the section permit 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.11. Nor does R. 40 of the East Punjab General Sales Tax Rules, 1949, carry the matter further. It only imposes a joint and several liability on the dealer and its partners for the payment of tax penalty or any amount due under the Act or the rules. It does not provide for a case of the dissolution of a firm and the assessment of the dissolved firm.12. Nor the provisions of the Partnership Act can possibly be called in aid to resuscitate a dissolved firm for the purpose of assessment. They deal only with the relationship between the partners and their rights and liabilities. They have no bearing on the question of assessment under a different statute. There is, therefore, a lacuna in the Act, which was filled up later on by an Amending Act; but the said Amending Act, it is conceded, is not retrospective in operation.13. 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.14. The Allahabad High Court in Jagat Behari Tandon v. The Sales Tax Officer, Etawah, (1955) 6 STC 125: (AIR 1956 All 23 ), 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. Asst. Commr., Sales Tax, Raipur, (1958) 9 STC 571 (Madh Pra), 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 (1957) 8 STC 365 (Mad) , relied upon the provisions of the Partnership Act to reach the desired end. The Punjab High Court in Khushi Ram Behari Lal and Co. v. Assessing Authority, Sangrur, (1964) 15 STC 165 (Punj), distinguished the Full Bench decision, which is the subject-matter of the present appeal before us, on the ground that the dissolution of the firm in the case before it was long after the assessment proceedings were initiated. It also relied upon S. 16 of the Act to support its conclusion that the liability of the firm continued till the registration was cancelled. It may also be noticed that the question in that case arose after the amended definition wherein the expression "firm" was omitted. The Madras High Court in R. Ponnuswami Gramani v. Collector of Chingleput District, (1960) 11 STC 80 (Mad) , followed the earlier decision of that Court; and it does not contain any reasoning on the question. The Bombay High Court in Bankatlal Badruka v. State of Bombay, (1961) 12 STC 405 (Bom) , based its conclusion only on the circumstance that the notice of dissolution under R. 35 of the Hyderabad General Sales Tax Rules, 1950 was not given before the assessment. The Orissa High Court in Commr. of Sales Tax, Orissa v. Aurobindo Auto Service, (1963) 14 STC 46 (Orissa), also sustained the assessment after dissolution inter alia, on the ground that on notice of dissolution was given under S. 18 (b) of the Orissa Sales Tax Act, 1947, read with R. 14 of the Orissa Sales Tax Rules, 1947. But the main reason for that decision was based upon S. 19 (3) of the Orissa Sales Tax Act which is pari materia with S. 44 of the Income-tax Act, which has been construed by this Court to confer a power on the assessing authority to make such an assessment. All these decisions, if we say so with respect, were overburdened with the consequences of a contrary construction on the incidence of taxation and also by their mixing up the question of the statutory power of assessing a dissolved firm with the liability of the partners thereof to pay the tax so assessed on the firm before dissolution. For the reasons we have already, given earlier, we cannot accept the validity of the reasons given in the said judgment for maintaining an assessment on a dissolved firm, whether the proceedings were initiated before or after the firm was dissolved.15. Strong reliance was placed upon two judgments of this Court. The 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 again in Commr. of Income-tax, Madras v. S. V. Angidi Chettiar (1962) 44 ITR 739 : (AIR 1962 SC 970 ). These two decisions are of no help to the Revenue in the present case. Indeed, in a sense they are against it. The Income-tax Act contains an express provision for assessing a dissolved firm. Indeed, but for that provision no assessment could be made under that Act on dissolved firms.16. 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.

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

Explanation:
0[ds]14. The Allahabad High Court in Jagat Behari Tandon v. The Sales Tax Officer, Etawah, (1955) 6 STC 125: (AIR 1956 All 23  ), 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. Asst. Commr., Sales Tax, Raipur, (1958) 9 STC 571 (Madh Pra), 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 (1957) 8 STC 365 (Mad)  , relied upon the provisions of the Partnership Act to reach the desired end. The Punjab High Court in Khushi Ram Behari Lal and Co. v. Assessing Authority, Sangrur, (1964) 15 STC 165 (Punj), distinguished the Full Bench decision, which is the subject-matter of the present appeal before us, on the ground that the dissolution of the firm in the case before it was long after the assessment proceedings were initiated. It also relied upon S. 16 of the Act to support its conclusion that the liability of the firm continued till the registration was cancelled. It may also be noticed that the question in that case arose after the amended definition wherein the expression "firm" was omitted. The Madras High Court in R. Ponnuswami Gramani v. Collector of Chingleput District, (1960) 11 STC 80 (Mad)  , followed the earlier decision of that Court; and it does not contain any reasoning on the question. The Bombay High Court in Bankatlal Badruka v. State of Bombay, (1961) 12 STC 405 (Bom)  , based its conclusion only on the circumstance that the notice of dissolution under R. 35 of the Hyderabad General Sales Tax Rules, 1950 was not given before the assessment. The Orissa High Court in Commr. of Sales Tax, Orissa v. Aurobindo Auto Service, (1963) 14 STC 46 (Orissa), also sustained the assessment after dissolution inter alia, on the ground that on notice of dissolution was given under S. 18 (b) of the Orissa Sales Tax Act, 1947, read with R. 14 of the Orissa Sales Tax Rules, 1947. But the main reason for that decision was based upon S. 19 (3) of the Orissa Sales Tax Act which is pari materia with S. 44 of the Income-tax Act, which has been construed by this Court to confer a power on the assessing authority to make such an assessment. All these decisions, if we say so with respect, were overburdened with the consequences of a contrary construction on the incidence of taxation and also by their mixing up the question of the statutory power of assessing a dissolved firm with the liability of the partners thereof to pay the tax so assessed on the firm before dissolution. For the reasons we have already, given earlier, we cannot accept the validity of the reasons given in the said judgment for maintaining an assessment on a dissolved firm, whether the proceedings were initiated before or after the firm was dissolved.15. Strong reliance was placed upon two judgments of this Court. The 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 again in Commr. of Income-tax, Madras v. S. V. Angidi Chettiar (1962) 44 ITR 739  : (AIR 1962 SC 970  ). These two decisions are of no help to the Revenue in the present case. Indeed, in a sense they are against it. The Income-tax Act contains an express provision for assessing a dissolved firm. Indeed, but for that provision no assessment could be made under that Act on dissolved firms.16. 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.