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

2. The facts may briefly be stated. Messrs. Jullunder Vegetable 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 assessed to sale tax on May 30, 1953, by the Sales Tax Officer under the 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 and was assessed to sales tax in a sum of Rs. 47,022-14-0. 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 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 proceeding 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 proceedings were started 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, by his order, dated October 20, 1956, reduced the figure of turnover and also correspondingly reduced the tax payable to a sum of Rs. 30,049-12-0. On revision, the Financial Commissioner, rejecting the contention of the firm that the assessment proceedings could not be taken against a firm after its dissolution confirmed the assessment. At the instance of the assessee the following question was referred to the High Court for its decision under S. 22 of thea 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 areFull Bench of the Punjab High Court answered the question in the affirmative. The main reason given by it for its decision was that a firm was a separate assessable entity under the Act and that there was no machinery provided under the Act for assessing a firm after its dissolution in respect of its turnover of business before the said dissolution. The State of Punjab, on a certificate issued by the High Court, has preferred the present appeal to this Court.

Reasoning: 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.