Transfer of business stock on dissolution not taxable where statutory conditions for section 26(2) were not met.

Section 26(2) of the Bombay Sales Tax Act applied only where a dealer transferred part of its business, the remaining business stayed with the transferor, and the transferee failed to obtain registration within the prescribed time; those conditions were cumulative. On the stated facts, the partnership was dissolved and two parts of the business were taken over simultaneously by different sets of partners, so no part of the business remained with the transferor when the stock moved. Section 26(2) therefore did not cover the transfer. Section 26(3)(i) also could not sustain tax on the transferred stock, because the provision, so far as it taxed allotment of partnership goods on dissolution, was beyond State competence. The transferred stock was thus excluded from taxable turnover.

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Issues: (i) Whether section 26(2) of the Bombay Sales Tax Act, 1953 applied to the transfer of stock of goods when the business was dissolved and its two parts were simultaneously taken over by different sets of partners. (ii) Whether the State could rely on section 26(3)(i) of the Bombay Sales Tax Act, 1953, and the connected assessment machinery under sections 14 and 15, to tax the transferred stock.

Issue (i): Whether section 26(2) of the Bombay Sales Tax Act, 1953 applied to the transfer of stock of goods when the business was dissolved and its two parts were simultaneously taken over by different sets of partners.

Analysis: Section 26(2) applied only when a dealer transferred the ownership of part of his business, the remaining part of the business stayed with the transferor, and the transferee did not hold or obtain registration within the prescribed time. These conditions were cumulative. On the facts found, the partnership was dissolved and, under one arrangement, one part of the business was taken over by three partners while the other part was taken over by two partners with two others, both transfers occurring simultaneously. When the Vasad business was transferred, no part of the business remained with the transferor firm, because the Padra business was transferred at the same time.

Conclusion: Section 26(2) did not apply, and the stock transferred to the transferee was not taxable under that provision.

Issue (ii): Whether the State could rely on section 26(3)(i) of the Bombay Sales Tax Act, 1953, and the connected assessment machinery under sections 14 and 15, to tax the transferred stock.

Analysis: The claim under section 26(3)(i) was rejected because that provision, insofar as it purported to tax allotment of partnership goods on dissolution, had already been held to be beyond the legislative competence of the State. In view of that conclusion, the attempt to assess the transferred goods under that provision could not succeed, and the further question regarding sections 14 and 15 did not assist the Revenue.

Conclusion: The State could not tax the transferred stock under section 26(3)(i).

Final Conclusion: The reference was answered in favour of the assessee, and the Revenue was held not entitled to include the value of the transferred stock in the taxable turnover.

Ratio Decidendi: Liability under a provision taxing transfer of stock on transfer of part of a business arises only when every statutory condition is satisfied, including retention of the remaining business by the transferor at the time of transfer.

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