1975 (2) TMI 101 - HC - VAT and Sales Tax

Court clarifies business ownership transfer criteria under Bombay Sales Tax Act

Commissioner of Sales Tax Versus K. Tajkhanji & Co.

The Court held that the ownership of the business was not entirely transferred to the respondents, absolving them from liability under section 26(1) of ... - Issues Involved:1. Whether the ownership of the business was entirely transferred under section 26(1) of the Bombay Sales Tax Act, 1953.2. Liability of the transferee to pay tax as per section 26(1) of the Act.3. Interpretation of the deed of assignment concerning the transfer of business.4. Applicability of precedents and principles from other cases and statutes.Issue-wise Detailed Analysis:1. Whether the ownership of the business was entirely transferred under section 26(1) of the Bombay Sales Tax Act, 1953:The core issue revolves around whether the transfer of the business from the assignors to the assignee constituted an 'entire transfer' as envisaged by section 26(1) of the Bombay Sales Tax Act, 1953. The Court noted that for a transferee to be liable under this section, the ownership of the business must be entirely transferred. The deed of assignment excluded debts, liabilities, credits, and outstandings, indicating that the ownership was not entirely transferred. The Court referenced the decision in Bherulal Maniklal Kothari v. State of Bombay, where it was held that the transfer of goodwill and trademarks alone does not constitute an entire business transfer. The Court concluded that the right to perform outstanding contracts and liabilities retained by the assignors indicated that the business was not entirely transferred.2. Liability of the transferee to pay tax as per section 26(1) of the Act:The respondents were assessed under section 14(6) and penalized under section 14(7) of the Act by the Sales Tax Officer, who considered them transferees under section 26(1). The Tribunal, however, found that since the ownership was not entirely transferred, the respondents were not liable as transferees. The Court upheld the Tribunal's view, emphasizing that the entire business, including liabilities and engagements, must be transferred to hold the transferee liable under section 26(1).3. Interpretation of the deed of assignment concerning the transfer of business:The Court analyzed clauses 1 and 4 of the deed of assignment. Clause 1 indicated a transfer of the business, goodwill, and tenancy rights but excluded debts, liabilities, credits, and outstandings. Clause 4 specified that the assignors retained the right and liability to perform all engagements up to the date of assignment. The Court interpreted these clauses to mean that the assignors retained significant elements of the business, thus preventing an entire transfer. The Court rejected the argument that 'engagements' referred only to liabilities, noting that the term 'liabilities' was separately addressed in the clause.4. Applicability of precedents and principles from other cases and statutes:The Court referred to several precedents to support its interpretation. In Tools and Machineries Ltd. v. State of Madras, it was held that retaining certain business assets negates an entire business transfer. The Court also cited Hajipur Plywood Factory v. State of Bihar, which required proving that the business was transferred as a running concern without substantial assets being retained by the transferor. The Court distinguished the present case from A.C.A. & I. Society v. Workmen and Commissioner of Income-tax v. K.H. Chambers, noting the differences in statutory context and the nature of the questions involved.Conclusion:The Court concluded that the ownership of the business was not entirely transferred to the respondents, and thus, they could not be held liable under section 26(1) of the Bombay Sales Tax Act, 1953. The question referred was answered in the affirmative, favoring the respondents. The applicant was ordered to pay costs in one reference, with no order as to costs in the other.Reference answered in the affirmative.