1985 (6) TMI 175 - HC - VAT and Sales Tax

Full Bench Upholds Tax Exemption in Business Sale Case

The Deputy Commissioner of Sales Tax (Law) Versus Dat Pathe

The Deputy Commissioner of Sales Tax (Law) Versus Dat Pathe - [1985] 59 STC 374 (Ker) Issues Involved1. Entitlement to exemption u/r 9(g) of the Kerala General Sales Tax Rules.2. Definition and interpretation of 'sale of business as a whole'.3. Applicability of precedents from other High Courts.4. Impact of amendments to the Kerala General Sales Tax Act.SummaryEntitlement to Exemption u/r 9(g) of the Kerala General Sales Tax Rules:The assessee, a dealer in multiple businesses, claimed exemption from tax u/r 9(g) of the Kerala General Sales Tax Rules, arguing that the sales were of separate businesses as running concerns, with purchasers taking over all assets and liabilities. The Sales Tax Officer denied this exemption, but the Deputy Commissioner (Appeals) and the Tribunal upheld it. The key question was whether the assessee was entitled to exemption under rule 9(g) in light of a previous decision in T.R.C. No. 121 of 1977.Definition and Interpretation of 'Sale of Business as a Whole':Section 2(vi) of the Act defines 'business' broadly, and rule 9(g) allows deduction of amounts realized by the sale of a business as a whole from the total turnover. The Full Bench found that the Division Bench in T.R.C. No. 121 of 1977 had incorrectly interpreted 'sale of business as a whole' to require complete cessation of business activity. The correct interpretation does not necessitate the seller to cease all business activities or divest all stock-in-trade.Applicability of Precedents from Other High Courts:The Full Bench reviewed various precedents, including Tools and Machineries Ltd. v. State of Madras and State of Tamil Nadu v. Thermo Electrics, and found them not directly applicable. The facts in these cases differed significantly from the present case, where distinct businesses were sold as whole entities.Impact of Amendments to the Kerala General Sales Tax Act:The amendment to section 2 of the Act by the Kerala Finance Act, 1984, which introduced explanation 3(d), was found to have no retrospective effect and did not alter the position regarding the sale of business as a whole. The Full Bench concluded that the legislative intent was to avoid double taxation in such cases.Conclusion:The Full Bench overruled the earlier Division Bench decision in T.R.C. No. 121 of 1977 and upheld the Tribunal's decision granting the assessee exemption u/r 9(g). The tax revision case was dismissed with no costs.