1950 (5) TMI 37 - HC - Income Tax

Purchaser not Liable for Prior Tax: Calcutta HC Clarifies Excess Profits Tax Act Interpretation

The Calcutta High Court, in a case involving the interpretation of Section 14(2) of the Excess Profits Tax Act, ruled that the purchaser of a business, ... - Issues:Interpretation of Section 14(2) of the Excess Profits Tax Act in relation to liability for excess profits tax on a business sold to a new owner.Analysis:The judgment by the Calcutta High Court, delivered by Justice Sinha, pertains to a reference under Section 66(1) of the Income-tax Act. The primary issue at hand is whether Section 14(2) of the Excess Profits Tax Act acts as a bar to the recovery of excess profits tax from the purchaser of a business, as per the specific circumstances outlined in the case. The case involves an assessment made on an unregistered firm for the accounting period from 1st May, 1944, to 30th April, 1945, resulting in a net demand of &8377; 1,48,260. Subsequently, the business was sold to a new owner, Ramnath Bajoria, who assumed certain liabilities as per the agreement.The agreement between the firm and the purchaser, Bajoria, contained a clause stating that all income tax and excess profits tax for a specific period, along with other liabilities, would be the responsibility of the purchaser. However, it was established that the demand notice served was for a period preceding the one mentioned in the agreement. The Appellate Assistant Commissioner ruled that Bajoria was not the liable party for the excess profits tax, leading to an appeal by the Commissioner of Income-tax to the Appellate Tribunal. The Tribunal concurred that Bajoria could not be held liable under Section 14(2) of the Excess Profits Tax Act.The Court emphasized that Bajoria's liability was not established for the period covered by the demand notice. Despite the clause in the agreement mentioning future tax liabilities, the Court held that it did not make Bajoria accountable for the previous excess profits tax assessment. Therefore, the Court concluded that Bajoria was not chargeable for the excess profits tax amount in question. Chief Justice Harries concurred with Justice Sinha's opinion, leading to an affirmative response to the question posed in the reference.In conclusion, the judgment clarifies the application of Section 14(2) of the Excess Profits Tax Act concerning the transfer of tax liabilities to a new business owner, highlighting the importance of specific contractual terms and the timeline of tax assessments in determining liability.