DEPUTY COMMERCIAL TAX OFFICER & ANR. vs. SHA SUKHRAJ PEERAJEE

CIVIL APPEAL No. 696/1966Supreme Court[1967] 3 S.C.R. 66117 April 1967Bench: 3 JudgesAuthor: J.C. SHAH, S.M. SIKRI, V. RAMASWAMI7 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court dismissed the appeal. Firstly, it held that Rule 21-A was beyond the rule-making power of the State Government under Section 19(1) or 19(2)(c) and was therefore ultra vires the Act. The Court noted that while an amendment in 1959 expressly made a transferee liable for transferor's arrears, no such provision existed during the period in question. The 'assessment' power under Section 19(2)(c) was interpreted not to include recovery from a person other than the assessee. Secondly, the amended Section 10, which created a charge on property, came into force on October 8, 1956, after the business transfer instrument dated October 5, 1956, rendering it inapplicable. Thirdly, the Court held that the State Government could not rely on the private instrument between the transferor and transferee to establish a contractual obligation with the transferee, as the State was not a party to it. The High Court's judgment was upheld.

What were the facts?

The respondent purchased a business from a dealer on October 5, 1956. The dealer had sales tax arrears for the assessment years 1948-49 and 1949-50. The sales tax authorities sought to recover these arrears from the respondent as the purchaser. The respondent's contention of non-liability was overruled by the Deputy Commercial Tax Officer and the Board of Revenue. A Writ Petition filed by the respondent was dismissed by a Single Bench of the High Court, but a Division Bench allowed a Letters Patent Appeal, holding Rule 21-A of the Sales Tax Rules, under which recovery was sought, to be illegal and ultra vires the Act. The department appealed to the Supreme Court.

What were the issues?

1. Whether Rule 21-A of the Sales Tax Rules is valid, having been made in exercise of the rule-making power under sections 19(1) and 19(2)(c) of the Madras General Sales Tax Act, 1939, for the assessment of businesses where ownership has changed. 2. Whether Section 10 of the Act, as amended, which charges outstanding tax on the property of the person liable, allows recovery from the purchaser of the business. 3. Whether the registered instrument dated October 5, 1956, creates a contractual obligation for the respondent to pay the sales tax arrears. Assessee's arguments: The respondent argued that Rule 21-A was illegal and ultra vires, and therefore, he was not liable for the sales tax arrears of the transferor. The High Court Division Bench agreed with this contention. Revenue's arguments: The department contended that Rule 21-A was valid under sections 19(1) and 19(2)(c) as it provided for assessment of businesses with changed ownership. They also argued that Section 10 created a charge on the business property for tax arrears, allowing recovery from the purchaser. Furthermore, they argued that the sale instrument implied an undertaking by the respondent to pay such liabilities.

Which sections of the Income-tax Act were involved?

Section 19(1),Section 19(2)(c),Section 10,Section 3,Section 4

AI-generated summary — verify with the full judgment below

A DEPUTY COMMERCIAL TAX OFFICER & ANR. B c D E F G H v. SHA SUKHRAJ PEERAJEE April 17, 1967 [J. C. SHAH, S. M. SIKRI AND V. RAMASWAMI, JJ.] Madras General Sales Tax Act IX of 1939---<1. 19(1), (2) (c)-Whe- ther purchaser of business of 'dealer' liable for arrears of sales-tax due from dealer prior to ·amending Act I of 1959. By a registered instrument dated October 5, 1956, the respondent purchased the business carried on by a dealer as defined in. the Madras General Sales Tax Act IX of 1939. The dealer had been assessed to 8'8les tax in respect of his turnover for the years 1948-49 and 1949-50 and had paid a part of the sales tax determined as due from him with the balance amount remaining in arrears. The sales tax authorities. attempted to re- cover the arrears from the respondent as the purchaser of the business and although he denied liability, his contention was overruled by the Deputy Commercial Tax Officer. His appeal to the Board of Revenue was also dismissed and he thereafter filed a Writ Petition under Art. 226 of the Constitutlon1 challenging the orders of· the C.T.O. and the Board. A Single Bench or the High Court dismissed the appeal but a Div

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