1956 (6) TMI 12 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of Section 18 of the Sales Tax Act regarding the liability to pay tax after the transfer of a business.

Analysis:
The judgment dealt with a unique argument presented by the assessee regarding the liability to pay tax after transferring the business to a third party. The assessee contended that upon transferring the business, the liability to pay tax for the period before the transfer shifted solely to the transferee, absolving the transferor from any further liability. The Tribunal accepted this contention, leading to the taxing authority appealing the decision.

Upon examining the relevant sections of the Sales Tax Act, the court highlighted the provisions related to liability, assessment, and registration of dealers. Section 18 of the Act specifically addresses the scenario of business transfer, imposing a three-fold statutory liability on the transferee. The first aspect of this liability is that the transferee becomes liable to pay the same tax as the transferor. The court emphasized that this liability on the transferee does not absolve the transferor from their original tax liability, which was already imposed by Section 5 of the Act.

The court rejected the argument that the transferor's liability automatically ceases upon transferring the business, placing a heavy burden solely on the transferee. It was emphasized that the legislative intent was not to relieve the transferor of their tax liability entirely but to make the transferee also liable for the tax. The court noted that the absence of explicit language in Section 18 absolving the transferor does not imply such absolution.

Furthermore, the court distinguished the provisions of the Sales Tax Act from those of the Income-tax Act, emphasizing that the two statutes should not be equated. The court concluded that the transferor continues to be liable to pay the tax for the periods during which they conducted the business and incurred the tax liability. The court dismissed the argument that the transferor's liability ceases upon transfer and upheld that both the transferor and transferee bear tax liability as per the relevant provisions of the Sales Tax Act.

In conclusion, the court answered the question posed in the negative, affirming that the transferor remains liable to pay the tax even after transferring the business. The court emphasized that the statutory provisions do not relieve the transferor of their tax obligations and do not impose the entire burden on the transferee. The judgment clarifies the interpretation of Section 18 of the Sales Tax Act regarding the apportionment of tax liability in cases of business transfer.