TMI Blog2006 (1) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... d it is not open to the appellants to enforce the liabilities of the defaulting company in this manner against the first respondent. - Civil Appeals Nos. 3170-3173 of 2000, W.P. Nos. 32428 of 1993, 14332, 14442, 14443 of 1998 - - - Dated:- 5-1-2006 - RUMA PAL AND SRIKRISHNA B.N. JJ. L.N. Rao, Senior Advocate (N.D.B. Raju, Ms. Bharathi R., Goodwill Indeevar, Guntur Prabhakar, Naveen R. Nath, Ms. Lalit Mohini Bhat, Ms. Anitha Shenoy and Ms. Hetu Arora, Advocates, with him) for the respondents. Sanjay R. Hegde, Anil K. Mishra, A. K. Mishra and A. Rohen Singh, Advocates, for the appellants. -------------------------------------------------- The judgment of the Court was delivered by B.N. SRIKRISHNA, J. There are three questions of law to be decided in these appeals: Firstly, whether the purchaser of assets of a concern sold by a State Financial Corporation, in exercise of its powers under section 29 of the State Financial Corporations Act, 1951 (hereinafter "the SFC Act"), would be liable under the Karnataka Sales Tax Act, 1957 (hereinafter "the KST Act"), for the arrears of sales tax of the concern whose assets have been transferred. Secondly, under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a letter be addressed to the second appellant to withdraw his letter dated January 8, 1993, as the Corporation was the first charge holder and the assets had been sold to it by the Corporation free of all charges. A letter was addressed, as requested, on July 5, 1993, by the Corporation to the second appellant. On August 11, 1993, the second appellant issued a notice under section 15 of the KST Act informing the first respondent that a charge had been created on the properties of the defaulting company on February 17, 1992, as the latter had defaulted in payment of sales tax. It also noted that the assets of the defaulting company had been transferred from the Corporation to the first respondent on August 12, 1992. It was further stated that the first respondent being the transferee of the business, was jointly liable to discharge the arrears of sales tax of the defaulting company by virtue of section 15(1) of the KST Act. 4.. As the sales tax authorities were not willing to relent, the first respondent moved a Writ Petition No. 32428 of 1993 before the High Court of Karnataka, assailing the claim of the second appellant. The substantive reliefs claimed therein were two-fold: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that, merely because the Corporation had acted in exercise of its power under section 29 of the SFC Act, it did not get any priority over the dues of the State. Therefore, he argued, the Corporation was liable to make good the amount of sales tax arrears of the defaulting company, at least to the extent of the sale proceeds of the assets of the defaulting company. Transfer of "ownership of business" under section 15 of the KST Act: 7.. To determine whether the first respondent is liable for sales tax arrears of the defaulting company, a survey of the applicable provisions in the SFC Act and the KST Act becomes necessary. 8.. Section 2(f-2) of the KST Act defines the expression "business" in an inclusive manner and provides that activities of different nature, as contemplated in sub-clauses (i) and (ii), would be included within the definition of the expression. Section 13(2)(i) of the KST Act provides that if a default is made in making payment of sales tax, then: ".....the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the proper- ties of the person or persons liable to pay the tax or any other amount due un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... species of assets does not necessarily bring about the transfer of the "ownership of the business" for "ownership of a business" is much wider than mere ownership of discrete or individual assets. In fact, "ownership of business" is wider than the sum of the ownership of a business' constituent assets. Above all, transfer of "ownership of business" requires that the business be sold as a going concern Commissioner of Income-tax v. K.H. Chambers [1965] 2 SCR 43 at p. 49; [1965] 55 ITR 674 (SC).. In our view, therefore, section 15(1) is intended to operate only when there is complete transfer of "ownership of business" so as to render the transferee as a successor-in-interest of the transferor. Only in such an eventuality does section 15(1) make the transferee liable for the transferor's sales tax liabilities. 12.. Mr. Hegde referred to two judgments of the Karnataka High Court both of which, unfortunately, take an erroneous view of the matter. In Karnataka State Industrial Investment and Development Corporation Ltd. v. Assistant Commissioner of Commercial Taxes, Bangalore See [2001] 121 STC 520 (Kar)., the High Court held that when section 29 of the SFC Act was read with section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst a transferee if s/he has had no notice of the same, unless by law, the requirement of such notice has been waived. This position has long been accepted by this Court in Dattatreya Shanker Mote v. Anand Chintaman Datar See (1974) 2 SCC 799., and in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai (hereinafter "Ahmedabad Municipal Corporation"). In this connection, we may refer to the latter judgment, which is particularly relevant for the present case. 17.. Ahmedabad Municipal Corporation See AIR 1971 SC 1201. was a case where a person was in arrears of property tax, due under the Bombay Provincial Municipal Corporation Act, 1949. Consequently, the Municipal Corporation created a charge over the property of the defaulter. However, the property was sold in execution of a mortgage decree. When the Municipal Corporation purported to exercise their charge over the property, the purchaser in court auction filed a suit for a declaration that he was the owner of the property and that the arrears of municipal taxes due by the transferor were not recoverable from him by proceeding against the property purchased in auction. In the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut by the correspondence between the first respondent and the Corporation. Thus, it is evident that the first respondent had no actual notice of the charge prior to the transfer. As to whether the first respondent had constructive notice of the charge, no substantive argument on this issue was made, either before the High Court or at any rate before us. Hence, we cannot hold that the first appellant had constructive notice of the charge. 19.. In these circumstances, we are of the view that the first respondent was a purchaser for value without notice of the sales tax arrears of the defaulting company or the consequent charge on the property. This would, therefore, attract the principle laid down by this Court in Ahmedabad Municipal Corporation case See AIR 1971 SC 1201., which is also embodied in the proviso to section 100 of the TP Act. Thus, the property in the hands of the first respondent was free of the charge and it is not open to the appellants to enforce the liabilities of the defaulting company in this manner against the first respondent. The liability of the State Financial Corporation: 20.. Mr. Hegde then turned to his final argument that, in any event, the Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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