JUDGMENT
Nand Lall Untwalia, C.J.
1. In this sales tax reference case is involved the interpretation of Section 20 of the Bihar Sales Tax Act, 1947 (hereinafter called the Act). The Commercial Taxes Tribunal has stated a case and made this reference under Section 25(1) on the following question of law :
Whether, in the facts and circumstances of the case, the applicant is legally liable to pay the sales tax dues of M/s. Indian Forest Industries Ltd. for the years 1949-48 to 1949-50 under Section 20 of the Bihar Sales Tax Act, 1947?
2. At Konhara Ghat, Hajipur, there is a plywood factory which was at one time owned and run by Indian Forest Industries Ltd. It was a registered dealer under the Act holding Registration Certificate No. MZ. 2298. The said company entered into an agreement with another firm known as Mehta Brothers on 9th February, 1951, by which, according to the case of the department, the entire business run by the company was transferred by it to Mehta Brothers. A formal sale deed dated 5th August, 1955, followed the agreement. After running the factory and business for some time, Mehta Brothers transferred it to Babu and Company in pursuance of an agreement dated 2nd April, 1956, entered into between them. This agreement was also followed by a sale deed dated 11th March, 1959. The name and style of Babu and Company running the factory and business was changed to Hajipur Plywood Factory, the petitioner, at whose instance this reference has been made.
3. Sales tax under the Act was assessed against Indian Forest Industries Ltd. for the years 1947-48, 1948-49 and 1949-50. The managing director of this company was one Shri D.N. Sahay. Certificate proceedings were started against the company and the managing director for realisation of the sales tax dues. A part could be realised and a part remained unpaid. Treating the petitioner to be liable to pay the unpaid sales tax dues due from Indian Forest Industries Ltd. under Section 20 of the Act, a notice was served upon it directing it to show cause why the said dues should not be realised from it. A show cause petition was filed on behalf of the petitioner. The Assistant Superintendent of Commercial Taxes made an order on 7th March, 1962, a copy of which is annexure A to the statement of the case, holding that the petitioner was the transferee of the business within the meaning of Section 20 of the Act and, hence, was liable to pay the dues on account of unpaid balance of the sales tax due from Indian Forest Industries Ltd. The petitioner filed a revision under Section 24(4) of the Act read with the Rules framed thereunder, which was dismissed by the Appellate Assistant Commissioner of Commercial Taxes by his order dated 17th April, 1965, a copy of which order is annexure C. Annexure B is a copy of the revision application filed by the petitioner before him. The petitioner filed a second revision application (annexure D) before the next higher revisional authority. This second revision was dismissed by the Additional Deputy Commissioner of Sales Tax by his order dated 29th October, 1965 (annexure E). Thereafter the petitioner filed a third revision application (annexure F) before the Commissioner of Commercial Taxes. It met the same fate by the Commissioner’s order dated 25th July, 1966, contained in annexure G. A copy of the fourth revision application filed by the petitioner before the Commercial Taxes Tribunal is annexure H. The Tribunal has also dismissed the revision by its order dated 15th March, 1967 (annexure I). All the authorities have held that the entire business in relation to which the sales tax dues are sought to be realised Was transferred by Indian Forest Industries Ltd. to Mehta Brothers, which, in its turn, transferred the entire business to the petitioner. Hence all the authorities below have held that the petitioner is liable to pay the dues which remained due from the first transferor. On being asked to state a case to this Court, the Tribunal has done it and referred the question of law, as already stated.
4. Section 20 of the Act reads as follows :
When the ownership of the business of a dealer, whether registered or not, is entirely transferred, any tax payable in respect of such business remaining unpaid at the time of the transfer shall be payable by the transferee as if he were the dealer, whether registered or not, and the transferee shall also be liable to pay tax on the sale of goods subsequent to the date of such transfer and shall within thirty days of the transfer apply for registration under Section 9.
In order to attract the provisions of Section 20 and to fasten the liability on the transferee, it has to be proved by the department that the ownership of the business in respect of which any tax had remained unpaid has been entirely transferred to the transferee. If the liability is sought to be fastened on the second or the third transferee then at each stage of transfer it must be shown that the ownership of the business has been entirely transferred. One of the points taken on behalf of the assessee before the authorities below was that Section 20 does not cover the case of a second transferee as the petitioner was. This argument has been repelled on the basis of the Bench decision of the Bombay High Court reported in Collector of Sales Tax, Bombay State v. Parimal Brothers [1962] 13 S.T.C. 647. Just a few days ago, this Bench had taken an identical view while interpreting almost an identical provision of law contained in Section 17 of the Bihar Sales Tax Act, 1944. In Doma Sao Mohan Lal v. The State of Bihar through the Collector, Patna C.W.J.C. No. 1241 of 1965 decided on 24th August, 1973, it was said:
Section 17 of the Bihar Sales Tax Act, 1944, is not meant to stop at the first transfer. If it were to be so held, then the very purpose of imposing tax liability on the transferee would be frustrated. Subsequent transfers will be brought into existence to defeat the purpose of realization of tax dues from the transferee, if Section 17 were to be confined to the first transfer only.
5. Mr. Rajeshwari Prasad, the learned Counsel for the petitioner, fairly conceded that be could not justifiably combat the proposition of law enunciated by the Bombay High Court as also by us in the case referred to above. It is, therefore, clear that if two transfers have taken place, the petitioner being the second transferee can also be held liable for payment of tax dues of the first transferor under Section 20 of the Act provided at both the stages of the two transfers, the ownership of the business was entirely transferred. Learned Counsel for the petitioner is right in his submission that if at one stage–either the first or the second–the ownership of the business was not entirely transferred then the second transferee cannot be held liable under Section 20 of the Act. The Tribunal has found in its order that at both the stages the ownership of the business was entirely transferred as the transfer was of a running concern and of a running business and, hence, the petitioner was liable under Section 20 of the Act. The finding of the Tribunal in regard to the ownership of the business of Mehta Brothers having been entirely transferred to the petitioner could not be, and has not been, seriously challenged. But it has been strenuously urged that Indian Forest Industries Ltd. did not transfer the business, in relation to which the sales tax dues remained due, entirely to Mehta Brothers. The company had merely transferred the factory, but retained the business as also the sales tax registration certificate.
6. I now proceed to examine whether the contention put forward on behalf of the petitioner is sound. But before I do so, I may indicate briefly as to what is the concept of a business and what is meant by the entire transfer of ownership of the business. It is, no doubt, true that the concept of business is broader than the factory itself. In Stroud’s Judicial Dictionary, Third Edition, various meanings and concept of the word “business” in various contexts have been pointed out. At page 364 it is said:
‘Business’ has a more extensive meaning than the word ‘trade’, on the other hand, it has been said that ordinarily speaking, business is synonymous with ‘trade’.
At page 368 it is mentioned :
A bequest of the testator’s ‘business’ of the undertaking or enterprise. It will normally include the assets of the business, the stock-in-trade, cash at the bank and so on, subject to its liabilities….
In the case of In re Rhagg: Eastern v. Boyd [1938] 1 Ch. 828, Simonds, J., as he then was, on a review of various authorities, has pointed out that the word “business” in the context in which it was used in the will which was the subject-matter of consideration before the court “bears much the same meaning as when it is said that a man has sold his business. It means the undertaking or enterprise itself, not the process of carrying it on. When, therefore, a solicitor bequeathes his business, or as the bequest must in the present care be read, his share of the business carried on by him in partnership with another, I see no reason for saying that goodwill rather than any other asset passes. If anything passes which is an asset of the business, why should not everything pass which is an asset of the business. And equally if a share in one asset passes, why not a share in all ? There will, no doubt, often be room for controversy what are the assets of the business, whether it be an individual business or a partnership business. But, if an asset can properly be called an asset of the business, I see no reason its exclusion from the bequest, unless a particular context makes exclusion necessary.”
7. In the case of Anakapalle Co-operative Agricultural and Industrial Society Ltd. v. Workmen A.I.R. 1963 S.C. 1489, the question for determination as to whether a purchaser of an industrial concern could be held to be a successor-in-interest of the vendor. In that connection, Gajendragadkar, J., as he then was, posed certain questions and gave answers in paragraph 9 of the judgment at page 1492 to lay down the test for finding out whether the purchaser can be said to have purchased the whole of the business from his vendor. The questions and answers are given in the following terms :
Did the purchaser purchase the whole of the business ? Was the business purchased a going concern at the time of the sale transaction ? Is the business purchased carried on at the same place as before ? Is the business carried on without a substantial break in time ? Is the business purchased carried on at the same or similar to the business in the hands of the vendor? If there has been a break in the continuity of the business, what is the nature of the break and what were the reasons responsible for it ? What is the length of the break ? Has goodwill been purchased ? Is the purchase only of some parts and the purchaser having purchased the said parts purchased some other new parts and started a business of his own which is not the same as the old business but is similar to it ? These and all other relevant factors have to be borne in mind in deciding the question as to whether the purchaser can be said to be a successor-in-Interest of the vendor for the purpose of industrial adjudication. It is hardly necessary to emphasise in this connection that though all the facts to which we have referred by way of illustration are relevant, it would be unreasonable to exaggerate the importance of any one of these facts or to adopt the inflexible rule that the presence or absence of any one of them is decisive of the matter one way or the other. If industrial adjudication were to insist that a purchaser must purchase the whole of the property of the vendor concern before he can be regarded as a successor-in-interest, it is quite likely that just an insignificant portion of the property may not be the subject-matter of the conveyance and it may be urged that the exclusion of the said fraction precludes industrial adjudication from treating the purchaser as a successor-in-interest. Such a plea, however, cannot be entertained for the simple reason that in deciding this question, industrial adjudication will look at the substance of the matter and not be guided solely by the form of the transfer. What we have said about the entirety of the property belonging to the vendor concern will apply also to the goodwill which is an intangible asset of any industrial concern. If goodwill along with the rest of the tangible property has been sold, that would strongly support the plea that the purchaser is a successor-in-interest; but it does not follow that if goodwill has not been sold, that alone will necessarily show that the transferee is not a successor-in-interest. The decision of the question must ultimately depend upon the evaluation of all relevant factors and it cannot be reached by treating any one of them as of overriding or conclusive significance.
It would thus be seen that for the purpose of fastening the liability under Section 20 o! the Act the department has to prove that there has been a transfer of the business in respect of which the unpaid tax dues remained–not only a transfer but that the business has been entirely transferred. In other words, it is necessary to establish that the business as a running concern was transferred and nothing substantial was kept back by the vendor to impair the running of the business by the transferee. The expression “the ownership of the business has been entirely transferred” must mean the transfer of stock-in-trade, the business assets, ordinarily and generally its goodwill which means not only the name but also the place, as observed by Lord Macnaghten in the case of the Commissioners of Inland Revenue v. Muller & Co.’s Margarine Limited [1901] A.C. 217 at 224, and the other properties of the running concern, which were held by the concern for the purpose of carrying on the business.
8. In the background of the law discussed above, I now proceed to refer to the findings recorded by the various authorities and the materials on which it has been so done. The Assistant Superintendent of Commercial Taxes referred to the copy of the sale deed dated 5th August, 1955, executed by Indian Forest Industries Ltd. to Mehta Brothers. It quoted the relevant portion from the preamble of the deed which I shall pointedly refer to when I deal with the Tribunal’s order. On that basis it held that Mehta Brothers was the transferee of the business of Indian Forest Industries Ltd. The second transfer of the business was found on the basis of the agreement dated 2nd April, 1956, entered into between Mehta Brothers and Babu and Company. In the revisional order of the Appellate Assistant Commissioner (annexure C) are mentioned some more facts which would indicate that the transfer was of the ownership of the business and in its entirety. The learned Appellate Assistant Commissioner said :
The term ‘business’ here connotes the plywood factory which was transferred as a going concern by M/s. Indian Forest Industries Ltd. to M/s. Mehta Brothers and by M/s. Mehta Brothers to the petitioner in the manner and on the dates above stated.
It would thus be seen that in the opinion of this authority the business in question of Indian Forest Industries Ltd. was the business of plywood factory, meaning thereby manufacturing certain articles, such as boxes, etc., in the factory and selling them and there was no other kind of business which was being carried on in the premises of the factory. The argument advanced on behalf of the petitioner before this first revisional authority indicates that, according to the petitioner, certain articles of furniture and minor office equipments were retained by the transferor and on that basis it was sought to be argued that the ownership of the business was not entirely transferred. This argument was rejected by the Assistant Commissioner.
9. Coming to the second revisional order (annexure E) passed by the Additional Deputy Commissioner, it would be found that he also agreed with the finding recorded by the Assistant Commissioner. The same kind of argument was advanced before him, meeting the same fate as it did before the first revisional authority. Before him was cited the decision of the Madhya Pradesh High Court in Bajranglal Bajaj v. The State of Madhya Pradesh [1965] 16 S.T.C. 350. This case was distinguished and the finding recorded was that the ownership of the business of the plywood factory was transferred in its entirety and, as such, the provision of Section 20 was clearly applicable. The Commissioner did not pass any detailed order but upheld the orders of the authorities below.
10. Now I proceed to discuss the finding recorded by the Tribunal to see whether it is vitiated in law as being based upon no materials or irrelevant materials or being erroneous in law in its conclusion. The Tribunal has considered the terms of the agreement dated 9th February, 1951, and the sale deed dated 5th August, 1955 (the date mentioned as 25th May, 1956, in its order is a mistake). In the preamble of the sale deed it was stated:
Pursuant to the said agreement the company with the intention to transfer the property and all its rights, title and interest in the said factory handed over possession of the said factory to the firm on the 9th day of February, 1951.
This preamble had to be read and interpreted in the background of the agreement. And, on the terms of the agreement, the definite finding recorded by the Tribunal is that:
…M/s. Indian Forest Industries Ltd. agreed to sell to M/s. Mehta Brothers the entire factory of the company including the leasehold rights of the land measuring 1 bigha 3 kathas and 15 dhurs on which the factory is situate along with the machineries, tools, implements, laboratory equipments, motor-boat, furniture, fixture and office equipments.
Reading the preamble of the sale deed in the background of the terms of ‘the agreement, it is clear that what was transferred by Indian Forest Industries Ltd. to Mehta Brothers was the entire running business. Nothing substantial was shown to have been retained by the transferor so as to take away the effect of the transfer of ownership of the entire business. The factory, leasehold interest, machineries, tools, implements, etc., were transferred and even the motor-boat was transferred. The motor-boat must have been being used for transporting timber or timber products of the factory. It must, therefore, have been a transport vehicle of the business. Transfer of the motor-boat, in my opinion, conclusively shows that the running concern was transferred when the motor-boat was transferred with all the furniture, fixture and office equipments. The transferee, Mehta Brothers, carried on the business of running the factory and selling the products in the same premises; so did the petitioner. In the background of the terms of the agreement, the expression–“transfer the property”–occurring in the preamble of the sale deed must mean the transfer of the business including all rights, title and interest in the business and the factory. On the basis of these documents, the conclusion of the Tribunal is :
…It is clear that M/s. Indian Forest Industries Ltd. transferred the entire business of the factory to M/s. Mehta Brothers within the meaning of Section 20 of the Bihar Sales Tax Act, 1947.
In my opinion, the finding has been recorded on the two materials referred to in the judgment of the Tribunal. The materials were relevant. The conclusion drawn on the basis of the two documents is not vitiated in law. It could not be shown to us that the conclusion drawn by the Tribunal on the wordings of the two documents as to the transfer of the various assets of the business was wrong. If it was not so, the conclusion drawn by the Tribunal that the entire business of the factory was transferred by Indian Forest Industries Ltd. to Mehta Brothers is not vitiated in law.
11. In paragraphs 8 to 10 of the Tribunal’s order are mentioned the various materials to show that the ownership of the business was transferred by Mehta Brothers to the petitioner in its entirety. It is not necessary to refer to those materials and to the conclusion drawn by the Tribunal in any detail as the said conclusion could not be, and has not been, assailed. The final conclusion is recorded in paragraph 11 of the judgment of the Tribunal and, in my opinion, it is correct in law.
12. Learned Counsel for the petitioner cited two more decisions, namely, Bherulal Maniklal Kothari v. The State of Bombay [1962] 13 S.T.C. 703 and Santokh Singh Karam Singh of Malout v. The Punjab State [1973] 31 S.T.C. 77. In the former case, the only assets of the business transferred were the goodwill of the business and the right to use its ten bidi label marks; no other asset of the business was transferred. In those circumstances, it was held that both the goodwill and the trade marks taken together could not amount to the entire business of a trader and the transfer of these two things by themselves could not bring the case under Section 26(1) of the Bombay Sales Tax Act, 1953, which is in pari materia with Section 20 of the Act. In the decision of the Punjab High Court in the case of Santokh Singh Karam Singh [1973] 31 S.T.C. 77, the facts were that the assessee-firm selling cloth as a hawker purchased the entire stock of cloth from a firm carrying on cloth business. The premises in which the cloth business was being carried on by the firm did not belong to it but the tenancy rights therein were transferred by the firm to the assessee. There was no evidence that the goodwill, furniture or the benefits of a running concern, including its assets and liability or account books, were transferred to the assessee. In such a situation, it was held that there was no transfer of business within the meaning of Section 17 of the Punjab General Sales Tax Act, 1948. In the instant case, there is evidence that all assets of the business and the running concern were transferred by the two transferors at the two stages. That being so, neither of the two cases cited on behalf of the petitioner can be helpful to it.
13. For the reasons stated above, the question of law referred by the Commercial Taxes Tribunal is answered in the affirmative against the petitioner and in favour of the commercial taxes department. It is held that, on the facts and in the circumstances of this case, the petitioner was legally liable to pay the sales tax dues which remained due from Indian Forest Industries Ltd. in respect of the years 1947-48 to 1949-50 under Section 20 of the Act. In the circumstances, there will be no order as to costs of this reference.
Sushil Kumar Jha, J.
I agree.