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1990 Supreme(Mad) 950
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE VENKATASWAMI & THE HONOURABLE MR. JUSTICE ABDUL HADI
State of Tamil Nadu - Appellant
Versus
T.M.T. Drill Private Limited - Respondents
T.C. No. 345 of 1981
Decided On : 05 November 1990
Transfer of specific assets is not a sale of business as a whole and therefore not covered by rule 6(d) of the Tamil Nadu General Sales Tax Rules.
Headnote:
TAMIL NADU GENERAL SALES TAX RULES - RULE 6(D) - SALE OF BUSINESS AS A WHOLE - TRANSFER OF SPECIFIC ASSETS - NOT A SALE OF BUSINESS AS A WHOLE - NOT COVERED BY RULE 6(D) - TURNOVER CHARGEABLE TO TAX.
Fact of the Case:
The assessee-company transferred certain specific assets, namely, plant and machinery, car, furniture and fittings, land and buildings, to a newly floated private limited company. The Sales Tax Appellate Tribunal deleted the turnover of Rs. 6,29,700 from assessment for the assessment year 1977-78 on the ground that it is the turnover coming under rule 6(d) of the Tamil Nadu General Sales Tax Rules, which provides for deduction of amounts realized by a dealer by sale of his business as a whole from the total turnover.
Finding of the Court:
The court held that the transaction was not a sale of assessee's "business as a whole" as per the finding of the Tribunal itself, but only a transfer of certain specific assets. Therefore, rule 6(d) of the Rules was not applicable.
Issues: Whether the transaction was a sale of assessee's "business as a whole" as per the finding of the Tribunal itself, but only a transfer of certain specific assets.
Ratio Decidendi: The court held that the transaction was not a sale of assessee's "business as a whole" as per the finding of the Tribunal itself, but only a transfer of certain specific assets. Therefore, rule 6(d) of the Rules was not applicable. The court also held that the shares given in lieu of the plant and machinery, etc., are to be taken as "cancellation of one debt by another".
Final Decision: The court allowed the tax revision case and set aside the deletion by the Tribunal of the abovesaid turnover, holding that the said turnover is chargeable to tax.
ABDUL HADI, J.
This tax revision case is against the order of the Sales Tax Appellate Tribunal deleting a turnover of Rs. 6, 29, 700 from assessment for the assessment year 1977-78 on the ground that it is the turnover coming under rule 6(d) of the Tamil Nadu General Sales Tax Rules (hereinafter referred to as "the Rules"). The said rule provides that in determining the taxable turnover, amounts realised by a dealer by sale of his business as a whole shall be deducted from the total turnover of the dealer. But, it is clear that the Tribunal is wrong in treating the transaction as a sale of assessee's "business as a whole". As per the very finding of the Tribunal, the transaction was only a transfer of certain specific assets of the assessee-company, viz., plant and machinery and car of the above referred to value of Rs. 6, 29, 700 and furniture and fittings to the tune of Rs. 1, 26, 010 and land and buildings to the tune of Rs. 13, 54, 500. So, it cannot be considered as a transfer of "business as a whole", that is, transfer of all the assets and liabilities (or at least of the assets and liabilities of one branch of the assessee's business), as was the case in Deputy Commissioner (CT) v. Behanan Thomas 1976 (5) CTR 489, 1977 (39) STC 325 (Mad.). The Tribunal itself observed as follows :
"In the appellant's case, we find, that the appellants have taken steps to enter into collaboration agreement with M/s. Chicago Pneumatic Tool Company Ltd., of U.S.A., for which it has become necessary to initially float a private limited company to be a wholly owned subsidiary company of the appellants. Accordingly in the meeting of the Board of Directors of the appellants' company on March 19, 1977, a resolution was passed to float the wholly owned subsidiary company which was a private limited company as Revathy Equipments (P) Ltd., to which the fixed assets of the appellants' company to the value of Rs. 21, 10, 210 have been transferred in the name of the newly floated company, Revathy Equipment Private Limited. The fixed assets so transferred included a machinery to the value of Rs. 5, 92, 700 and motor cars for Rs. 37, 000" *
.So, what was transferred was not the business of the assessee as a whole, but only its "fixed assets". To such a case, the above referred 1976 (5) CTR 489, 1977 (39) STC 325 (Mad.) (Deputy Commissioner v. Behanan Thomas) will not apply. In the above referred 1976 (5) CTR 489, 1977 (39) STC 325 (Mad.) it was only held that even when a branch of the assessee's business, which was an independent unit by itself, was sold, rule 6(d) of the Rules could be applied. In the decision in State of Tamil Nadu v. Thermo Electrics 1977 (1) CTR 256, 1977 (39) STC 317 (Mad.) also it was reiterated that rule 6(d) contemplates transfer of the business as a going concern and not as a transfer of assets alone.
2. In answer to another question that was posed by one of us, namely, whether the above transaction would not be a sale because there was no money consideration as such but only shares were allotted in the name of the new company floated, the decision in Premier Electro Mechanical Fabricators v. State of Tamil Nadu 1984 (55) STC 371 (Mad.) was brought to our notice. It was a case similar to the present one. The following observations therein answer the said question :
"In the Tamil Nadu General Sales Tax Act, 1959, the expression 'sale' is defined as every transfer of property in goods by one person to another in the course of business 'for cash or for deferred payment or for other valuable consideration'. The learned counsel's point was that the expression 'valuable consideration', occurring in the definition cannot be given a wide meaning so as to include the allotment of fully-paid shares in consideration of passing of title in the goods as in the present case. The learned counsel referred to a decision of the Supreme Court in Devi Dass Gopal Krishnan v. State of Punjab 1967 AIR(SC) 1895, 1967 (20) STC 430, 1967 (3) SC
