Assessment of turnover of a dissolved firm.

On 15th August, 1950, Ponnuswami Gramani, the Petitioner entered Into a partnership with one Kurshidulla Sahib for carrying on a business in hides and skins. The name of the firm was Ponnuswami Gramani and Kurshidulla Company and its place of business was in Periamet, Madras. By an instrument, dated 29th. January, 1952, the partnership was dissolved with effect from 15th January, 1952. Notice of the dissolution was given to the Registrar of Firms, Madras and also by advertisement in a Tamil newspaper. By the terms of the instrument of dissolution, Ponnuswami Gramani relinquished all his interests in the partnership in favour of Kurshidulla Sahib who took over all its assets and liabilities. Kurshidulla continued to do business in the same commodities.

On 31st March, 1953, that is to say, long after the deed of dissolution had been executed, the Deputy Commercial Tax Officer, Moore Market Division, Madras, assessed the firm of Ponnuswami Gramani and Kurshidulla Company to sales tax for the year 1950-51 in a sum of Rs. 2,551-8-5. Similarly on 26th March, 1955, he assessed the firm to sales tax for the year 1951-52 in a sum of Rs. 7,053-11-5. The petitioner represented to the Sales Tax Authorities that in view of the fact that the firm had been dissolved in 1952 sales-tax should be assessed on and collected only from Kurshidulla Sahib. His objections, however, were overruled, and, the appeal he preferred to the Special Commercial Tax Officer was dismissed.

On 6th January, 1959, the Special Deputy Tahsildar for sales tax collections served a notice on the petitioner threatening to attach and sell his properties in case he failed to pay the arrears claimed within three days thereafter. The Village Munsif of Puzhal also served a notice on the petitioner the same day under the Madras Revenue Recovery Act, 1864. The petitioner has, therefore, come to this Court for the issue of an appropriate writ to prohibit the Collector of Chingleput, the Special Deputy Tahsildar and the Village Munsif from taking any steps to recover the amounts claimed from him. It should be added that out of the amounts claimed by the department the petitioner has paid in all Rs. 1,200 out of which Rs. 1,000 was paid during the pendency of these writ proceedings and without prejudice to his contentions.

Mr. Balasubramanyam, the learned advocate for the petitioner, argued the matter very elaborately and very carefully. His contentions may be summarised as follows:-

(1) The Madras General Sales Tax Act treats a firm as a taxable entity.. Section 3 of the Act declares that every dealer shall pay for each- year a tax on his total turnover in the manner thereinafter laid down. The Explanation to clause (b) of section 2 makes it clear that a firm which carries on business is a dealer for the purposes of the Act. Rules 19 and 20 of the Madras General Sales Tax Rules emphasise the point. For certain purposes the Partnership Act itself recognises a firm as a distinct entity and it is this concept which has been carried over into the General Sales Tax Act. This has been explained by Subba Rao, J., in Public Prosecutor v. Jacob Nadar1. The head-note to that case runs as follows:-

“ Under the Madras General Sales-tax Act, 1939, a firm is a person and for purposes of asses-ment it is treated as one entity. In default of payment pursuant to a notice under section 15 (4) the firm is also liable to be prosecuted. Rule 19 of the Madras General Sales Tax Rules, 1939, does not override the provisions of the Act” .

(2) When a firm is dissolved - as a firm in the present case has been dissolved - it ceases to exist as a taxable entity. Even under the Indian Partnership Act a firm is recognised as an entity distinct from the persons constituting it. But that will be so long as the firm exists and continues to carry on business. If it ceases to exist as an entity no assessment can be made upon it, and, if no assessment can be made upon it, it follows a fortiori that no demand can