1996(3) ALL MR 44
IN THE HIGH COURT OF JUDICATURE AT BOMBAY

E.S. DA SILVA, J.

Shri Barnabas Procupio George Vs. Union Of India & Ors.

First Appeal No. 82 of 1990

25th April, 1995

Petitioner Counsel: Shri S. S. KANTAK

Goa, Daman and Diu Sales Tax Act (1964), S.24(4) - Successor in business - Person having business premises initially running business through dealer and on his surrendering business to him giving it to another dealer to run it - Liability of second dealer for payment of Tax for period prior to starting his business.

Sales Tax - Liability of dealer who has taken over business from another dealer to pay tax for period prior to starting his business.

In the present case, the premises and the business which belonged to F was registered in his name. F initially went on running the business through D on royalty basis by agreement, D was a registered dealer under the Goa, Daman and Diu Sales Tax Act, 1964. Subsequently D terminated the said agreement and surrendered the business to F who in turn gave it by agreement to the appellant to run it again on royalty basis, the appellant commenced the business in his own name and style, got registered the establishment as an independent dealer under the Sales Tax Act and started paying sales tax on goods sold by him. He had no connection with the business of D. He was only a bonafide purchaser for price of the goods which belonged to D. By the agreement between the appellant and D, the former was not responsible for any liability of D prior to the date of the agreement either with the Government departments or other public parties.

Held that the business must be treated as continued to be of F, although the same was being run and managed by the appellant. The appellant did not become a successor in the business run by D. There was no attempt on the part of D to transfer the business to the appellant and being so the question of the appellant having taken over the business from the establishment of D did not arise at all. Therefore, any liability for payment of tax which was found to be owned by D cannot be saddled on the appellant. It was F, at the most who could have been made responsible jointly with D for payment of tax. [Para 5,6]

JUDGMENT

JUDGMENT :- This appeal is directed against the judgment of the learned district Judge, Margao, dated April 11, 1990 in Civil Suit No.117 of 1981 whereby the learned Judge dismissed the appellant's suit with costs.

2. The case of the appellant is that he is a business-man dealing in readymade garments in the suit premises situated opposite to the Bank of India, Margao, under the name of 'George Garments'. The shop premises belongs to the Grace Church of Margao and was let out by the Church to one Vaman Falari. The appellant obtained the shop from said Falari on lease by an agreement dated March 6, 1975. Prior to that Falari had entrusted the running of the readymade garments business in the said shop to one Shri L. D'Souza on payment of royalty compensation under Agreement dated September 12, 1974 executed between Fallari and D'Souza. At that time the business in the shop was being run under the name and style of 'Tip Top'. However due to losses suffered by D'Souza he decided to close the business and vide letter dated March 6, 1975 addressed to Falari terminated the Agreement dated September 12, 1974 with effect from March 6, 1975. The said D'Souza while running and managing the business of 'TIP TOP' had got himself registered as a dealer under the Goa, Daman and Diu Sales Tax Act, 1964 as well as the Central Sales Tax Act. After the termination of the Agreement by D'Souza the shop was handed over by Falari to the appellant vide Agreement dated March 6, 1975 but some stock, furniture and fitting of D'Souza were purchased by the appellant since he was intending to start the same business in his shop. The appellant acquired the stock from D'Souza for a total consideration of Rs.16,000/-.

Thereupon upon commencement of the business in the shop by the appellant in the name and style of 'George Garments' the appellant applied for and got registered the establishment from respondent no.3 as an independent dealer under the said Act. The appellant started thereafter paying sales tax on whatever goods sold by him in the course of the business. Thus the appellant had no connection with the business of D'Souza neither he has anything to do with dealer's licence held by him. The appellant was only a bona fide purchaser for price of the goods which were belonging to D'Souza and on resale of these goods the appellant paid sales tax to respondent no.3 as an independent dealer.

3. It appears that D'Souza was found liable for payment of sales tax for periods prior to taking over of the shop premises and starting the business by the appellant. Respondent no.3 also found that D'Souza was in arrears of taxes. Respondent no.3 then issued 3 certificates of recovery to respondent no.5 to exercise powers of respondent no.4 for recovery of the arrears of sales tax found payable by D'Souza. The total sales tax found payable by D'Souza for the period from 1.4.1972 to 31.4.1975 under the 3 certificates amounts to Rs.13,162.45. In the said certificates issued by respondent no.3 the name of the dealer shown is D'Souza and, at the same time, it is mentioned that the appellant is the person responsible for payment as successor of D'Souza. After all representations and appeal to the Administrative Tribunal failed the appellant filed a Civil Suit No. 117/1981 before the District Judge wherein on an application for temporary injunction the Court granted relief of temporary injunction the Court granted relief of temporary injunction from recovery of those amounts till disposal of the suit. However after the trial and hearing both the parties the learned District Judge passed the impugned judgment and decree dismissing the suit with costs.

4. Shri Kantak, learned counsel for the appellant, has submitted that the judgment of the District Court is wrong inasmuch as it overlooked the scope of the petition under section 24(4) of the Sales Tax Act under which the liability to pay the sales tax falls on the third person only in case such person is a successor in business of the said dealer. the learned counsel invited my attention to the said provision where a dealer liable to pay tax under this Act, transfers or otherwise disposes of his business in whole or in part or effects any change in the ownership thereof, in consequence of which he is succeeded in the business or part thereof by any other person. It was urged that the premises and business belongs to Falari who initially went on running the establishment under the name and style 'Tip Top' through D'Souza. The establishment was registered in the name of Falari and it was given on royalty to D'Souza to run and manage it by Agreement dated September 12, 1974. On March 6, 1975 D'Souza terminated the said Agreement and surrendered the business to Falari who in his turn gave it to the appellant to be run again on royalty basis.

5. I have gone through the impugned judgment and with respect I am unable to support the reasoning of the learned District Judge while holding that the Appellant under the Agreement dated March 7, 1975 has for all legal and practical purposes taken over the establishment or the business of D'Souza to run it in his name although under the name and style of 'George Garments'. A perusal of the provision of Clause 24(4) of the Sales Tax Act clearly reveals that in the instant case none of the ingredients of the aforesaid Clause can be said to be present or arisen so as to bring the appellant within the purview of the aforesaid Clause. In this regard the clauses of the Agreement dated March 7, 1975 executed between D'Souza and the appellant indicate that what was meant by the appellant while dealing with the said D'Souza is to purchase the stock of readymade garments, furniture and fittings lying in the shop TIP TOP for certain value and on certain terms and conditions, being (1) the payment of part of the price directly to D'Souza and (2) the balance to be paid to the State Bank of India towards his liability in respect of the said Bank. The Agreement is also clear in reciting that the appellant shall not be responsible for any other liability of D'Souza prior to the date of this Agreement either with the Government departments or other public parties in respect of the amount of Rs.9,929/- to the State Bank of India. Further there is another aspect in that Agreement besides the one regarding the purchase of stock which may be called and involve some sort of labour contract between the appellant and D'Souza whereby D'Souza has agreed to stitch garments for the appellant at certain rates and conditions. In addition the letter dated March 6, 1976 addressed by D'Souza to Falari wherein he gives a notice of termination of the Agreement dated September 12, 1974 immediately right from that date also indicates that due to the losses in business he is unable to manage the same and therefore he is willing to cease the business which he was running on behalf of Falari in the said premises. The contents of this letter are thus inconsistent on any attempt on the part of D'souza to transfer the business to the appellant and being so the question of the appellant having taken over the business from the suit establishment of D'Souza does not seem to arise at all. This being the position Shri Kantak is right in his grievance against the impugned judgment to the extent that the same holds, while interpreting Clause 2 of the Agreement dated March 7, 1975 that the appellant has become a successor in the business run by D'Souza. Such an interpretation in my view appears to amount to an impermissible misreading of the said Agreement which is deemed to have been negativated by the facts and circumstances of the case.

6. As the position stands it appears obvious that the appellant cannot be said to be owner of any business which is being run in the suit establishment which business is to be deemed as belonging to Falari who is the lessee of the premises in respect of its owner. The said business is to be held as continued to be of Falari although the same is being run and managed by the appellant on the basis of payment of royalty to the said Falari. therefore any liability which was found to be owned by D'Souza who was managing Falari's business previously cannot be saddled on the appellant and at the most it is Falari who could have been made responsible jointly with D'Souza for the payment of the said liability.

7. In the result the appeal is bound to succeed and is hereby allowed. The judgment of the learned District Judge dated April 11, 1990 is quashed and set aside. The suit of the appellant is allowed and decreed as prayed for. there will be however no order as to costs.

Appeal allowed.