K. Bhaskaran, C.J.
1. When T.R.C. No. 47 of 1983 came up for hearing before a Division Bench of this Court, doubting the correctness of another Division Bench decision of this Court in T.R.C. No. 121 of 1977, the matter was referred to a Full Bench. Inasmuch as the same question of law arose for decision in this T.R.C. also, that was ordered to be posted before the Full Bench along with that T.R.C. No. 47 of 1983 (State of Kerala v. Mary Antony) has since been disposed of by a Full Bench of this Court by judgment dated 2nd April, 1985, however, without deciding the question of law which occasioned the reference to the Full Bench .
2. The facts, in short, in this revision are as follows : The assessee was, during the material time, a dealer in timber, tin, cashew and metal products, having been the proprietor of Datha Tin Works, Coktail Cashew Co., Dat Pathe and C.M. Metal Works. On 30th November, 1973 the assessee sold three Out of four businesses for a consideration of Rs. 8,59,371.41, while retaining his limber business. The assessee claimed exemption from tax under Rule 9(g) of the Kerala General Sales Tax Rules, contending that what had been sold were the separate businesses carried on by a common certificate of registration under his sole proprietorship and that the sales were as a running concern and the purchasers had taken over all the assets and liabilities of the concern as on the date of sale. The Sales Tax Officer overruled this objection. The Deputy Commissioner (Appeals) however upheld the objection and on further appeal the Tribunal confirmed the view taken by the Deputy Commissioner. In this revision filed under Section 41 of the Kerala General Sales Tax Act, 1963 (the Act) read with Rule 41 of the Kerala General Sales Tax Rules, 1963 (the Rules) the following question of law arises for determination :
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding, that the assessee is entitled to exemption under Rule 9(g) of the Kerala General Sales Tax Rules in view of the decision rendered in T.R.C. No. 121 of 1977 of this Honourable Court
3. Section 2(vi) of the Act defines 'business' to include :
(a) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce, or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern ; and
(b) any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern.
Section 2 (xxvii) defines turnover to mean 'the aggregate amount for which goods are either bought or sold, or supplied or distributed, by a dealer, either directly or through another....
Total turnover is defined in Section 2(xxvi) of the Act to mean 'the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax...' and taxable turnover is defined in Section 2(xxv) to mean 'the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed'. Rule 9(g) of the Rules provides that in determining taxable turnover 'all amounts realised by a dealer by the sale of his business as a whole shall be deducted from the total turnover of the dealer'. The Sales Tax Officer, who completed the assessment for the year 1973-74, found that the price for which the three businesses were sold by the petitioner was includible in the taxable turnover. In appeal, the Deputy Commissioner however took the view, that the assessee was entitled to exemption under Rule 9(g) of the Rules with respect to the amounts realised by the sale of three businesses in question. Aggrieved by the decision of the Deputy Commissioner, the State filed an appeal which was dismissed by the Sales Tax Appellate Tribunal. It is in the above circumstances that the Deputy Commissioner of Sales Tax has come up in revision, for a decision on the question of law, Which has been extracted above.
4. In T.R.C. No. 47 of 1983, in which the reference order was passed by the Division Bench, the facts were : The assessee owned a stationery shop and also a jewellery shop. She disposed of the stationery shop but continued the jewellery business. Whether she would be entitled to claim that the sale price of stationery shop should not be included in the turnover was the main question raised in that revision. It was contended before the Division Bench that Rule 9(1)(g) operated to exclude the turnover of such sale of business in case the business was sold as a whole, but that benefit was not given to the assessee on the assumption that since the assessee had, besides the stationery business, another business, that of jewellery, and that too had not been sold, she would not be entitled to the deduction. The Division Bench in the reference order observed as follows :
Prima facie we see reason to uphold such an approach, but attention has been drawn to the decision of this Court in T.R.C. No. 121 of 1977. That decision has relied on a Madras case which is reported in Tools and Machineries Ltd. v. State of Madras [1956] 7 STC 740. We notice that the facts of the Madras case are different in that the business there was not sold as a whole and it was not a case of the assessee having two different businesses. Since the question has been considered earlier by a Division Bench and we doubt the correctness of that decision it is appropriate that we refer this case for hearing by a Full Bench of this Court. Accordingly this case will be heard by a Full Bench....
5. We are in respectful agreement with the observation of the Division Bench in the reference order that the facts of the Madras case were different from those of the case that came up for decision in T.R.C. No. 121 of 1977. In the decision reported in Tools and Machineries Ltd. v. State of Madras [1956] 7 STC 740 the assessee was a private limited company which was carrying On the business in auto-parts and accessories. During the assessment year 1952-53 with which that petition was concerned, the assessee returned its turnover as 'nil'. The Deputy Commercial Tax Officer, however, estimated its turnover at Rs. 96,713.80, that being the amount for which the goods held by it including its furniture were handed over to a proprietary concern byname Associated Trades; The assessee contended before the Deputy Commercial Tax' Officer inter alia that the amount realised by a sale of the stock-in-trade he had was exempted from tax under Rule 5(1)(e) of the Turnover and Assessment Rules, which corresponds to Rule 9(g) of the Rules here. The Madras High Court observed at page 742 of the report thus :
So far as the claim for exemption under Rule 5(1)(h) is concerned; we consider that on the materials placed before the Tribunal and the assessing authorities, their decision is correct. There was here a sale no doubt by this dealer of its entire stock-in-trade, but there was 'no sale of his business as a whole', because (1) the seller continued to be in business and (2) it was retaining in its hands certain of the assets of the business which would be included in the 'whole of the business'.
The above decision was relied on by the Division Bench in T.R.C. No. 121 of 1977. The question that arose in that case was whether a dealer carrying on business in bell metal and arecanuts was entitled to the deduction sanctioned by the Rule 9(g), when he had sold his bell metal business but retained the arecanut business. The Tribunal had held that the rule of deduction in Rule 9(g) should be liberally construed and held that the assessee was entitled to the deduction. Reversing the decision of the Tribunal, the Division Bench observed as follows:
The rule requires as sale of the business 'as a whole', on the terms and construction of the rule, we are inclined to think that there must be a complete cessation of business activity, either by a complete divestiture of the stock-in-trade or a complete transfer or cessation of the business as a whole. Neither of these contingencies has happened here. Despite the transfer of the bell metal business, the assessee continued to be in business and was pursuing his business activities in arecanuts. In the circumstances, we are unable to hold that there was a sale of the assessee's business as a whole.
The decision of the Madras High Court in Tools and Machineries Ltd. v. State of Madras [1956] 7 STC 740 was cited to support this conclusion reached by the Division Bench. As already stated, as rightly pointed out by the Division Bench in the reference order in T.R.C. No. 47 of 1983, the facts of the two cases are not comparable. In one case, the sale was the whole of one of the two distinct businesses carried on by the assessee, while in the Madras case (Tools and Machineries Ltd. v. State of Madras [1956] 7 STC 740) the sale was of stock-in-trade, retaining the rest of the business. The view taken by the Madras High Court that there was no Sale of the business as a whole was perfectly justified on the facts of the case, and that decision could not have been relied on by the Division Bench of this Court in a case where the relevant facts are quite different.
6. The Government Pleader, who argued the case on behalf of the revision petitioner, placed reliance on the decision of the Madras High Court in State of Tamil Nadu v. Thermo Electrics [1977] 39 STC 317. That again was a case in which there was no sale of business as a whole. The finding of the Madras High Court was that the assessee had retained her right to carry on the business of the manufacture and sale of dry cells in areas within the State and some portions of the finished products for sale in some other States. She was also a dealer in heating mantles. The assessee was carrying on the business of purchasing and selling heating mantles and also manufacturing and selling standard cells. Under an agreement, she agreed to give the knowhow of manufacturing the standard cells to a firm in consideration of payment of a royalty of the net sale price of the cells marketed by the firm. The firm was given the exclusive right to manufacture and sell the standard cells in four States and if the firm wanted to market the goods in other States it had to enter into a separate agreement with the assessee. As part of the agreement, the assessee sold all the raw materials and semi-finished goods and also a portion of the finished products. On the facts and in the circumstances of the case, the Madras High Court found that it was not a case where the sale took place after the business activity was given up by the assessee and that Rule 6(d) of the Tamil Nadu General Sales Tax Rules, 1959, which contemplated the transfer of business as a going concern, not a case of transfer of some of the assets alone, would not be applicable.
7. The respondent-assessee, on the other hand, relied on another decision of the Madras High Court in Deputy Commissioner (C.T.) v. Behanan Thomas [1977] 39 STC 325. That was a case in which the Madras High Court held that the assessee, who sold his branch at Ooty as a whole, was' eligible for exemption under Rule 6(d) of the relevant Rules.
8. The single Bench decision of this Court in C.M. Hamsa Haji v. Sales Tax Officer [1967] 20 STC 470 was in a case concerning the transfer by the assessee to a firm, in which he was a partner, of the closing stock in his business. It was held that the stock-in-trade transferred to the firm formed the assessee's capital in the firm, and that such transfer could not be treated as sale of goods. It was also observed that even assuming that there was a sale, it was not a sale in the course of trade or business ; nor was it a transaction by a dealer as defined in the Act.
9. The facts of none of the cases cited, except in T.R.C. No. 121 of 1977, are exactly similar to those in the case on hand. The sale in 39 STC 317 (State of Tamil Nadu v. Thermo Electrics) was only a portion of one of the two branches of business carried on by the assessee; and that was almost the case in 7 STC 740 (Tools and Machineries Ltd. v. State of Madras) also. The sale in 39 STC 325 (Deputy Commissioner (C.T.) v. Behanan Thomas) was that of a branch of the businees, while the transfer in 20 STC 470 (C.M. Hamsa Haji v. Sales Tax Officer was that of the closing stock of the assessee's business to a firm, of which he (the assessee) himself was a partner, to share it with the other partner of the firm, treating it as his capital investment in the firm. The finding of the Tribunal in T.R.C. No. 47 of 1983 was that there was no sale of the stationery shop, and the question of exemption under Rule 9(g) with respect to that transaction did not arise at all.
10. With due respect to the learned Judges who decided T.R.C. No. 121 of 1977, we find it difficult to share their view on the question as to what constitutes 'sale of his business as a whole'. The line of reasoning and the conclusion by them do not appear to be warranted either by the wording of the relevant statutory provisions or by the intention of the Legislature. It is seen observed in para 2 of the judgment as follows :. there must be a complete cessation of business activity, either by a complete divestiture of the stock-in-trade or a complete transfer or cessation of the business as a whole.... Despite the transfer of the bell metal business, the assessee continued to be in business, and was pursuing his business activities in arecanuts.
In terms of the Rules, to attract the exemption provision, complete cessation of business activities on the part of the assessee is not a requirement; nor does it require that the assessee could not continue to be in business or that he could not pursue his business activities in any other trade or business. On the facts of the case, the decision in 7 STC 740 (Tools and Machineries Ltd. v. State of Madras) cited is quite out of place. We are, therefore, constrained to state, with much reluctance though, that the opinion expressed by the Division Bench on the scope and application of Rule 9(g) of the Rules shall stand overruled.
11. What attracts tax is the sale of goods by a dealer in the course of business. It would be illogical and fallacious to equate that for the purpose of Rule 9(g) with the sale of a particular business conducted by the assessee as a going concern. True it is, in the case of sale of business as a whole also there might be transfer of property in the goods in which the assessee is a dealer. The value of such goods is not always separately estimated or fixed. The percentage of the value of such goods in relation to the total amount realised by the sale of the business as a whole could vary from case to case. When we bear in mind the definition of the expressions 'business', 'turnover', 'total turnover' and 'taxable turnover' contained in the Act, we could find that the taxable event is the sale or purchase of the goods by the dealer in the course of business. When a business is sold as a going concern, the buyer might in his turn, sell the goods in the course of his business, and such sale would be exigible to tax ; if at the time of the sale of the business as a whole and also at the later stage, when the buyer from the assessee sells the goods, tax is levied or collected, the effect would be that the goods are being subjected to double taxation. The Legislature presumably wanted to avoid such an anomaly and be fair and reasonable.
12. The amendment, introducing explanation 3(d) to clause (xxi) of Section 2 of the Act by the Kerala Finance Act, 1984 has not altered the position. The explanation reads as follows :
Explanation (3D).--Unless otherwise expressly provided in this Act, any transfer, delivery or supply of any goods referred to in this clause shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and purchase of those goods by the person to whom such transfer, delivery or supply is made.
The amendment came into force on 1st April, 1984, i. e., with no retrospective effect. That apart, even when such delivery supply or transfer is made and is deemed to be a sale, it is open to the Legislature, in the peculiar circumstances and for good reasons, to exclude the amount, if any, realised from such transfer, delivery or supply of goods from the taxable turnover.
13. The agreement referred to in the order of the Tribunal provided that the assessee was to sell and the vendee to purchase the said three businesses as running concerns taking over all assets and liabilities of the said business as on 30th November, 1973. Each of the three businesses sold, though conducted under the same registration and proprietorship of the assessee, was a separate business.
For each separate Balance Sheet and Profit and Loss Account used to be prepared to find out the trade results. The sale of each of the businesses was as a whole, and no part of the sold business was retained by the respondent (the assessee).
In the light of the foregoing discussions, we dismiss this tax revision case. No costs.