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Judgment
THE appellants/defendants have filed the present appeal being aggrieved by judgment and decree dated 28.02.2001 passed by Xth Additional District
Judge, Indore in Civil Suit No.63-A/1999, whereby the civil suit has been decreed in favour of the Respondent/plaintiff.
[2] Facts of the case for effective disposal of this appeal are as under :-
(a) Smt. Geetabai, w/o Late Narayandas Kabra, filed the suit seeking relief of declaration against the defendants in respect of House No.241 (Old
No.198), Jawahar Marg, Indore. By way of this suit, the plaintiff sought the relief of declaration that the sales tax and penalty over M/s Kitchen Aid
cannot be made from her. She also sought relief of declaration that the said recovery cannot be made by way of attachment and auction sale of the
suit house No.241, Jawahar Marg, Indore owned by her. According to the pleading made in the plaint M/s Kitchen Aid is a Partnership Firm engaged
in the business of sale of edible oil, processing and re-packing etc. The factory of the Firm is situated at 88 Agrasen Nagar, Indore and the Firm is
having registered office at 241, Jawahar Marg, Indore i.e. the suit house. The Firm is run by its Parners, namely, (i) Shyamsunder s/o Punamchand;
(ii) Ishwardas s/o Badribnarayan and (iii) Shyamsunder s/o Narayandas Kabra. Shyamsunder Kabra is son of the plaintiff. According to plaintiff she
had become exclusive owner of the suit house by way of declaration given in judgment and decree dated 09.03.1984 passed in Civil Suit No.3/79A.
The suit house was initially owned by the husband of the plaintiff who sold the same by way of registered sale-deed dated 14.11.1975 to Smt.
Savitridevi w/o Devendra Kumar Khandelwal; Smt. Krishna w/o Govind Khandelwal and Govind s/o Tulsiram Khandelwal. Thereafter all these three
purchasers filed the Civil Suit No.3/79A before the Additional District and Sessions Judge, Mhow Camp, Indore for the relives of eviction, arrears of
rent and means profits against Narayan das and ors . In the said suit, the compromise was arrived between the plaintiffs and the defendants whereby
the plaintiffs had relinquished their rights over the suit house and admitted the ownership of the present plaintiff Geetabai Kabra .On the basis of said
compromise the learned Additional District Judge passed the decree dated 09.03.1984, and due to which present plaintiff is treating herself the owner
of the suit house.
(b) That the Sales Tax Department had assessed the Sales Tax and Penalty of Rs.37,50,180-00 for the period commencing from 01.02.1979 to
31.03.1980 against the Firm M/s Kitchen Aid. In order to recover the aforesaid amount, the defendant No.3 issued a sale proclamation dated
11.02.1993 under Section 147 (A) of the M. P. Land Revenue Code, 1959 and directed the plaintiff to pay the amount of Rs.37,50,180-00 failing
which the suit house would be sold by way of auction proceeding on 27.02.1993. The plaintiff submitted an objection which was turned down. Being
aggrieved by the recovery proceedings, Shyamsunder Kabra and other two Partners filed the suit for permanent injunction in which vide order dated
16.08.1990 (Ex.P/1) the temporary injunction was granted whereby the defendants were restrained to auction the suit house i.e. 241, Jawahar Marg,
Indore and House No.88, Agrasen Nagar, Indore. The defendant No.3 vide order dated 07.04.1995 turned down the objections of the plaintiff in
respect of the recovery proceedings which gave her cause of action to her to file the present suit.
(c) After receipt of the summons, the defendants filed their written-statement refuting the averments made in the suit.
(d) On the basis of the pleadings, the Trial Court framed 3 issues for adjudication which are as under :-
 “okn fo""k;
1- D;k okfnuh edku uacj&241 tokgj ekxZ bankSj dh ,dek= Lokfeuh ,oa vf/kifr gS \
2- D;k okfnuh ds iq= ';kelqUnj ds QeZ fdpu ,M esa ikVZuj gksus ds dkj.k] mlds fgLls dh izfroknhx.k dh lsYl VSDl o isukYVh dh jde dh olwyh gsrq
nkfo;k edku dqdZ dj foØ; fd;k tk ldrk gS \ izHkko \
3- lgk;rk ,oa okn&O;; \â€
(e) In support of pleadings and the relives claimed in the suit, the plaintiff herself did not enter into the witness box. Shyamsunder Kabra, being a son
of the plaintiff, examined himself as PW-1 and examined Vivek Navlekar, Manager (Credit), Bank of Baroda, Sheetala Mata Branch, Indore as PW-
The certified copy of order dated 16.08.1990 passed in Civil Suit No.30/89A was got exhibited as Ex.P/1; sale-deed executed by Narayandas
Kabra dated 14.11.1975 was got exhibited as Ex.P/2 and judgment and decree dated 09.03.1984 passed in Civil Suit
(f) In defence, the defendants examined Shri V.K.Pandey, Commercial Tax Officer as DW-1 and Shri Mohanlal, Senior Branch Manager, Bank of
Baroda, Sheetala Mata Branch, Indore as DW-2. The defendants got exhibited search report dated 01.03.1994 as Ex.D/1, Memorandum of deposit of
title deed dated 04.03.1994 as Ex.D/2 and the Memorandum of deposit of title deed dated
(g) The learned Additional District Judge while answering Issue No.1 has held that Smt. Geetabai is exclusive owner of the property by virtue of
judgment and decree dated 09.03.1984 (Ex.P/3). While answering IssueNo.2, the learned Additional District Judge has held that the sales tax and the
penalty cannot be recovered from the suit property as the same belongs to Smt. Geetabai.
(h) The learned Additional District Judge vide judgment and decree dated 28.02.2001 has decreed the suit in favour of the plaintiff by restraining the
defendants to auction the suit house for recovery of the sales tax and penalty against the Firm. The learned Additional District Judge held that by
virtue of judgment and decree dated 09.03.1984 passed in Civil Suit No.3/79A the plaintiff had become the exclusive owner of the suit house and since
she is not Partner in the Firm, therefore, no recovery can be made from her. Being aggrieved by the aforesaid judgment and decree, the State
Government through Commercial Tax Department have filed the present appeal.
[3] During pendency of this appeal, sole plaintiff Smt. Geetabai has expired and her legal representatives, including Shyam Sunder Kabra, have been
brought on record.
[4] Shri Amit Singh Sisodia, learned Govt. Advocate appearing on behalf of the appellants/defendants argued that the learned Court below has
committed error of law as well as on fact while decreeing the suit when the plaintiff did not enter into the witness box. Since the plaintiff has failed to
prove her case, therefore, she is not entitled for decree. Shyamsunder Kabra examined himself as PW-1 without any Power of Attorney on behalf of
the plaintiff, therefore, on this ground alone entire judgment and decree are liable to be set-aside. He further submitted that the judgment and decree
dated 09.03.1984 passed in Civil Suit No.3/79A is not binding on the defendants as the State Government was not party in the said suit. The recovery
is pertaining to the period commencing from 01.02.1979 to 31.03.1980 and in order to save the property, Narayandas Kabra had sold the property to
Smt. Savitridevi w/o Devendra Kumar Khandelwal; Smt. Krishna w/o Govind Khandelwal and Govind s/o Tulsiram Khandelwal and thereafter loan
amount was paid by him and got the property transferred in the name of his wife. Therefore, in order to avoid the recovery of the sales tax and
penalty against the Firm these three suits were filed by the family members of Narayandas Kabra. Now the plaintiff has expired and his son
Shyamsunder Kabra has been brought on record as legal heir and since Shyamsunder Kabra is a Partner in the Firm, therefore, recovery can be made
against him by way of sale of the suit house.
[5] Shri B.I.Mehta, learned Senior Counsel appearing on behalf of the Respondents argued in support of the judgment and decree by submitting that
under the provisions of Madhya Pradesh General Sales Tax Act, 1959 no recovery can be made from the properties of the Partners of the Firm, as
the Firm is a separate and individual entity. In support of his contention, he has placed reliance over the judgment of the Apex Court passed in the
case of Commissioner of Sales Tax, Madhya Pradesh v/s Radhakrishan [AIR 1979 SC 1588]. He has further emphasized that Smt. Geetabai
(Plaintiff), during her life time, was the exclusive owner of the property and she was not the Partner in the Firm, therefore, her property cannot be
attached or put to sell for recovery of the sales tax and penalty against the Firm, the learned Trial Court has rightly decreed the suit and the same is
not liable to be interfered.
[6] In the considered opinion of this court, the core issue which is under consideration in this appeal is whether the judgment and decree dated
28.02.2001 is sustainable in law in absence of deposition of plaintiff as she did not enter into the witness box to prove her case ? That Shyam Sunder
Kabra being a son of plaintiff examined himself as PW-1 but he was not given any Power of Attorney to appear as a witness on behalf of the
plaintiff. The burden of prove the was only on the plaintiff to prove her case and said cannot be shifted under Order III Rule 1 and 2 of CPC to
attorney holder. The holder of Power of Attorney can act on behalf of the principal only in respect of the act done by the principal but he cannot
depose in place of principal. The similar issue came up for consideration before the Apex Court in the case of Janki Vashdeo Bhojwani v/s Indusind
Bank Ltd. [(2005) 2 SCC 217]. Para 10, 11, 12 and 13 are reproduced below :-
“10. The second fallacy of the order of Tribunal was allowing Mr.V.R.Bhojwani (power of attorney holder), husband of appellant no.2 Ms.Mohini
Laxmikant Bhojwani, to appear in the witness box on behalf of the appellants. It may be noted that that the appellants were shy away from gracing
the box. The respondent-bank vehemently objected to allowing the holder of power of attorney of the appellants to appear in the witness box on behalf
of the appellants. This Court clarified that the burden of proving that the appellants have a share in the property will be on the appellants and it was
incumbent on the appellants to have graced the box and discharged the burden that they have a share in the property, the extent of share, the
independent source of income from which they have contributed towards the purchase of the property. The entire context of the order dated
10.2.2004 was forwarded to the Tribunal for the purpose. It is unfortunate that the Tribunal has framed its own issues not consistent with the
directions and recorded a finding contrary to the directions as aforesaid.
Dr. Singhvi, learned senior counsel appearing for the respondent-bank vehemently contended that the appellants did not grace the box to lead
evidence but authorised Mr. V.R. Bhojwani (power of attorney holder) to appear on behalf of the appellants. Learned counsel contended that Mr.
Bhojwani was not an independent person to the litigation but was a judgment debtor in the suit and a co-owner of the property and there was a clash
of interest between the husband and wife and as such he could not have been permitted to grace the box on behalf of the appellants. He further
contended that under Order III Rules 1 & 2 CPC a power of attorney holder can appear, apply or act in any court but such act cannot be extended to
depose in the witness box. He further submitted that in the present case a power of attorney holder is not acting as a witness on behalf of the principal
but he is representing the principal himself. He further contended that deposing in a witness box and being cross- examined is a personal act and
cannot be done through an agent/power of attorney holder.
In the context of the directions given by this Court, shifting the burden of proving on the appellants that they have a share in the property, it was
obligatory on the appellants to have entered the box and discharged the burden by themselves. The question whether the appellants have any
independent source of income and have contributed towards the purchase of the property from their own independent income can be only answered
by the appellants themselves and not by a mere holder of power of attorney from them. The power of attorney holder does not have the personal
knowledge of the matter of the appellants and therefore he can neither depose on his personal knowledge nor can he be cross-examined on those
facts which are to the personal knowledge of the principal.
Order III, Rules 1 and 2 CPC, empowers the holder of power of attorney to ""act"" on behalf of the principal. In our view the word ""acts"" employed
in Order III, Rules 1 and 2 CPC, confines only in respect of ""acts"" done by the power of attorney holder in exercise of power granted by the
instrument. The term ""acts"" would not include deposing in place and instead of the principal. In other words, if the power of attorney holder has
rendered some ""acts"" in pursuance to power of attorney, he may depose for the principal in respect of such acts, but he cannot depose for the
principal for the acts done by the principal and not by him. Similarly, he cannot depose for the principal in respect of the matter which only the
principal can have a personal knowledge and in respect of which the principal is entitled to be cross-examined.â€
[7] In view of the aforesaid judgment passed by the Apex Court, the present judgment and decree is not liable to be sustained as the plaintiff did not
enter into the witness box to prove her case.
[8] Shri B.I.Mehta, learned Senior Counsel appearing on behalf of the plaintiff argued that the plaintiff was declared as an owner of the disputed
property vide judgment and decree dated 09.03.1984 and the same has been duly proved by PW-1 hence, there was no necessity for the plaintiff to
enter into the witness box to prove her case. Narayandas Kabra was the owner of suit house which he sold to Smt. Savitridevi w/o Devendra Kumar
Khandelwal; Smt. Krishna w/o Govind Khandelwal and Govind s/o Tulsiram Khandelwal by way of registered sale-deed dated 14.11.1975. Thereafter
Civil Suit No.3/79A was filed by the aforesaid purchasers seeking eviction of Narayandas Kabra from the suit house. In the said suit, the present
appellants were not the party. During the pendency of the said suit, a compromise was arrived between the parties therein and the present plaintiff
Smt. Geetabai re-paid the sale consideration of Rs.40,000-00 to the plaintiffs and the registered sale-deed 14.11.1975 was canceled by the Deputy
Registrar. After cancellation of the said sale-deed ,as a consequence Narayandas Kabra would become the owner of the suit house. Civil Suit
No.3/79A was filed by the plaintiffs seeking decree of eviction, arrears of rent and means profits and  the relief of declaration of a title was not
under consideration in the said suit , despite that a decree of declaration had been passed in favour of the present plaintiff . Though the aforesaid
judgment mentioned that the amount of Rs.40,000-00 was paid by Smt. Geetabai but in the case of Janki Vashdeo Bhojwani (supra), the Apex Court
in a similar facts and circumstances has held that whether the appellants (therein) have any independent source of income and have contributed
towards the purchase of the property from their own independent income can be only answered by the appellants themselves and not by a mere
holder of power of attorney from them. The case in hand, the plaintiff filed the suit seeking declaration that the suit property belongs to her then she
was required to appear in the witness box and discharge the burden by establishing that the amount of Rs.40,000-00 was paid by her from her own
income to get a declaration of ownership of the property. The judgment and decree dated 09.03.1984 was passed only on the basis of the declaration
given by the plaintiffs therein by way of compromise. There was no finding to the effect was given that the plaintiff Smt. Geetabai paid the amount
from her own income.
[9] It is not clear from the judgment and decree dated 09.03.1984 (Ex.P/3) whether Smt. Geetabai, present plaintiff, entered into the witness box to
prove that the amount of Rs.40,000-00 was paid by her from her own income. At the time of passing the aforesaid decree in the year 1984, the
proclamation has already been issued by the defendants i.e. for the Assessment Year 1979-80. Therefore, the learned Additional District Judge has
wrongly granted the decree of declaration in favour of the plaintiff on the basis of Ex.P/3.
[10] Shri B.I.Mehta, learned Senior Counsel has placed reliance over the judgment passed by the Apex Court in the case of Janki Vashdeo Bhojwani
(supra) in which it has been held that the firm is not liable to pay tax under the Act which is a separate entity and in absence of any specific
provisions, the Partners of the firm will not be liable for tax against the firm. The aforesaid judgment was passed while considering Sections 2 (d) and
18 of the M. P. General Sales Tax Act. The Apex Court has observed that in Bombay Sales Tax Act, 1959 under Section 18 it is specifically provided
that that where any firm is liable to pay tax under the Act, the firm and each of the partners of the firm shall be jointly and severally liable to pay such
tax but there is no such specific provision under the M. P. General Sales Tax Act.
[11] The Division Bench of this Court in the case of Memraj Sharma v/s State of M.P. [1996 MPLJ 614] has observed that the Apex Court in the
case of Commissioner of Sales Tax (supra) did not consider the provisions of Section 34 (4) (b) of the M. P. General Sales Tax Act which makes it
clear that every person and partner be also liable severally and jointly for payment of the tax assessed and payable by the firm. Para 4, 5 and 6 of the
order are reproduced below :-
“4. In the latter case, the Supreme Court had no occasion to consider the provisions in Section 33 (4) (b) of the Act and in the former case, the
question of liability of a partner did not arise for consideration. These decisions are, therefore, not helpful to us.
Section 33 of the Act deals with tax payable by transferee of business. When the ownership of the business of a dealer liable to pay tax is entirely
transferred, the transferor and the transferee shall jointly and severally be liable to pay the tax together with penalty if any, payable in respect of such
business for any year or relatable to a part of any year and remaining unpaid at the time of the transfer and the transferee shall also be liable to pay
the tax on the sales or purchases of goods effected by him with effect from the date of such transfer. Sub-section (4) reads thus :
“(4) when a dealer is a firm or association of persons or a joint Hindu family and such firm, association or family, has discontinued business -
(a) the tax payable under this Act by such firm, association or family for the period upto the date of such discontinuance, may be assessed and
determined as if no such discontinuance had taken place; and
(b) every person who was at the time of such discontinuance a partner of such firm or a member of such association or family shall, notwithstanding
such discontinuance, be liable severally and jointly for the payment of the tax assessed as payable by such firm, association or family, whether such
assessment is made prior to or after such discontinuance and, subject as aforesaid, the provisions of this Act shall apply as if every such person or
partner were himself a dealer :
Provided that when it is found that a change has occurred in the constitution of the firm or association or that such firm or association has transferred
its business and the tax payable by a partner or a member as aforesaid cannot be recovered from him, it may be recovered from the firm or
association as reconstituted, or from the transferee :
Provided further that where tax is recovered from the firm or association or transferee as aforesaid, such firm or association or transferee shall be
entitled to recover the same from the partner or member who was originally liable to pay the tax.
Explanation. - The dissolution or reconstitution of a firm or association of persons or partition of a joint Hindu family shall be deemed to be
discontinuation of business within the meaning of this sub-section.
Sub-section (4) makes it clear that where there is discontinuance of the firm, the tax payable by the firm upto the date of discontinuance may be
assessed to and determined as if no such discontinuance had taken place and every person who was, at the time of discontinuance a partner, shall,
notwithstanding such discontinuance, be liable severally and jointly for payment of the tax assessed as payable by such firm whether such assessment
is made prior to or after the discontinuance subject to this, the provisions of the Act shall apply as if every such person or partner were himself a
dealer.
6 . Thus sub-section (4) casts liability on the partners of the firm which has discontinued the business in regard to tax due for the period prior to the
discontinuance irrespective of the date of assessment. In the face of such clear statutory provision, the argument based on the definition of ""dealer'
cannot help the appellant. The lower Court was, therefore, justified in rejecting the claim of the appellant.â€
[12] That Section 33 (4) (b) of the M. P. General Sales Tax Act specifically provides that every person who was partner of such firm shall,
notwithstanding such discontinuance of the firm, be liable severally and jointly for the payment of the tax assessed as payable by such firm. The
second proviso to Section 34 of the Act also provided that where tax is recovered from the firm or association or transferee, then such firm,
association or transferee shall be entitled to recover the same from the partner or member who was originally liable to pay the tax. Therefore, in view
of Section 33 of the Act, the partner and the member of the firm, association or member of family have not been exempted completely for payment of
taxes and penalty assessed and payable by the such firm, association or the family as the case may be.
[13] In the case of Perfect Industrial Agencies Pvt. v/s Commercial Tax Officer [2000 (1) MPHT 474] the recovery of sales tax dues of Rs.3,93,984-
00 of Perfect Agencies Private Limited was challenged by the Company as well as by the Directors by way of writ petition before the High Court on
the ground that the recovery of tax against the Company cannot be recovered from its Directors because the Company is a separate legal entity. It
has also been challenged that the present Company is not liable to pay sales tax dues of old Company. The case of the Department was that the new
Company with a slight change in the name has been formed to evade the payment of taxes and that is not legally permissible because both the
companies belong to the members of one family. This Court has held that a company is a juristic entity and it is distinct from its directors and
shareholders, but in course of time certain exceptions have grown in which concept of lifting of “corporate veil†can be applied. The arms of the
law and especially of the taxing authorities clothed with that law are long enough to reach the factum behind the facade. This Court has placed
reliance over the judgment of the Apex Court and held that the Company cannot get rid of the tax dues by changing its name, label or board. Para 8, 9,
10 and 11 of the order are reproduced below :-
“8 . It has been argued on behalf of the petitioners that the transfer of business implies transfer of a running business together with all its rights,
liabilities, stock in trade and goodwill. Reliance is placed on the Division Bench decision of this Court in Bajranglal v. State of M.P., XVI S.T.C. 350.
In that case the goods of a proprietorship concern were given to a creditor in discharge of its dues and therefore, it was held that it was not transfer of
a business. In the present case on consideration of cumulative circumstances it has been held that the entire business has been transferred to the new
company. Even if the Managing Director of the old company, as contended on behalf of the petitioners, has kept certain assets of the old company,
that does not extinguish the liability of the new company which is in reality the transferee of the old company. There is no evidence that the Managing
Director has kept all the assets.
It is true that a company is a juristic entity and it is distinct from its directors and shareholders. It is an abstraction of the law. Its corporate
personality receives legal recognition. After its incorporation under Section 34 of the Companies Act, 1956 it has a separate legal existence and the
law recognises it as a legal person separate and distinct from its members. This new legal personality emerges from the moment of incorporation. But
in course of time certain exceptions have grown in which there can be piercing of the ""corporate veil"" or cracking open the ""corporate shell"". One of
such situations in which it is permissible to lift the mask of the corporate entity is, if it is being used for tax evasion or an attempt to do so. The arms of
the law and especially of the taxing authorities clothed with that law are long enough to reach the factum behind the facade. If it were not so the
business morality would be a casualty.
In Life Insurance Corporation of India v. Escorts Limited, AIR 1986 SC 1370 the Supreme Court has held that generally and broadly speaking, it
may be said that the corporate veil may be lifted where a statute itself contemplates lifting of the veil, or fraud or improper conduct is intended to be
prevented, or a taxing statute or beneficient statute is sought to be evaded or where associated companies are inextricably connected as to be, in
reality, part of one concern. Earlier in Juggilal Kamlapat v. Commissioner of Income Tax AIR 1969 S.C. 932, it was held that the Court is entitled to
lift the mask of corporate entity if the conception is used for tax evasion or to circumvent tax obligation or to perpetrate fraud. The Court in such
cases can go behind the legal form to find out what is the substance.
In the present case, the petitioner No. 1 Company cannot get rid of the tax dues by changing its name, label or board. The members of a family
formed a company and when the taxes were in arrears they thought of an ingenious device to form a new company with slight change in its name. It
has been found as a fact by taking into consideration the relevant circumstances that this company is a transferee of the old company and therefore, it
is liable to pay the tax-dues of the old company.â€
[14] In view of the above, it is clear that the tax liability cannot be evade by the Company, new Company, Directors, Partners etc. despite dissolution
of the Company or Firm in view of Section 33 (4) (b) of the Act. In the present case the suit property was initially owned by Narayandas Kabra who
sold the same by way of registered sale-deed. Thereafter the said sale-deed was cancelled as the sale consideration was returned. Neither
Narayandas Kabra nor Smt. Geetabai Kabra was partner in the firm M/s Kitchen Aid but after the death of Narayandas Kabra and Smt. Geetabai,
one of the legal heir i.e. Shyam Sunder Kabra became the co-owner of the suit property and who also is a partner of M/s Kitchen Aid. Therefore, the
recovery can be made from the property of the partner of the firm. Hence, the round also. The sales tax and penalty can be recovered from the suit
property as the same is owned by one of the partner.
[15] Hence appeal succeed and the judgment and decree dated 28.02.2001 passed by Xth Additional District Judge, Indore in Civil Suit No.63-A/1999,
is hereby set aside, the suit filed the plaintiff is dismissed .