Patna High Court
Additional Commissioner Of Income-Tax vs Punjab Sweet House on 18 September, 1985
Equivalent citations: [1986]161ITR600(PATNA)
JUDGMENT Nazir Ahmad, J.
1. A statement of the case has been submitted by the Income-tax Appellate Tribunal, "B", Bench, Patna, under Section 256(1) of the Income-tax Act, 1961, referring the following question of law for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in upholding the action of the Appellate Assistant Commissioner in granting registration to the firm?"
2. The relevant facts of the case may be culled out from the statement of the case as well as other annexures in the case. The assessment year involved in this case is 1967-68 for which the relevant accounting period is April 1, 1966, to March 31, 1967, i.e., the financial year. The firm was constituted by a deed of partnership dated April 1, 1966, with four partners, namely, Dinanath Bhatia and his three sons, Ved Prakash Bhatia, Tilakraj Bhatia and Krishna Gopal Bhatia, having 1/4th share each.
3. Daring the accounting period relating to the assessment year in question, Sri Dinanath Bhatia died on December 17, 1966. As per the provision in the deed of partnership dated April 1, 1966, a copy of which has been annexed and marked as annexure A forming part of the statement of the case, a fresh partnership deed was not necessary to be drawn up and the same was, in fact, also not drawn up. The share amongst the remaining partners was re-allocated on December 17, 1966, so that each partner may get 1/3rd share.
4. An application for registration of the firm with a copy of the partnership deed was made on March 30, 1967, before the Income-tax Officer along with Form No. 11 under Section 185 of the Act. This Form No. 11 bore the signatures of all the four partners. The Income-tax Officer took the view that as a result of the death of one of the partners on December 17, 1966, the partnership firm underwent a change in the constitution. The Income-tax Officer also took the view that a fresh deed of partnership should have been executed on the death of Dinanath Bhatia on December 17, 1966, and an application in Form No. 11A seeking registration should also have been filed. He also pointed out that as per the deed dated April 1, 1966, the partners were to share the profits and losses of the business to the extent of 1/4th each. The Income-tax Officer also took the view that although on the death of one of the partners there was a change in the constitution, the statements of account filed do not show any allocation of profits or losses amongst the partners in the first period according to the profit-sharing ratio as specified in that deed. He also held that the capital balance of the deceased partner was taken over to the capital accounts of the three other existing partners in equal proportion in accordance with the partnership deed. The Income-tax Officer, therefore, took the view that under Section 187(1) of the Act and the Rules provided in this behalf that when there was a change in the constitution of the firm, a fresh deed of partnership was necessary and an application in Form No. 11A should also be filed for claiming the benefit of registration for the reconstituted partnership business at the time the assessment is made. He also found that the share allocation of the partners in the first period, i.e., up to December 17, 1966, i.e., up to the period of death of one of the partners was also not made in accordance with the deed of partnership. He also held that under Section 187( 1) of the Act, the present firm as constituted on the date of assessment, i.e., the firm constituted by the three sons of Dinanath Bhatia, could only be registered. The Income-tax Officer also held that the share allocation at 1/3rd each at the end of the period is also not in accordance with any deed. He, therefore, refused registration to the partnership firm for the assessment year 1967-68. This order of the Income-tax Officer has been annexed and marked as annexure B forming part of the statement of the case.
5. Against this order of the Income-tax Officer, the assessee appealed before the Appellate Assistant Commissioner. Before the Appellate Assistant Commissioner, it was argued on behalf of the assessee that there was no change in the constitution of the firm so as to require the filing of an application in Form No. 11A and not in Form No. 11. It was also submitted before the Appellate Assistant Commissioner that even if the application was not in the correct form, the assessee should have been allowed an opportunity to rectify the technical defect as provided under Section 185(2) of the Act and so the refusal to grant registration was not legally justified. The assessee also objected to the Income-tax Officer's conclusion that a fresh partnership deed was necessary in the circumstances of the case. The Appellate Assistant Commissioner held that as one of the partners, namely, Dinanath Bhatia, died on Decemberl7, 1966, there was a change in the constitution of the firm. He, therefore, agreeing with the Income-tax Officer that an application for registration should have been filed in Form No. 11A, also considered the second contention that an opportunity to rectify the technical defect in the form of application should have been given by the Income-tax Officer before passing the order under Section 185. The Appellate Assistant Commissioner held that the Income-tax Officer was not justified in rejecting the application for registration merely on a ground that the application was not in order and that under Section 185(2) of the Act, the Income-tax Officer had to intimate the defect and give an opportunity for rectifying the same within a period of one month from the date of such intimation. The Appellate Assistant Commissioner held that this was only a technical defect and the genuineness of the firm has not been doubted and that the defect was that the assessee filed Form No. 11 instead of Form No. 11A. He, therefore, set aside the order of the Income-tax Officer and directed him to intimate the defect of having used an incorrect form for making the registration application, as required under Section 185(2) of the Act, and after waiting for the specified period of one month and on receipt of the application in Form No. 11A and/or otherwise, the Income-tax Officer should deal afresh with the question of registration and pass a fresh order considering the appellant's claim. The Appellate Assistant Commissioner set aside the order under Section 185 of the Income-tax Officer with a direction to frame afresh in accordance with the direction given above. This order of the Appellate Assistant Commissioner is dated June 30, 1969, and it has been annexed and marked as annexure C forming part of the statement of the case.
6. After the order of the Income-tax Officer was set aside, the Income-tax Officer passed a fresh order after Form No. 11A was filed by the assessee. This time the Income-tax Officer referred to Clause 11 of the partnership deed, where it was pointed out that the firm will not be dissolved on the death of any of the partners in general and, in particular, it was also laid down that in case of the death of Dinanath Bhatia, his share of capital on the date of death without adjustment of profit and loss of partnership will be distributed amongst the remaining partners equally. In view of the provisions made in Clause 11, the Income-tax Officer held that the execution of a fresh deed was not necessary on the death of Dinanath Bhatia but the filing of an application by the reconstituted firm of three partners was essential and that too before the close of the accounting period on March 31, 1967. The Income-tax Officer has also pointed out that the assessee filed an application for registration of the firm as constituted before the death of Dinanath Bhatia and no application was filed at all by the reconstituted firm of three partners who are all sons of Dinanath Bhatia. He also took the view that the assessee's contention could have held good if an application even in a wrong form would have been filed by the assessee within the limitation period. In the instant case, since that had not been done, the assessee cannot be allowed to take advantage of Section 185(2) of the Act, while the Income-tax Officer also took the view that the lapse on the part of the assessee in not filing an application for registration before the close of the accounting period is not a mere defect in the choice of the form but is a clear contravention of the law of limitation.
7. The Income-tax Officer also considered the application dated March 30, 1967, in Form No. 11. This Form No. 11 was signed by Dinanath Bhatia and his three sons showing 1/4th share each. He has also pointed out that since a change in the constitution of the firm had taken place after the death of one of its partners and the firm was reconstituted, the firm should have filed an application in Form No. 11A. The Income-tax Officer also took the view that an application for registration has been filed in Form No. 11 on March 30, 1967, but before the application, a change has taken place in its constitution and so the application should have been filed on behalf of the firm of three partners as existing at the time of making the application but the application was filed by the assessee in respect of the firm of four partners which was not in existence at the time of making the assessment or even at the time of filing the application and so he held that the application in Form No. 11 cannot be acted upon. He has also held that the application in Form No. 11A was filed on behalf of the three partners on August 4, 1969, which was beyond the statutory time allowed for filing the application and the assessee was not able to give any satisfactory explanation for this inordinate delay. He, therefore, declined to entertain the application for registration which was filed in Form No. 11A on August 4, 1969, and so the Income-tax Officer for the second time again refused registration to the assessee-firm. The second order of the Income-tax Officer has been annexed and marked as annexure D forming part of the statement of the case.
8. The assessee again appealed before the Appellate Assistant Commissioner and he disposed of the appeal on March 10, 1971. The Appellate Assistant Commissioner by annexure C had directed the Income-tax Officer to give an opportunity to the assessee for filing Form No. 11A but in spite of this, the Income-tax Officer declined to give an opportunity to the firm to rectify the technical defect in the form, and it was due to this that Form No. 11A was filed duly signed by the three partners on August 4, 1969, which was filed soon after receipt by the assessee of the order of the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that the Income-tax Officer had not followed the direction given by the Appellate Assistant Commissioner in his appellate order. The Appellate Assistant Commissioner took the view that Form No. 11A was filed by the assessee in pursuance of the decision given by the Appellate Assistant Commissioner and so the Income-tax Officer had no jurisdiction to say that Form No. 11A filed on August 4, 1969, was beyond time and that the Income-tax Officer should have considered the application on its merits. He has held that the firm is a genuine partnership firm duly constituted by a valid deed of partnership which was present and operative during the year under appeal, i.e., during the assessment year 1967-68. He also held that the genuineness of the firm is not in doubt and that for the subsequent assessment year 1968-69, the Income-tax Officer has himself allowed regist ration to this firm. He also took the view that whatever technical defect was there in Form No. 11 filed on March 30, 1967, had been removed by the fresh filing of an application in Form No. 11A as per the direction given by the Appellate Assistant Commissioner and so the delay was condoned by the Appellate Assistant Commissioner and the Income-tax Officer was not justified to look into that aspect again and that the Income-tax Officer should have decided the claim for registration on its merits. The Appellate Assistant Commissioner, therefore, allowed registration to the assessee-firm under Section 185 of the Act for the assessment year 1967-68. The second order of the Appellate Assistant Commissioner has been annexed and marked as annexure E forming part of the statement of the case.
9. The Department appealed before the Tribunal. The Tribunal gave the facts of the case in paragraphs 2, 3 and 4 and then the Tribunal held that there was no material on record to hold that the firm was not genuine and that the assessee filed Form No. 11 in place of Form No. 11A and thus non-filing of Form No. 11A could only be termed as an irregularity which was curable and once it was cured, it would date back to the date when Form No. 11 was filed. The Tribunal also held that such irregularity was cured by the assessee when it filed Form No. 11A on August 4, 1969, before the Income-tax Officer. The Tribunal also referred to the decision of the Supreme Court in Agarwal and Co. v. CIT [1970] 77 ITR 10 and the Tribunal found that all the conditions laid down by the Supreme Court were fulfilled by the assessee and so the Appellate Assistant Commissioner had rightly allowed registration to the firm and so the Tribunal dismissed the departmental appeal. This order of the Tribunal has been annexed and marked as annexure F forming part of the statement of the case.
10. On the basis of the aforesaid facts, Mr. B. P. Rajgarhia, senior standing counsel for the Income-tax Department, has submitted that from the facts it is evident that Dinanath Bhatia, one of the partners of the firm, died on December 17, 1966, and so an application in Form No. 11 should have been filed by the firm for the period up to December 17, 1966, and the allocation of profit and loss should have been made up to that period when there were four partners each having 1/4th share and another application in Form No. 11A should have been filed by March 31, 1967, for the firm of three partners showing allocation of profit and loss from December 18, 1966, to March 31, 1967. He has also submitted that as the application in Form No. 11 which was filed on March 30, 1967, contained the signature of Dinanath Bhatia who had already died before that date. Form No. 11 was an invalid form. He has also submitted that Form No. 11 filed on March 30, 1967, showed four partners having 1/4th share each and so Form No. 11 was not a valid form and could not be acted upon. He also submitted that there should have been two separate registrations, one for the firm of four partners from April 1, 1966, to December 17, 1966, and another for the firm of three partners from December 18, 1966, to March 31, 1967, and that a fresh deed of partnership should have been executed on December 18, 1966, after the death of Dinanath Bhatia. He also submitted that in Form No. 11A, the share of the three partners was shown as 1/3rd each for the entire accounting period.
11. On the other hand, Mr. L. K. Bajla, on behalf of the assessee, has submitted that the appeal before the Tribunal was only against the order of the Appellate Assistant Commissioner contained in annexure E whereby the Appellate Assistant Commissioner held that once earlier the Appellate Assistant Commissioner had directed that Form No. 11 was defective and the Income-tax Officer should have given opportunity to the assessee to file Form No. 11A and should have waited for one month and when Form No. 11A was filed on August 4, 1969, the Income-tax Officer could not say that the application was barred by limitation and he should have proceeded to decide the application in Form No. 11A on merits and as the firm was genuine, he should have allowed registration to the assessee-firm and so the 2nd Appellate Assistant Commissioner by annexure E allowed the registration to the firm and the only question before the Tribunal was whether the 2nd Appellate Assistant Commissioner was justified in allowing the registration on the basis of Form No. 11A and the Tribunal only held that when Form No. 11A was filed for removal of defects in Form No. 11, then Form No. 11A will date back to the period when Form No. 11 was filed, which shows that Form No. 11A could not be held to be barred by time and so the order of the 2nd Appellate Assistant Commissioner was upheld by the Tribunal. Mr. L. K. Bajla on this basis argued that before the Tribunal the only question was whether Form No. 11A was a valid form or not and whether registration should be allowed on the basis of Form No. 11A. Mr. L. K. Bajla has further submitte4 that Mr. B. P. Rajgarhia is not entitled to argue on other points excepting those relating to the fact whether registration could be allowed on the basis of Form No. 11A. Mr. L. K. Bajla has also submitted that the question referred by the Tribunal was only to the effect whether the Tribunal was correct in upholding the action of the Appellate Assistant Commissioner in granting the registration to the firm and as the 2nd Appellate Assistant Commissioner had only considered whether registration on the basis of Form No. 11A can be allowed, Mr. B. P. Rajgarhia is not entitled to argue the other points which have been raised by him.
12. Mr. B. P. Rajgarhia has relied on the case of Jamunadas Mannalal v. CIT [1985] 152 ITR 261, where the Full Bench of the Patna High Court considered the Supreme Court decision in the case of CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589, and observed at page 268 that a question of law might be a simple one, having its impact at one point, or it may be a complex one, trenching over an area with approaches leading to different points therein and that such a question might involve more than one aspect, requiring to be tackled from different standpoints. It was also observed by the Full Bench that where the question itself was under issue, there is no further limitation imposed by the section that reference should be limited to these aspects of the question which had been argued before the Tribunal and that it will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of Section 66(1) of the Indian Income-tax Act, 1922. Thus, in view of the Full Bench decision, Mr. B. P. Rajgarhia is entitled to argue whether the Appellate Assistant Commissioner was justified in allowing the registration to the assessee- firm on other grounds as mentioned by him.
13. Mr. L. K. Bajla has relied on the case of CIT v. Manna Ramji and Co. [1972] 86 ITR 29, where it has been held at page 37 by their Lordships of the Supreme Court that the Tribunal is the final fact-finding authority and it is for the Tribunal to find facts and it is for the High Court and the Supreme Court to lay down the law applicable to the facts found and neither the High Court nor the Supreme Court has jurisdiction to go behind or to question the statement of facts made by the Tribunal and that the statement of the case is binding on the parties and they are not entitled to go behind the facts of the Tribunal in the statement. It has also been held in this decision that when the question referred to the High Court speaks of "on the facts and circumstances of the case", it means on the facts and circumstances found by the Tribunal and not on the facts and circumstances as may be found by the High Court.
14. It has been held in the case Scindia Steam Navigation Co. Ltd. v. CIT [1954] 26 ITR 686 (Bom), that if a point of law is implicit in the question raised by the Tribunal and if no additional facts are necessary to support that point, then it is open to the "assessee to urge that point before the High Court notwithstanding that it was not considered by the Tribunal. This principle was accepted by the Supreme Court in Scindia Steam Navigation Co. Ltd. v. CIT [1961] 42 ITR 589, which has been referred to in the Full Bench decision of the Patna High Court (Jamunadas Mannalal v. CIT [1985] 152 ITR 261 (Pat) [FB].
15. It has been held in the case of CIT v. Blaze Advertising (Delhi) P. Ltd. [1983] 143 ITR 421, by the Delhi High Court, that though the question was neither raised before the Tribunal nor dealt with by it, yet, since it was the basis of the decision of the Income-tax Officer and the Appellate Assistant Commissioner, the Tribunal, on appeal, could not overlook such a question and, therefore, a question of law did arise out of the Tribunal's order.
16. It has been held in the case CIT v. Nathuabhai Desabhai [1981] 130 ITR 238, by the Madhya Pradesh High Court--Indore Bench, that the jurisdiction of the High Court in a reference under Section 256 of the Act is only advisory and a question of law has to be answered within the ambit of this jurisdiction and a departure is allowed within certain permissible limits, inasmuch as an aspect of the same question can be decided by the court even if that aspect is not directly referred to by the Tribunal.
17. Thus, in view of the aforesaid decisions, I have no doubt that Mr. B. P. Rajgarhia is entitled to raise the different aspects of the question on the basis of which registration can be allowed or disallowed.
18. The first point which has been argued by Mr. B. P. Rajgarhia is that after the death of Dinanath Bhatia on December 17, 1966, there was a change in the constitution of the firm and so a fresh partnership deed was needed. For this purpose, he has relied on Section 184(7) and (8) of the Act. Section 184(7) lays down that where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment year provided that there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which registration was granted and a declaration was filed to that effect. He has also relied on Section 184(8) of the Act for the purpose that where any such change has taken place in the previous year, the firm shall apply for fresh registration for the assessment year concerned in. accordance with the provisions of that section. I am of the view that Sections 184(7) and 184(8) relate to cases where registration has been granted to the firm previously and the question relates to the continuation of the firm. Section 184(8) relates to the change in the constitution of the firm as mentioned in Section 184(7) and so Section 184(8) will not be applicable to a case where it is the first year of registration as no question of continuation of registration is involved. In the present case before us, it is a case of registration in the first year and not a case of continuation of registration.
19. Section 184(1) of the Act lays down that an application for registration of a firm has to be made before the Income-tax Officer if the partnership is evidenced by an instrument and the individual shares of the partners are specified in that instrument. Under Section 184(3) of the Act, the application has to be signed by all the partners personally and under Section 184(4) of the Act, the application shall be made before the end of the previous year for the assessment year in respect of which registration is sought : provided that the Income-tax Officer may entertain an application made after the end of the previous year, if he is satisfied that the firm was prevented by sufficient cause from making the application before the end of the previous year. Section 184(5) of the Act lays down that the application shall be accompanied by the original instrument evidencing the partnership, together with a copy thereof. Under Section 184(6) of the Act, the application shall be made in the prescribed form and shall contain the prescribed particulars.
20. Section 187(1) of the Act lays down that where at the time of making an assessment under Section 143 or Section 144, it is found that a change has occurred in the constitution of a firm, the assessment shall be made on the firm as constituted at the time of making the assessment. The proviso lays down that the income of the previous year shall, for the purpose of inclusion in the total income of the partners, be apportioned between the partners who, in such previous year, were entitled to receive the same; and when the tax assessed upon a partner cannot be recovered from him, it shall be recovered from the firm as constituted at the time of making the assessment. Section 187(2) of the Act lays down that there is a change in the constitution of the firm if one or more of the partners cease to be partners or one or more new partners are admitted, in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change or where all the partners continue with a change in their respective shares or in the shares of some of them. These provisions will be relevant when I shall take up various legal points raised before us by the parties.
21. It is also necessary to refer to some provisions of the Income-tax Rules, 1962. Rule 22(2) of the Rules lays down that where the application is made before the end of the relevant previous year-
(i) where no change in the constitution of the firm or the shares of the partners has taken place during the previous year before the date of the application :--
(a) the application shall be made in Form No. 11; and
(b) it shall be accompanied by the original instrument evidencing the partnership at the date of the application together with a copy thereof;
(ii) and where any change or changes in the constitution of the firm or the shares of the partners has taken place during the previous year before the date of the application-
(a) the application shall be made in Form No. 11A; and
(b) it shall be accompanied by the original instrument or instruments evidencing the partnership as in existence from time to time during the previous year up to the date of the application together with copies thereof.
22. Similar provisions have been laid down in Rule 22(4) of the Rules where the application is made after the end of the relevant previous year. Rule 22(5) lays down that the application shall be signed personally by all the partners in the firm as constituted at the date of the application. Rule 22(3) relates to a case where any change or changes in the constitution of the firm takes or take place after the date of making the application under the sub-rule itself. It is not the case before us.
23. Now let us consider the various arguments which have been advanced by the parties. Mr. B. P. Rajgarhia has submitted that when Dinanath Bhatia died on December 17, 1966, a fresh partnership deed should have been executed. Of course, the first Income-tax Officer in annexure B has taken the view that after the death of Dinanath Bhatia on December 17, 1966, a fresh partnership deed should have been executed. The partnership deed is annexure A which shows that it was executed on April 1, 1966, in which the partners were Dinanath Bhatia and his three sons, namely, Tilak Raj Bhatia, Ved Prakash Bhatia and Krishna Gopal Bhatia, each having a 25 per cent. share. Clause 11 of the partnership deed shows that the firm will not be dissolved on the death of any of the partners and if any partner dies, his heir, i.e., wife, or other legal representatives, will be considered to be taken in as a partner in his place and if such person be a minor, she or he will be given the benefits of the partnership till she or he attains majority. The deed also provides that in case of death of Dinanath Bhatia, who is the father of the other parties, his share of capital on the date of death without adjustment of profit or loss in the partnership will be distributed among the remaining partners equally and the share of profit or loss in the business in that case will be taken by the three sons of Dinanath Bhatia in equal shares of 1/3 each. The 2nd Income-tax Officer has clearly held that in view of the provisions as made in Clause 11 of the partnership deed, the execution of a fresh deed of partnership on the death of Dinanath Bhatia was not necessary. In view of this finding of the Income-tax Officer, Mr. Rajgarhia is not entitled to argue on behalf of the Department that a fresh deed of partnership was necessary after the death of Dinanath Bhatia on December 17, 1966. It was due to this that this matter was not argued before the 2nd Appellate Assistant Commissioner or before the Tribunal.
24. The 2nd Income-tax Officer held that in view of Clause 11 of the deed of partnership, no fresh partnership deed was necessary. I find that this view of the 2nd Income-tax Officer is supported by various decisions. It has been held in the case of Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858, by the Full Bench of the Allahabad High Court that if an instrument of partnership postulates the contingency of a partner dying and provides that in his place his legal representative will be entitled to become a partner and further provides how the shares will be distributed, in that event the change will be evidenced by the instrument of partnership and the firm will be entitled to continuance of registration and that if a partner dies and is replaced by a legal representative who is an adult, there will be no difficulty as he will normally share the profits as well as losses in the same way as his predecessor did. It has also been laid down by this Full Bench decision that where there is a change in the constitution of a firm, Section 187 of the Act merely makes the new firm liable to be assessed in respect of the income derived by the old firm. The Allahabad Full Bench also held that this section even by implication does not create a fiction that the income derived by the old firm becomes the income of the reconstituted firm and that the income of the old firm cannot be clubbed with the income of the reconstituted firm and that after recon-stitution, the firm becomes a distinct assessable entity different from the firm before its reconstitution and, therefore, two different assessment orders have to be passed against the reconstituted firm--one in respect of the income derived by it before reconstitution and the other in respect of the income derived by it after reconstitution. This observation relating to Section 187 of the Act by the Allahabad Full Bench has not been followed in various Full Bench decisions of other High Courts, which I will discuss later on.
25. The view taken in the above decision relating to the non-execution of a fresh deed of partnership after the death of one of the partners is further supported by the case of CIT v. Ganesar Industries [1984] 149 ITR 48 (Mad), where one of the clauses of the partnership deed under which the assessee-firm was constituted contained a clause that on the death of any partner, the share of the deceased partner would be reallocated among the remaining partners. The Commissioner in revisional proceedings held that as no fresh partnership deed was executed after the death of the partner, it could not be said that there was an instrument of partnership specifying the individual shares of the partners during the year in question and, consequently, cancelled the registration granted to the firm, and, in those circumstances, it was held by the Madras High Court that when a partnership deed states that the share of the deceased partner shall belong to the remaining partners, it will only mean that the share of the deceased partner is to be taken equally by the remaining partners and only if varying shares are intended to be given to the remaining partners, such varying shares will have to be specified either in the existing partnership deed or in a fresh partnership deed. It has also been held in this decision that if from the terms of the partnership deed, the shares of the partners could be clearly determined, the firm will be entitled to registration and as, in the instant case, the partnership deed specifically provided that the share of the deceased partner could be taken by the remaining partners, it should be taken that under the partnership deed, the remaining partners, would be entitled to share equally the interest of the deceased partner and, consequently, no reconstitution of the firm by execution of a fresh deed of partnership was necessary and the firm was entitled to registration.
26. Annexure A in Clause 11 clearly lays down that in case of death of Dinanath Bhatia, who is the father of the other three partners, his share of capital on the date of death without adjustment of profit and loss in the partnership will be distributed among the remaining partners equally and the share of profits and losses in the business will be 1/3rd each. In view of this recital in the deed of partnership (annexure A), I hold that no fresh partnership deed was needed after the death of Dinanath Bhatia on December 17, 1966, and that on the basis of the deed (annexure A), the assessee-firm was entitled to registration.
27. Mr. B. P. Rajgarhia has next submitted that the application in Form No. 11 was filed on March 30, 1967, and this application was signed by Dinanath Bhatia and his three sons showing 1/4th share each. On this basis, he has submitted that Form No. 11 was an invalid form and so it cannot be said to be a defective form and so no registration could be granted on the basis of Form No. 11. For this purpose, Mr. B. P. Rajgarhia has relied on the case of Sri Ramamohan Motor Service v. CIT [1973] 89 ITR 274 (SC). In this case, a partnership deed was executed on February 5, 1955, relating to a firm consisting of five partners which came into existence on January 1, 1955. The fifth partner was a minor and the deed showed that he was a party thereto being represented by his father. Under the deed, the profit or loss of the business was to be divided or borne between the partners in equal shares, and for the assessment year 1956-57 an application for registration under Section 26A of the 1922 Act was made on June 30, 1955, the last date for making such an application. Later, on objection being raised by the Registrar of Firms that the firm was invalid under Section 30 of the Parnership Act, 1932, the four adult partners by their letter dated December 18, 1955, informed the Registrar that the minor was admitted to the benefits of the partnership with the consent of all the partners and that he had nothing to do with the loss. The Registrar of Firms registered the firm on January 10, 1956. Applications for renewal of registration were also made for the assessment years 1957-58 to 1961-62. In none of the applications was the letter "P" mentioned in column 6 against the share of the minor partner in accordance with Note 2 of the Form prescribed by Rule 3 or Rule 6 of the Indian Income-tax Rules, 1922, to indicate that he was not liable to bear a portion of the loss. The Income-tax Officer granted the application but the Commissioner, in revision, held that the partnership was invalid. It was in those circumstances that their Lordships of the Supreme Court held that the application for registration and the application for renewal of registration did not comply with the requirements of the law and the rules and, therefore, the applications were invalid and the firm was not entitled to registration or renewal of registration under Section 26A of the 1922 Act and that the partnership deed submitted along with the application for registration disclosed that the partnership constituted under that deed was void in view of Section 30 of the Partnership Act as one of the five partners was a minor. Hence, the application made for registration was an invalid application. It was also held in this decision that the subsequent alteration of one of the terms of the partnership deed, even if validly made, could not validate the application made because the alteration in question was made long after the time prescribed for making the application had expired and there was nothing on record to show that the Income-tax Officer had condoned the delay in exercise of his power under the proviso to Rule 2. It was also held that if the original order of registration was unauthorised, the subsequent renewals of that registration must also be held to be unauthorised. It has also been held in this decision that before a person can claim the benefit of Section 26A of the 1922 Act, he must strictly comply with the requirements of that section; and in view of Sub-section (2) of that section, he is also required to comply with the requirements of the relevant rules and that substantial compliance with the rules is not sufficient. However, it is evident from this decision that the partnership deed itself was invalid, which is not the case before us.
28. Mr. B. P. Rajgarhia has also relied on the case of Pratapmal Luxmichand v. CIT [1956] 29 ITR 489 (SC). In this case, an application for registration of a firm consisting of seven partners under Section 26A of the 1922 Act was personally signed by six partners and was accompanied by a deed of partnership, which had also been signed by those six partners. The special Income-tax Officer rejected the application on the ground that the deed and the application were not signed by all the members of the partnership business. On appeal, the Appellate Assistant Commissioner cancelled the order of the special Income-tax Officer and directed him to register the firm after obtaining the signature of the seventh partner both on the application for registration and on the deed of partnership and, in those circumstances, their Lordships of the Supreme Court held that the only power which the Appellate Assistant Commissioner had under Rule 2(c) of the Income-tax Rules, 1922, was to accord permission to the assessee to make the application in proper form to the Income-tax Officer signed by all the partners personally including the seventh partner before the assessment was confirmed, reduced, enhanced or annulled but the Appellate Assistant Commissioner had, under the rules, no power to direct the Income-tax Officer to register the firm after obtaining the signature of that partner both in the application for registration and in the deed of partnership as he did. Thus, this decision goes to show that the deed of partnership cannot be rectified but the Appellate Assistant Commissioner had power to accord permission to the assessee to make an application in the proper form to the Income-tax Officer after removing the defect of signature of the seventh partner. Thus, this clearly goes to show that the defect in the application could be removed but the Appellate Assistant Commissioner had no power to direct removal of defect in the partnership deed. In the present case, we are concerned with the defect in the application form and not with the defect in the deed.
29. Subsequent to the aforesaid decision of the Supreme Court in Pratapmal Luxmickand v. CIT [1956] 29 ITR 489, the Gauhati High Court in the case of Singh Brothers & Co. v. CIT [1982] 137 ITR 63, held that Section 184(1) of the Act requires the application for registration to be made before the end of the accounting year, accompanied by the original instrument evidencing the partnership and that the power and jurisdiction of the Income-tax Officer under Section 185(2) of the Act is limited to allow an assessee to rectify a defect in the application for registration but the rectification cannot be made in respect of the deed of partnership itself. In this case, a minor was admitted as full partner and the profit and loss was to be borne by him and, in those circumstances, it was held that the original instrument of partnership was invalid as a minor had been made a full partner. Thus, from these decisions, it is evident that a defect in the application form can be removed but not the defect in the deed itself.
30. Mr. B. P. Rajgarhia has also relied on the case of Ravulu Subba Rao v. CIT [1956] 30 ITR 163 (SC), where it has been held that the Indian Income-tax Act, 1922, is a self-contained code exhaustive of the matter dealt with therein and its provisions show an intention to depart from the common rule and that its intention again is that the firm should be given the benefit of Section 23(5)(a) only if it is registered under Section 26A of the 1922 Act in accordance with the conditions laid down in that section and the rules framed thereunder and as the word "personally" in Rule 6 requires the application to be signed by the partner in person, the signature by an agent on his behalf is invalid. This decision also lays down that the registration of a firm under Section 26A of the 1922 Act confers on the partners a benefit to which they would not have been entitled but for that section and such a right being a creature of the statute can be claimed only in accordance with the statute which confers it and a person who seeks relief under Section 26A must bring himself strictly within its terms before he can claim the benefit of it. The decision was in the special facts of the case and it cannot be doubted that if an agent signs for a partner, then the application form will be invalid.
31. Mr. B. P. Rajgarhia has also relied on the case of Jain & Co. v. CIT [1978] 115 ITR 68 (Gauhati). In this case, the assessee-firm was constituted by a deed dated February 1, 1964. The deed showed that the firm consisted of five partners who were to share the profits and losses equally. In June, 1964, one of the partners retired from the firm and thereafter the firm continued with the remaining four partners. On April 7, 1965, a memorandum of agreement was executed by the remaining partners. The memorandum provided "that the deed of partnership dated February 1, 1964, shall'be read by deleting the name of Shri Sukumar Jain and the terms therein relating to him ". The shares of the remaining partners in the profit or loss of the firm would be 25 per cent. each. Para. 3 of the memorandum provided "that the above mentioned modifications.....are operative from the beginning of the firm's business". The assessee filed an application for registration for the assessment year 1965-66 and the application was accompanied by the partnership deed dated February 1, 1964, and the memorandum. The Income-tax Officer rejected the application and his action was upheld by the Appellate Assistant Commissioner and the Tribunal. In those circumstances, the Gauhati High Court held that the essential requisites for the registration of a firm under the Act are the names of the partners and their respective shares in the profits and that although the deed dated February 1, 1964, was an instrument of partnership, the firm constituted by that deed had not been sought to be registered and the subsequent memorandum of agreement was not a deed of partnership but rather a document showing a change in the constitution of the firm and a change in the share of the partners and so the application for registration did not fulfil the requirements of Section 184(1)(i) and (ii) of the Act and was liable to be rejected. The facts of this case are not similar to the facts of the case before us.
32. Mr. B. P. Rajgarhia has also relied on the case of Arun Oil Mill v. CIT [1979] 119 ITR 813 (Bom). In this case, the assessee-firm was reconstituted by a partnership deed dated November 16, 1959, and one minor was admitted to the benefits of the partnership. One of the partners, A, was out of India and the deed was signed on his behalf by another partner of the firm. For the assessment year 1961-62 (accounting period ending on October 28, 1960), on September 12, 1960, an application for registration of the reconstituted firm was filed, which was signed by all the partners except A (for whom another partner signed) and the minor. The defect in the application for registration came to the notice of the assessee-firm some time in 1965, and thereupon, on August 23, 1965, a fresh application was submitted by the firm which was signed by A himself along with the other partners. The Income-tax Officer refused registration to the firm under Section 26A of the 1922 Acton the ground that the earlier application was not signed by all the partners personally, while the later application signed by all the partners was submitted on August 23, 1965, after the end of the relevant previous year, that the later application was delayed by four years and ten months and that no sufficient cause was shown for condonation of delay in the filing of the valid application for registration and so the order of the Income-tax Officer was confirmed in appeal by the Appellate Assistant Commissioner and in second appeal by the Tribunal. In those circumstaces, it was held by the Bombay High Court that the provisions regarding registration of a firm under Section 26A of the 1922 Act should be strictly complied with and since the initial application for registration was not signed by all the partners, it was not a proper application and that the previous year of the firm ended on October 28, 1960, but proper application signed by all the partners was made only on August 23, 1965, and since the application was not presented within the time prescribed, and as no sufficient cause was shown for condonation of delay, the firm was not entitled to registration. In this case, the new application was filed after four years and ten months by the assessee-firrn and so the facts of this case are not similar to the facts of the present case before us.
33. Mr. B. P. Rajgarhia has submitted that the assessee-firm should have filed Form No. 11 for the period from April 1, 1966, to December 17, 1966, and it should have filed Form No. 11A for the period from December 18, 1966, to March 31, 1967, and there should have been registration for two separate periods. I have already referred to Rules 22(2) and 22(4) which clearly go to show that if the application is filed before the end of the relevant previous year or after the end of the relevant previous year and there is no change in the constitution of the firm, then the application shall be made in Form No. 11 and if there is any change in the constitution of the firm, then the application should be made in Form No. 11A. This clearly goes to show that in the present case before us, there was a change in the constitution of the firm and so only Form No. 11A should have been filed and not Form No. 11 because the application was filed at the end of the previous year in this case. Section 187(1) of the Act clearly lays down that where at the time of making an assessment, it is found that a change has occurred in the constitution of a firm, the assessment shall be made on the firm as constituted at the time of making the assessment. This view has been taken in various decisions and it has been held in the case of Nandlal Sohanlal v. CIT [1977] 110 ITR 170 by the Full Bench of the Punjab and Haryana High Court that the purport of Section 187(1) of the Act is that the assessment on the firm which undergoes change in its constitution has to be made as it stands reconstituted at the time of the making of the assessment, provided that one of its old partners continues to be its member at the time of making the assessment. It has also been held in this decision that it implies that if the same business continues and at least one of the old partners continues as a partner, the change in the remaining personnel of the firm whether one or more partners cease to be partners or some new ones are added, the firm continues to have its legal entity as a unit of assessment. It has also been held in this decision that all that this section requires is that if the same business is continued by a reconstituted firm of which at least one of the old partners continues to be a partner of the new firm, it will be treated as a continuing entity in the eyes of law and that Section 188 has been designedly worded to apply only to those cases of succession of firms which are not covered by Section 187 of the Act. It has also been held in this decision that it is not correct to say that even under Section 187(2), two separate assessments should be framed and that because of the changed definition of the word "person", a partnership firm has been invested with the status of a continuing entity and a unit of assessment and the framing of only one assessment against a person is the normal rule and it has been held that one assessment for both the periods was justified in law under Section 187(2) of the Act. Thus, according to this decision, only one assessment has to be made for the entire accounting period in spite of the death of Dinanath Bhatia on December 17, 1966, and the firm has to be assessed as it existed on the date of the assessment consisting of three partners.
34. It has also been held in the case of Girdharilal Nannelal v. CIT [1984] 147 ITR 529 (MP), which is a Full Bench decision of the Madhya Pradesh High Court, that in the case of a change in the constitution of a firm during the accounting year, the income earned by the firm before such change has to be clubbed with the income earned after such change and a single assessment is to be made on the firm for the entire accounting period.
35. A reference may also be made to the case of Addl. CIT v. Visakha. Flour Mills [1977] 108 ITR 466, which is a decision of a Full Bench of the Andhra Pradesh High Court, where it has been held that when once Section 187(2) of the Act applies, there is no scope for the plea that there must be two separate assessments for the two broken periods on the firm which is in existence at the time of making the assessment and that there can only be one assessment on the firm which is in existence at the time of making assessment for the entire accounting year, which is possible only if the incomes of the two broken periods of the old and new firms are clubbed together as if they belong to one entity.
36. Thus, it is evident that under Section 187(1) of the Act, the assessment has to be made on the firm as it existed at the end of the accounting period at the time of assessment. This means that the firm consisting of three partners who are all sons of the deceased, Dinanath Bhatia, has to be assessed and not the firm of four partners.
37. Mr. B. P. Rajgarhia has also relied on the case of Jawaharlal Khandelwal v. CIT [1977] 110 ITR 884 (Orissa). In this case, the assessee-firm filed its return for the assessment year 1969-70 corresponding to the previous year ending October 31, 1968, together with a declaration for continuation of registration under Section 184(7) of the Act. During the previous year, one of the partners, R, died on August 31, 1968. The Income-tax Officer found that the assessee-firm did not close its books of account on August 31, 1968, when R died, no reconstitution of the firm was made during the previous year on the death of R., there was no application either in Form No. 11 or Form No. 11A and one single return was filed for the entire previous year. The Income-tax Officer, therefore, refused registration to the firm and the assessment was made in the status of unregistered firm. In those circumstances, the Orissa High Court held that the assessee filed one return for both the periods which showed that there was no claim for making two separate assessments and that a single return for the entire year indicated that the business continued till the end of the year in the same manner as up to August 31, 1968, when one of the partners, R, died. It was also held by the Orissa High Court that the assessee-firm's claim to be treated as a registered firm up to August 31, 1968, had no force and so continuation of registration for part of the relevant previous year was not maintainable under the provisions of Section 187(1) of the Act. The facts of this case are different from the facts of the present case before us.
38. A reference may also be made to the case of CIT v. Kejriwal Traders [1969] 71 ITR 463 (Cal). In this case, the assessee-firm was originally constituted by a partnership deed dated April 18, 1957. On September 30, 1957, one of the partners retired and a new partnership deed was executed on January 31, 1958, in which it was recited that the partnership constituted under the date April 18, 1957, was "dissolved". For the assessment year 1958-59, for which the previous year was from February 1, 1957, to December 31, 1957, the firm applied on September 5, 1957, for registration under Section 26A of the 1922 Act. The Appellate Assistant Commissioner held that there was only a change in the constitution of the firm on January 31, 1958, and allowed registration of the firm for the whole previous year. The Tribunal cancelled the registration to the firm from October 1, 1957, to December 31, 1957, but allowed registration to the firm for the period from February 1, 1957, to September 30, 1957. It was held by the Calcutta High Court that on the specific and express terms and clauses in the deed, there had been a dissolution both in fact and in law and so it was not permissible to break the periods of accounting and to allow piecemeal registration of the instrument of partnership under Section 26A of the 1922 Act and that the registration under Section 26A of the 1922 Act is an annual registration and that the Tribunal was wrong in permitting registration under Section 26A of the 1922 Act to the assessee with reference to the portion of the accounting year commencing from February 1, 1957, and ending on September 30, 1957. It was also held in this decision that if the authorities below had granted registration to the firm as constituted under the instrument dated April 18, 1957, for the period February 1, to September 30, 1957, there could not possibly be any objection but in granting registration to the reconstituted firm for only a part of the accounting year, the Tribunal has erred. Thus it is evident that there could have been no objection if the dissolved firm had been registered up to the date of dissolution but in this case, the. registration was allowed to the reconstituted firm for only a part of the accounting year which was not permissible in law.
39. It is thus evident that in view of Section 187(1) of the Act, registration has to be allowed for the whole year to the reconstituted firm as it exists at the time of assessment during the accounting period and no registration can be allowed for part of the year. As under Section 187(1) of the Act, assessment has to be made on the firm as constituted at the time of assessment, the registration has also to be allowed to the firm as constituted at the time of assessment for the whole year.
40. Mr. B. P. Rajgarhia has relied on the case of Tambe and Sons v. CIT [1977] 110 ITR 309 (Bom). In this case, by a deed of partnership dated March 18, 1960, four persons entered into an agreement to carry on a business and to share profits thereof, respectively, at specified rates. The partnership was to commence from January 1, 1960, and the accounting year was to be the calendar year. Clause 11 of the deed provided that in case of death or insolvency of any of the partners, the partnership would be carried on by the remaining partners. In the course of the very first year of existence of the partnership, one of the partners died. The business was continued by the remaining partners without executing any fresh deed of partnership or entering into any written agreement about the division of profits. The Income-tax Officer granted initial registration to the firm for the assessment year 1961-62. The assessee filed an application for fresh registration as also a declaration under Section 184(7) and application for renewal of registration for the year 1962-63. The Income-tax Officer rejected the applications. In those circumstances, it was held that the new partnership of the three partners was not entitled to registration as there was no deed of partnership specifying the respective shares of the partners and that Section 184(7) will also not be attracted to a case where there is no partnership deed specifying the shares of the existing partners. Thus, it is evident that in this case, the partnership deed did not specify as to what will be the shares of the partners after the death of one of the partners. Hence, this decision will not be helpful to the facts of the present case before us.
41. Mr. B. P. Rajgarhia has also relied on the case of CIT v. Ram Kumar Agarwalla & Bros. [1977] 109 ITR 564 (Cal). In this case, a firm had been registered under the 1922 Act up to and including the assessment year 1959-60. On August 29, 1960, a new partnership deed was executed which stated that one of the partners had relinquished her share in the firm and her son had become a partner in her place and this "agreement of partnership has already been distinctly understood between the parties and has been acted upon by the parties with effect from the 1st day of January, 1959". The Tribunal held that the statement that there had been an oral agreement dated January 1, 1959, was of no consequence and the old firm was entitled to renewal of registration for the assessment year 1960-61. In those circumstances, the Calcutta High Court held that the new firm on an oral agreement was not entitled to registration by way of renewal or otherwise for the assessment year 1960-61 and that the old firm having ceased to exist on and from January 1, 1959, was also not entitled to registration. Thus, the facts of this case were entirely different from the facts of the present case and will not be applicable to the case before us.
42. In the case of CIT v. Sri Rama Talkies [1973] 87 ITR 615 (AP), the assessee, a partnership firm, consisted of three partners. The instrument of partnership dated April 1, 1953, provided that the partnership was to be for a period of 20 years and in the event of death of any partner, the partnership was not to be dissolved and it was to continue with the heir of the deceased partner taking his place. The registration of the firm was continued from year to year and one of the partners died on October 15, 1963, and for the assessment year 1964-65, the corresponding accounting year of which was October 9, 1962, to November 11, 1963, the assessee-firm applied for continuation of registration under Section 184(7) of the Act in Form No. 12. The Income-tax Officer refused registration on the ground that the application was not in proper form and a fresh application for registration should have been filed instead of an application for continuation of registration. In those circumstances, it was held by the Andhra Pradesh High Court that where a firm ceased to exist or is succeeded by a different firm during the course of the previous year, it may be permissible to grant registration for the assessment year in relation to the part of the previous year during which it existed, but where the assessee claims to be the same firm throughout the previous year and submits a single return as if there was only one assessee during the whole of the previous year, registration can be granted only in relation to the whole of the previous year and not for a part of the previous year, and that a firm is constituted by its partners and even if in accordance with the terras of the deed of partnership, a partner is replaced by another, without the firm being dissolved, there is a change in the constitution of the firm for the purpose of Section 184(7) of the Act. In this case, it was held that registration for part of a year cannot be allowed. Thus, this decision clearly shows that there can be no registration for part of the year.
43. Mr. B. P. Ra jsfarhia has also relied on the case of Indo Traders v. CIT [1978] 111 ITR 355 (Cal). In this case, it was held that a declaration furnished under Section 184(7) cannot be treated as an application under Section 184(1) of the Act, because an application under Section 184(1) can be made only when a firm has not been registered in an earlier year, and that Section 184(7) of the Act cannot also apply when an application under Section 184(1) is pending. It has also been pointed out that a Central Board of Direct. Taxes Circular of 1964 empowers the Income-tax Officer where an application for registration is rejected and the assessee has filed a declaration for continuation of registration for a later year, to give an opportunity to the firm to make an application for registration within a reasonable time provided the declaration for continuation of registration for that later year has been filed by the firm " in time ". In those circumstances, the Calcutta High Court held that as the declaration had not been filed within the time permitted under the statute, the assessee'was not entitled to claim the relaxation permitted under the Central Board of Direct Taxes Circular of 1964 for making an application for registration under Section 184(1) for the year 1963-64. This decision also does not help on the point whether there should be one registration or two separate registrations for the two periods.
44. I have already pointed out above that in view of Section 187(1) of the Act, the firm as constituted at the time of assessment has to be assessed for the entire assessment year if there is a change in the constitution of the firm. I have also pointed out that only one form has to be filed by the firm as reconstituted at the time of assessment. It was under those circumstances that Mr. B. P. Rajgarhia cited various decisions for the purpose that if the form is invalid, then it cannot be said that the form was defective and so the defect should have been rectified. I find that the 1st Income-tax Officer also pointed out that Form No. 11A was needed for registration of the firm. It was due to this that the 1st Appellate Assistant Commissioner directed the Income-tax Officer to accept the application in Form No. 11A within one month from the date of the order as required under Section 185(2) of the Act and if the application in Form No. 11A is filed, then the application for registration should be considered in the light of the direction given above. Even the 2nd Income-tax Officer also clearly pointed out that the assessee should have filed an application in Form No. 11A and not in Form No. 11 but he took the view that the application in Form No. 11A was filed on August 4, 1969, beyond the statutory time allowed for filing the application and so he did not entertain the application. The 2nd Appellate Assistant Commissioner held that when the 1st Appellate Assistant Commissioner had directed the Income-tax Officer to accept Form No. 11A, then it amounted to condonation of delay by the 1st Appellate Assistant Commissioner and so the 2nd Income-tax Officer should not have refused registration on the basis of Form No. 11A on the ground that there was delay and so the Appellate Assistant Commissioner allowed registration. Even the Tribunal held that the application in Form No. 11A only was required for registration. Thus, all the authorities were consistent that the application in the case of change in the constitution of the firm should be filed by the firm as it existed at the time of assessment and this application should have been filed in Form No. 11A, as there was a change in the constitution of the firm and so registration has to be allowed for the firm which existed at the time of assessment. It was under those circumstances that the question was raised that Form No. 11 was invalid and so the Appellate Assistant Commissioner should not have directed the removal of the defect.
45. It cannot be doubted that if the application is not invalid but defective, then the Income-tax Officer is bound to give an opportunity to the assessee to remove the defect within one month under Section 185(2) of the Act.
46. It has been held in the case of Agarwal and Co. v. CIT [1970] 77 ITR 10, by their Lordships of the Supreme Court that the conditions of registration prescribed by Section 26A of the 1922 Act and the relevant rules are : (i) on behalf of the firm, an application should be made to the Income-tax Officer by such person and at such times and containing such particulars, being in such form and verified in such manner as are prescribed by the rules ; (ii) the firm should be constituted under an instrument of partnership; (iii) the instrument must specify the individual shares of the partners; and (iv) the partnership must be valid and must actually exist in the terms specified in the instrument and if all the above conditions are fulfilled, the Income-tax Officer is bound to register the firm. All the other conditions laid down have been fulfilled by the assessee in the case before us. The only point which has to be considered is whether the application has been filed in proper form. It is due to this that Mr. B. P. Rajgarhia has laid great stress on the fact that the application in Form No. 11 was not valid and so it cannot be said to be a defective application and so the defects cannot be removed.
47. In the present case before us, the assessee filed an application in Form No. 11 on March 30, 1967, when the change in the constitution of the firm had already taken place on December 17, 1966, after the death of Dinanath Bhatia. In the application in Form No. 11, Dinanath Bhatia and his three sons had signed showing share of 1/4th each as has been clearly pointed out in annexure D by the Income-tax Officer at page 8 of the paper book. Mr. B. P. Rajgarhia has argued that when in Form No. 11, all the four partners had signed and showed their share as 1/4th each, then the form was an invalid form. I am of the view that when on March 30, 1967, the application in Form No. 11 was filed, it was not a proper form and it clearly made a declaration that each of the four partners had 1/4th share and it could only show that Dinanath Bhatia was alive at that time. At that time, only three sons of Dinanath Bhatia were partners as Dinanath Bhatia had already died on December 17, 1966. The assessee should have filed an application in Form No. 11A only, showing the three partners in the deed having 1/3rd share each for the whole year, as in view of the partnership deed (annexure A) after the death of Dinanath Bhatia, the share capital of Dinanath Bhatia on the date of death before adjustment of profit and loss in the partnership was to be distributed among the remaining three partners equally and the share of the three sons of Dinanath Bhatia were to be 1/3rd each as partners. In view of Clause 11 of the deed (annexure A), the firm as in existence on March 30, 1967, should have shown only three partners and should have shown 1/3rd share each throughout the year and so it cannot be doubted that Form No. 11 was not a proper form which had to be filed by the assessee-nrm and that it should have been an application in Form No. 11A.
48. It has been held in the case of Ganga Motor Service v. CIT [1977] 106 ITR 132, by the Patna High Court that Section 185(2) of the Act provides that if the application for registration was defective, the Income-tax Officer should intimate the defect to the firm and give it an opportunity to rectify the defect and that the submission of the Department that this opportunity was meant to remove a defect in the application itself and that too only a defect of a clerical nature was without substance.
49. It has been held in the case of CIT v. Ganesh Fire Works Industries [1984] 147 ITR 781 (Mad), that the provisions of Section 185(2) and (3) of the Act do require the Income-tax Officer to be helpful to the assessees in the matter of processing the applications for registration or declaration, as the case may be, drawing their attention to the defects and putting them in the way of rectifying those defects and giving them the opportunity, which the statute itself provides with a time-limit of one month for such rectification and the Income-tax Officer would be failing in his duty if he does not follow this statutory mandate. In this decision, one of the partners of the assessee-firm which was registered under the Act, died on December 7, 1969, in the midst of the firm's accounting year which would normally end on March 31, 1970, and though on the death of the partner the firm was dissolved, the partners did not close the accounts on that date but closed the same only on March 31, 1970. No transactions were effected subsequent to the death of the partner but the business was wound up and the accounts taken for purposes of dissolution of partnership as on December 7, 1969. For the assessment year 1970-71, the surviving partners and the legal representatives of the deceased partner filed a declaration in Form No. 12 for grant of registration for the said year. The Income-tax Officer refused to grant continuation of registration of the firm on the ground that it was asked for the year ending March 31, 1970, while one of the partners had died during the year. The Tribunal held that the registration of the firm must be granted till December 7, 1969, after which date the declaration filed by the surviving partners and the heirs of the deceased partner would not be valid. In those circumstances, it was held by the Madras High Court that as there was no change in the constitution of the partnership till the date of death of the partner, the assessee was entitled to continuation of registration under Section 184(7) of the Act till that date. It was also held that the only defect in the application for registration filed by the firm was that they claimed registration till the end of the year instead of till December 7, 1969, and that if the Income-tax Officer had followed the mandatory procedure contemplated under Section 185(3) by returning the application for rectification of the defect, the firm could have filed a proper declaration under Section 184(7) in which event, no objection could have been raised by the Income-tax Officer for refusing registration of the firm up to December 7, 1969, and so it was held that the assessee-firm was entitled to registration till December 7, 1969, when the firm was dissolved. Thus, it is evident that in the case of dissolution of the firm, the application in Form No. 12 could have been filed till the date of dissolution of the firm but an application was filed for continuation of registration of the firm for the whole year and so it was held that the defect should have been removed.
50. In the case of Sant Lal Kashmiri Lal v. CIT [1972] 86 ITR 76 (Delhi), K,who was partner in a firm which had been registered under the I.T. Act up to and including the assessment year 1961-62, died on October 21, 1981, during the previous year ending November 8, 1961, relevant to the assessment year 1962-63. The remaining partners executed a fresh partnership deed on October 23, 1961, taking over the old business and recording the transactions in the same books. In the declaration in Form No. 12 signed by the remaining partners, the date of dissolution of the firm was not filled in. The fact that K died on October 21, 1961, and the remaining partners formed a fresh partnership was brought to the notice of the Income-tax Officer subsequently by a letter. Thereafter without giving any opportunity to the firm to rectify the defect, the officer passed an order holding that the declaration was false and incorrect because it had been declared therein that there had been no change in the constitution of the firm or in the shares of the partners since the last day of the previous year relevant to the assessment year 1961-62 up to the last day of the previous year relevant to the assessment year 1962-63, and that though there had been a change in the constitution of the firm, no application for registration had been claimed on the basis of a new partnership deed and that the firm could not be granted registration or continuation of registration for the assessment year 1962-63. In those circumstances, the Delhi High Court held that since the genuineness of the firm was not in doubt and the changes were brought to his notice, the Income-tax Officer ought to have followed the procedure laid down in Section 185(2) of the Act and given an opportunity to the firm to rectify the defect.
51. Thus, it is evident that even if there were incorrect recitals in the application in Form No. 11, it was the duty of the Income-tax Officer to inform the assessee that the Form No. 11 was not a proper form and that the assessee-firm should have filed application in Form No. 11A but the Income-tax Officer did not do so and he simply mentioned that the application should have been filed in Form No. 11A and as it was not filed, he refused registration in the original order.
52. It cannot be doubted that no formal application for condonation of delay was needed. It has been held in the case of CIT v. Raghunandan Prasad Mohan Lal [1974] 97 ITR 398, by the Allahabad High Court, that neither the Act nor the Rules expressly require a separate written application or a written prayer for condonation of delay in making an application for registration. Thus no application was needed in this case. If the 1st Income-tax Officer had given opportunity to the assessee-firm to file a fresh application in Form No. 11A as required under Section 185(2) of the Act, the assessee could have filed application in Form No. 11A and registration could have been granted to the assessee. The Income-tax Officer failed to do so and so the 1st Appellate Assistant Commissioner by his order dated June 30, 1969, directed the Income-tax Officer to intimate the defect of having used an incorrect form for making application for registration as required under Section 185(2) of the Act after waiting for one month and on receipt of the application in Form No. 11A or otherwise should deal afresh with the question of registration in accordance with the direction given above. Thus, the direction to the Income-tax Officer was that the assessee should file Form No. 11A and then it should be disposed of. Even if the firm was held to be genuine and if no application in Form No. 11A was filed, then the application was bound to be rejected.
53. Mr. B. P. Rajgarhia relied on the decisions in Pratapmal Luxmickand v. CIT [1956] 29 ITR 489 (SC) and Singh Bros. 6- Co. v. CIT [1982] 137 ITR 63 (Gauhati), to show that the defect in the deed cannot be rectified but both these decisions clearly lay down that the Appellate Assistant Commissioner or the Income-tax Officer could direct removal of defect in the application form. Thus, it cannot be doubted that the defect in the application form can be removed by the Appellate Assistant Commissioner and so the order of the 1st Appellate Assistant Commissioner contained in annexure C cannot be said to be an illegal order.
54. It has been held in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225, by the Supreme Court, that the Appellate Assistant Commissioner has plenary powers in disposing of an appeal and the scope of his powers is conterminous with that of the Income-tax Officer and he can do what the Income-tax Officer can do and can also direct him to do what he has failed to do.
55. It has been held in the case of Pulipati Subbarao and Co. v. AAC of I.T. [1959] 35 ITR 673(AP), that all that the Appellate Assistant Commissioner directed the officer to do was to receive a duplicate copy of the application for registration and dispose of it according to law and, therefore, it was not open to the officer to conduct a fresh enquiry and proceed to make a fresh assessment. Of course, there are some limitations on the powers of the Appellate Assistant Commissioner.
56. It has been held in the case of CIT v. Rai Bahadur Hardutroy Muti-lal Chamaria [1967] 66 ITR 443 (SC), that the Appellate Assistant Commissioner has no jurisdiction under Section 31(3) of the 1922 Act to assess a source of income which is not disclosed either in the returns filed by the assessee or in the assessment order and that it is not, therefore, open to the Appellate Assistant Commissioner to travel outside the record, i.e., the return made by the assessee or the assessment order of the Income-tax Officer, with a view to finding out the new sources of income.
57. Learned advocate for the assessee has relied on the case of CIT v. Raj Narain Tewari [1978] 113 ITR 163 (All). In this case, the Income-tax Officer refused to register a firm on the ground that it had failed to comply with notices under Section 142(1) and Section 143(2) of the I.T. Act. On appeal, the Tribunal found that notices had been issued under Sections 142(1) and 143(2) and the assessment proceedings completed within a month of the issue of the notices, and so the failure on the part of the assessee did not warrant refusal of registration to the firm. In those circumstances, the Allahabad High Court held that the Tribunal was justified in arriving at its conclusion that the refusal of registration was not warranted, and that though the Income-tax Officer had exercised his discretion under Section 185(5) in a particular way, it was open to the Tribunal to substitute its discretion for that of the Income-tax Officer as it is well settled that an appellate court or authority has the same power as the court or authority of the first instance. Thus, it cannot be doubted that the Appellate Assistant Commissioner was justified in giving direction to the Income-tax Officer to accept the application in Form No. 11A.
58. It cannot be doubted that the 1st Income-tax Officer had not given an opportunity to the assessee to file application in Form No. 11A, although he found that the application in Form No. 11 was not the proper form to be filed. The 1st Appellate Assistant Commissioner foxind that the application in Form No. 11 was an incorrect one and so under Section 185(2) of the Act, the Income-tax Officer should have given an opportunity to the assessee-firm to file a fresh application in Form No. 11A and this opportunity not being given, the 1st Appellate Assistant Commissioner directed that the application should be filed in Form No. 11A and the assessee filed application in Form No. 11A immediately after receipt of the order of the 1st Appellate Assistant Commissioner, but this application was rejected by the 2nd Income-tax Officer on the ground that it was beyond time. The application in Form No. 11A could not be rejected on the ground of limitation as the 1st Appellate Assistant Commissioner had already held that the application in Form No. 11A could have been filed by the assessee-firm and the Income-tax Officer was directed to give an opportunity to the assessee under Section 185(2) of the Act to remove the defect, but the Income-tax Officer did not give an opportunity to remove the defect and rejected the application for registration and it was after the direction of the 1st Appellate Assistant Commissioner that the application in Form No. 11A was filed in view of the provisions of Section 185(2) of the Act. Under such circumstances, the application in Form No. 11A could not be held to be time-barred as held by the 2nd Income-tax Officer and so the 2nd Appellate Assistant Commissioner was justified in allowing registration as the genuineness of the firm had not been doubted.
59. Mr. B. P. Rajgarhia has also submitted that there should have been ascertainment or distribution of profit and loss amongst the partners up to December 17, 1965, and as this was not done and in the application in Form No. 11A, the entire profits for the whole year was shown as 1/3rd earned by each of the three partners who are the sons of the deceased, Dinanath Bhatia, the registration on the basis of the application in Form No. 11A also cannot be allowed. I have already pointed out that it is a special case in which the father and his three sons were partners. The partnership deed (annexure A) specifically provided that after the death of Dinanath Bhatia, there should be no adjustment of profit or loss in the partnership and that the profit and loss would be distributed among the three remaining partners equally to the extent of 1/3rd each. Thus, according to the terms of the deed, there is no question of ascertainment of profits for the two periods separately.
60. It has been held in the case of CIT v. Voleti Veerabhadra Rao and Sons [1972] 84 ITR 764, by the Andhra Pradesh High Court, which has been relied upon by the assessee, that as the provisions of Section 184(7) do not specify the ascertainment or distribution of profits amongst the partners as one of the requisite conditions for continuation of registration of the firm for the subsequent years, the assessee was entitled to continuation of registration under the Act for the year 1963-64. Thus, it is evident that the ascertainment of profits was not necessary. However, in the present case, in view of Clause 11 of the deed of partnership, in annexure A, no profit and loss was to be ascertained for the period prior to the death of Dinanath Bhatia on December 17, 1966, and so if the three partners as existing on the date of the assessment showed that they were entitled to the entire profits for the whole year, then registration could not have been refused to the assessee for the whole year. I have already pointed out in paragraph 24 (page 613 (supra)) to the decision in CIT v. Ganesar Industries [1984] 149 ITR 48 (Mad) which applies exactly in the case of the present assessee-firm.
61. In view of my discussions above, I hold that the assessment in view of Section 187(1) has to be made on the firm as it existed at the time of making assessment and so, the firm was required to file an application in Form No. 11A and not any other application till December 17, 1966, in Form No. 11, and that Form No. 11 was not the correct form and so the 1st Appellate Assistant Commissioner was justified in directing the Income-tax Officer to accept the application in Form No. 11A and so, the application in Form No. 11A could not have been rejected as time-barred in view of the special circumstances of the case and so the registration has to be granted for the whole year to the firm as it existed at the time of making assessment and that two separate registrations were not required in this case, as suggested by Mr. B. P. Rajgarhia, for the Revenue. I, therefore, hold that the firm of three partners was rightly allowed to be registered for the entire assessment year 1967-68 by the 2nd Appellate Assistant Commissioner, vide annexure E, and the Tribunal was justified in upholding the order of the 2nd Appellate Assistant Commissioner in allowing registration for the whole year.
62. In view of my findings above, I hold that the Tribunal was correct in upholding the action of the Appellate Assistant Commissioner in granting registration to the firm. The question is, accordingly, answered in favour of the assessee and against the Revenue. In the peculiar circumstances of the case, however, there will be no order as to costs.
Uday Sinha, J.
63. I agree.