Patna High Court
Commissioner Of Income-Tax vs Mumtaz Ali And Ors. on 29 October, 1990
Equivalent citations: 1991(39)BLJR297, [1991]190ITR249(PATNA)
JUDGMENT G.C. Bharuka, J.
1. In pursuance of an application filed by the Department under Section 256(1) of the Income-tax Act, 1961 (hereinafter to be referred to as "the Act"), the Tribunal has referred the following questions of law for the opinion of this court :
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the appeal was maintainable before the Appellate Assistant Commissioner against the order of the Income-tax Officer refusing to allow continuation of registration to the assessee-firm relating to the assessment year 1974-75 under Section 184(7) of the Income-tax Act, 1961 ?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the Appellate Assistant Commissioner was justified in entertaining the appeal against the order of the Income-tax Officer refusing condonation of delay to the assessee-firm as provided under Section 184(7) of the Income-tax Act, 1961 ?"
2. The assessee is a partnership firm. It was enjoying the status of a registered firm till the assessment year 1973-74. The present dispute relates to the assessment year 1974-75. The accounting year relevant to this assessment year ended on March 31, 1974. Under Section 139(1) of the Act, the assessee was required to file its return of income on or before July 31, 1974, and the assessee did file the return on July 31, 1974. But the statutory declaration in Form No. 12 required to be filed within the time prescribed for filing the return for seeking continuation of registration as per Section 184(7) of the Act was filed out of time, i.e., on October 8, 1974. Therefore, there was a delay in filing the said declaration seeking continuation of registration. On being asked by the Income-tax Officer to explain the reason for the delay in filing the said declaration, the assessee stated in writing that the delay was caused because of the serious illness of one of the partners of the firm, Smt. Noor Jehan, who was under medical treatment. In support of the same, a medical prescription was also filed. The Income-tax Officer did not feel satisfied with the cause advanced by the assessee for explaining the said delay and, therefore, he refused to allow continuation of registration to the firm for the assessment year in question. Accordingly, the Income-tax Officer assessed the assessee in the status of an unregistered firm.
3. The assessee preferred an appeal before the Appellate Assistant Commissioner who took the explanation of the assessee as reasonable and allowed the appeal thereby granting continuation of registration.
4. The Department went in appeal to the Tribunal and assailed the order of the Appellate Assistant Commissioner, inter alia, on the ground of its very maintainability. The Tribunal took the view that, on a proper consideration of the statutory provisions of the Act, the appeal to the Appellate Assistant Commissioner was maintainable.
5. Shri Vidyarthi, learned counsel appearing for the Department, has submitted that the view taken by this court in the case of Madhur Jalpan v. CIT [1983] 143 ITR 351, needs reconsideration because, according to him, an order passed under Section 184(7) of the Act refusing to condone the delay in filing the statutory declaration in Form No. 12 is not tantamount to an order under Section 185(3) of the Act and, therefore, no appeal can lie against such an order under Section 246 (j) of the Act. In support of his contention, learned counsel has relied upon the case decided by the Kerala High Court in the case of CIT v. Pushpaka Travels [1985] 152 ITR 717.
6. For a proper appreciation of the questions involved in the present case, it will be worthwhile to quote Clauses (c) and (j) of Section 246 of the Act, which read as under :
"246. Any assessee aggrieved by any of the following orders of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order--...
(c) an order against the assessee where the assessee denies his liability to be assessed under this Act or any order of assessment under Sub-section (3) of Section 143 or Section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed ;...
(j) an order under Clause (b) of Sub-section (1) or under Sub-section (2) or Sub-section (3) or Sub-section (5) of Section 185."
7. The questions at hand are no more res integra. Almost all the High Courts including this court had the occasion to deal with these questions. The view taken by the majority of the High Courts including this court is that where the Income-tax Officer refuses to condone the delay in filing the declaration, contemplated under Section 184(7) of the Act (Form No. 12 as prescribed under the Rules) and thereby the firm becomes disentitled for continuation of registration for that particular assessment year, such an order is appealable either under Section 246(c) or under Section 246(j) of the Act or under both. In a catena of cases decided by this court it is the consistent view. The earliest decision of this court on this point is in the case of Madhur Jalpan v. CIT [1983] 143 ITR 351. A contrary view has been taken by the Orissa High Court and the Kerala High Court in the case of CIT v. Pohop Singh Rice Mill [1981] 132 ITR 390 (Orissa) and in the case of CIT v. Pushpaka Travels [1985] 152 ITR 717 (Ker). This court, on a detailed consideration of the contrary view, has specifically dissented therefrom.
8. The Income-tax Act does not define "firm". Section 2(23), inter alia, provides that "firm" will have the same meaning as assigned to it in the Indian Partnership Act, 1932. The definition of the term "person" as defined in Section 2(31) includes a firm. Section 2(39) defines "registered firm" to mean a firm registered under the provisions of Clause (a), of Sub-section (1) of Section 185 or under that provision read with Sub-section (7) of Section 184. Section 2(48) defines "unregistered firm" to mean a firm which is not a registered firm. It is also of importance to state here that under the respective Finance Acts, the rates of tax prescribed for a registered and an unregistered firm are materially different. It is also of significance to note that the income of a firm is always assessed by describing it either as a registered or an unregistered firm because, otherwise, the tax liability can never be determined. It is so because no rate of tax is provided under the provisions of the Income-tax Act or the Finance Act for a "firm" simpliciter.
9. The scheme for registration of a firm, continuation and cancellation of such registration are contained in Sections 184, 185 and 186 of the Act. Sub-sections (1) to (6) of Section 184 of the Act deal with the making of an application for grant of registration to the firm and the procedures for entertainment of such application are contained in Section 185 of the Act. On receipt of the application for registration, if the Income-tax Officer feels satisfied with regard to the fulfilment of the conditions for grant of such registration, he will pass an order in writing for registering the firm for the assessment year ; otherwise he will refuse to register the firm. It is significant to note that registration is granted for a particular assessment year. Section 184(7) of the Act deals with continuation of registration for the subsequent assessment year and reads as under :
"184(7) Where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment year :
Provided that :
(i) 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 the registration was granted ; and
(ii) the firm furnishes, before the expiry of the time allowed under Sub-section (1) or Sub-section (2) of Section 139 (whether fixed originally or on extension) for furnishing the return of income for such subsequent assessment year, a declaration to that effect, in the prescribed form and verified in the prescribed manner, so however, that where the Income-tax Officer is satisfied that the firm was prevented by sufficient cause from furnishing the declaration within the time so allowed, he may allow the firm to furnish the declaration at any time before the assessment is made."
10. A bare reading of the aforesaid provisions will show that if a firm wants to avail of the benefits of registration, i.e., wants to be assessed to tax in the status of a registered firm, it has to file the prescribed declaration in Form No. 12 within the time prescribed and if it fails to file the declaration within the time, then it has to seek condonation of delay by showing sufficient cause to the Income-tax Officer. It is implicit in the powers conferred on the Income-tax Officer under the aforesaid provisions not to condone the delay if he does not feel satisfied with the sufficiency of cause shown by the firm to justify the delay in filing the declaration. Consequence of refusal to condone the delay would be to disentitle the firm to continuance of registration in that particular assessment year. In a case where the firm either fails to file an application for continuance of registration in a particular assessment year or if any such declaration is filed beyond the period prescribed by the law without seeking extension of time or without getting the delay condoned, then, in law, ipso facto, the firm becomes disentitled for continuance of registration and no specific or formal order is required to be passed by the Income-tax Officer refusing and/or cancelling the registration granted for the previous year. This view of mine finds ample support in Section 185(4) of the Act, which reads as under :
"185 (4) Where a firm is registered for any assessment year, the Income-tax Officer shall record a certificate on the instrument of partnership or on the certified copy submitted in lieu of the original instrument, as the case may be, to the effect that the firm has been registered under this Act, for that assessment year ; and where a declaration under Sub-section (7) of Section 184 is furnished by the firm, for the relevant subsequent assessment year."
11. The aforesaid provision clearly amplifies that once a firm is registered for any assessment year, the endorsement with regard to the continuation of registration for subsequent assessment years would be made only where a declaration in Form No. 12 is furnished by the firm as per the provisions contained in Section 184(7) of the Act.
12. It is true that, where a declaration in Form No. 12 is filed beyond the period of limitation prescribed under Clause (ii) of the proviso to Sub-section (7) of Section 184, then it cannot be said to be a defect coming under Section 185(3) of the Act. Therefore, neither could there be any obligation on the part of the Income-tax Officer to give an opportunity to the assessee as per the provisions under Section 185(2) to rectify any defect nor is the Income-tax Officer required to pass any order rejecting the application for non-removal of any defect.
13. In my view, an order refusing condonation of delay in filing the declaration in Form No. 12 will be an order passed under the provisions of Section 184(7)(ii) of the Act and, therefore, no appeal can lie under Section 246 (j) of the Act because, under this clause, an appeal can lie only against orders passed under Clause (b) of Sub-section (1) or under Sub-section (2) or Sub-section (3) or Sub-section (5) of Section 185. To this extent, the view taken by the Kerala High Court in the case referred to above seems to be correct. But then the Kerala High Court has failed to take into account the view of this court taken in the case of Madhur Jal-pan [1983] 143 ITR 351, where it has been specifically held on a detailed consideration of all the relevant provisions that, in such a situation, an order refusing to condone the delay in filing Form No. 12 under the provisions of Section 184(7)(ii) of the Act would amount to an order affecting the status of the firm and, as such, it would be appealable under Section 246 (c) of the Act.
14. Now, the question arises as to what is the legal meaning of the word "status" for the purpose of the Income-tax Act. As per Mozley and White-ley's Law Dictionary, "status" means the condition of a person in the eye of law. Black's Law Dictionary describes "status" to mean the rights, duties, capacities and incapacities which determine a person to a given class. In the case of Duggamma v. Ganeshayya, AIR 1965 Mys 97, it has been held that the status of a person means his personal legal condition, that is to say, a man's legal condition only so far as his personal rights and burdens are concerned, to the exclusion of his proprietary relation. Admittedly, a "firm" is a person for the purpose of the Income-tax Act as defined under Section 2(31) of the Act. From these definitions and dictum, it is obvious that if the rights and liabilities of the firm are affected because of its registration or non-registration under the Act, then definitely, this question will be a question pertaining to the status of the firm. Apart from this common law understanding of the term "status", this expression also had a statutory definition at the material time as contained in Clause (2) of the Explanation to Section 143 of the Act, which reads as under :
"Status", in relation to an assessee, means the classification of the assessee as an individual, a Hindu undivided family, or any other category of persons referred to in Clause (31) of Section 2, and where the assessee is a firm, its classification as a registered firm or an unregistered firm."
15. It is, therefore, clear that the assessment of a firm as a registered firm or as an unregistered firm is a matter concerning the status of the firm, and, as such, where the firm objects to the status under which it is assessed, the order complained of can be subjected to an appeal under Section 246 (c) of the Act. This view of mine is fully supported by the views taken by this court in a series of cases, namely, in the case of Madhur Jalpan v. CIT [1983] 143 ITR 351 (Patna), in the case of CIT v. Manuram Babulal [1986] 158 ITR 5 (Patna), in the case of CIT v. Gyanchand Bedi [1987] 163 ITR 693 (Patna) and in the case of CIT v. M.N. Ghosh and Sons [1987] 167 ITR 125 (Patna).
16. For the reasons stated above, both the questions referred to above are answered in the affirmative, i.e., in favour of the assessee and against the Revenue. Since none has appeared for the assessee, there shall be no order as to costs. Let a copy of this judgment be transmitted to the Assistant Registrar, Income-tax Appellate Tribunal, 'B' Bench, Patna, in terms of Section 260 of the Act.
G.G. Sohani, C.J.
17. I agree.