Allahabad High Court
Commissioner Of Income-Tax vs Nagarmal Bisheshar Lal on 16 October, 1990
Equivalent citations: [1991]190ITR468(ALL)
Author: B.P. Jeevan Reddy
Bench: B.P. Jeevan Reddy
JUDGMENT R.R. Misra, J.
1. At the instance of the Commissioner of Income-tax, Allahabad, the Income-tax Appellate Tribunal, B-Bench, Allahabad, has referred 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 holding that the order rejecting the application for registration on the ground that it was belated was an order under Section 185 of the Income-tax Act, 1961, and was, therefore, appealable ?"
2. The necessary facts leading to the above question are as follows : For the assessment year 1974-75, the assessee-firm made a claim for registration under Section 185 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The accounting year of the assessee ended on August 5, 1973, The assessee, however, filed an application in Forms Nos. 11 and 11A on September 14, 1973, along with the original partnership deed. Since the claim for registration was filed by the assessee after the close of the accounting period, the Income-tax Officer considered the same to be belated. On a show-cause notice being issued, the assessee explained that one of its partners, Sri Nagarrnal, had suddenly died on August 3, 1973, and, therefore, the firm had to be dissolved on August 5, 1973. Otherwise, the accounting period adopted by the assessee would have ended on October 8, 1973. It was contended by the assessee that it was because of this sudden contingency that the firm had to be dissolved and, consequently, the accounting year of the assessee had to come to a close. It was further contended that had the death of Sri Nagarmal not taken place, the application for registration would have been in time. The Income-tax Officer, however, held that the application for registration being not filed in time, the assessee was not entitled to registration. He, accordingly, refused to register the firm after rejecting the application for condonation of delay in filing the said application for registration.
3. Aggrieved against the aforesaid order passed by the Income-tax Officer, the assessee filed an appeal before the Appellate Assistant Commissioner. It was claimed by the assessee that there was a valid explanation for the delay in filing the application for registration and that the Income-tax Officer was in error in refusing registration to the assessee-firm. It was contended on behalf of the assessee that so far as the genuineness of the firm was concerned, the same was not only genuine but the Income-tax Officer in the succeeding year has already granted registration to the firm for the subsequent year. The Appellate Assistant Commissioner held that the reasons given by the Income-tax Officer for refusing the claim of the assessee for registration were not sustainable more so because the firm had been allowed registration for the subsequent year. He held that the delay in presentation of the application ought to have been condoned. He, accordingly, allowed the appeal of the assessee and directed the Income-tax Officer to grant registration to the assessee-firm for the year in dispute.
The Income-tax Officer, however, challenged the aforesaid order of the Appellate Assistant Commissioner before the Income-tax Appellate Tribunal on the ground that the Appellate Assistant Commissioner had erred in directing the Income-tax Officer to grant registration to the assessee-firm. The Department was of the view that the application for registration filed by the assessee was belated and that the Income-tax Officer had rightly refused to condone the delay. It was further contended on behalf of the Department before the Tribunal that the order refusing to condone the delay was an order passed under Section 184(4) of the Act against which no appeal had been provided and, therefore, the first appellate authority was not justified in entertaining the appeal of the assessee challenging the aforesaid order passed by the Income-tax Officer refusing to grant registration to the assessee-firm in the very first year of the business of the assessee. Before the Tribunal, the assessee supported the order of the Appellate Assistant Commissioner and claimed that the delay was fully explained and the order passed by the Appellate Assistant Commissioner was perfectly justified on the facts and circumstances of the case and that, under the law, an appeal lay to the Appellate Assistant Commissioner. The Tribunal, after consideration of the rival submissions of the parties, found that the claim of the Department that no appeal lay against the order of the Income-tax Officer refusing to condone the delay under Section 184(4) of the Act was no doubt supported by a decision of the Madras High Court in the case of A. S. S. S. S. Chandrasekaran and Brothers [1974] 96 ITR 711 but it also noticed that the Gujarat High Court had, in a later decision in the case of Dineshchandra Industries [ 1975] 100 ITR 660, taken a contrary view. The Tribunal also felt that the view of the Gujarat High Court was supported by the ratio of the decision of the Supreme Court in the case of Mela Ram and Sons [1956] 29 ITR 607. Therefore, what the Tribunal held was that even a belated application for registration was an application in the eye of law and, when it was rejected on the ground of delay, the order rejecting such application was, in law, an order passed under Section 185 of the Act and, therefore, was clearly appealable. The Tribunal accordingly confirmed the order passed by the Appellate Assistant Commissioner and dismissed the appeal filed by the Department.
4. As we have already stated above, at the instance of the Commissioner of Income-tax, the Department is in reference before us.
5. We have heard learned counsel for the parties. On behalf of the Income-tax Department, Sri R.K. Agrawal, learned standing counsel, has, in support of his contention that no appeal lies against the order of the Income-tax Officer refusing to condone the delay in making an application for registration of a firm, relied upon the following cases :
(1) Ashwani Kumar Maksudan Lal v. Addl. CIT [1972J 83 ITR 854 (All), (2) A. S. S. S. S. Chandrasekaran and brothers v. CIT [1974] 96 ITR 711 (Mad), (3) New Orissa Traders v. CIT [1977] 107 ITR 553 (Orissa), (4) CIT v. Pohop Smgh Rice Mill [1981] 132 ITR 390 (Orissa) and (5) CIT v. Pushpaka Travels [1985] 152 ITR 717 (Ker).
6. In the case of Ashwani Kumar Maksudan Lal [1972] 83 ITR 854, a Division Bench of this court has taken the view that there is no right of appeal from the refusal of the Income-tax Officer to record a certificate on the declaration filed by an assessee under Section 184(7) of the Act, of the continuation of the registration of a firm though the matter may be taken to the Commissioner by way of a revision petition. It may be mentioned that in this case no decision of any court including the ease of Mela Ram and Sons v. CIT [ 1956] 29 ITR 607 (SC) was cited before the court.
7. In the case of A. S. S. S. S. Chandrasekaran [1974] 96 ITR 711, it has been held by the Madras High Court that no appeal lies against the order rejecting a registration application as barred by time as it is an order passed under Section 184(4) of the Act and is not an order passed under Section 185 of the Act.
8. The Orissa High Court has in the case of New Orissa Traders [1977] 107 ITR 553, only followed the aforesaid decision of the Madras High Court in the case of A. S. S. S. S. Chandrasekaran and Bros. [1974] 96 ITR 711 and has, in a later case of CIT v. Pohop Singh Rice Mills [1981] 132 ITR 390, taken the same view.
9. The Kerala High Court has, in the case of CIT v. Pushpaka Travels [1985] 152 ITR 717, followed the aforesaid three decisions and has taken the view that no appeal lies in such a situation. On the other hand, there are a number of decisions which took a contrary view beginning with the case of the Gujarat High Court in the case of CIT v. Dineshchandra Industries [1975] 100 ITR 660. In this case, it has been held that an appeal lies against an order rejecting an application for registration on the ground of delay. It has distinguished the case of the Allahabad High Court in the case of Ashwani Kumar Maksudan Lal [1972] 83 ITR 854 on the ground that it was a case of continuation of registration.
10. The Andhra Pradesh High Court, in the case of Addl. CIT v. Chekka Ayyanna [1977] 106 ITR 313, has also taken the view that if an application for registration is rejected as belated, an appeal lies against the same. In arriving at its conclusion, it has followed the aforesaid decision of the Gujarat High Court in the case of CIT v. Dineshchandra Industries [1975] 100 ITR 660 and has dissented from the view of the Madras High Court in the case of A. S. S. S. S. Chandrasekaran [1974] 96 ITR 711.
11. Next comes a Division Bench decision of this court in the case of ITO v. Vinod Krishna Som Prakash [1979] 117 ITR 594. In this case, our court has relied upon the decision of the Gujarat High Court in the case of CIT v. Dineshcharidra Industries [1975] 100 ITR 660 and the decision of the Andhra Pradesh High Court in Addl. CJT v. Chekka Ayyanna [1977] 106 ITR 313 and held that an appeal lies under Section 246(j) of the Act against an order refusing to condone delay in an application for renewal of registration of a firm. It may be mentioned that, before this Division Bench, the earlier decision of this court in the case of Ashwani Kumar Maksudan Lal [1972] 83 ITR 854 was not cited. In arriving at its conclusion in that case also, the Income-tax Tribunal had drawn support from the Supreme Court decisions in the cases of Mela Ram and Sons [1956] 29 ITR 607 and Sir Hukumchand and Mannalal Co. v. CAT [1966] 60 ITR 99. If we advert to the aforesaid decision in the case of Mela Ram and Sons [1956] 29 ITR 607 (SC), we find that, in that case, it, was held that an order by the Appellate Assistant Commissioner holding that there was no sufficient reason for excusing delay under Section 30(2) of the Indian Income-tax Act, 1922, and rejecting the appeal as time-barred is an order passed under Section 31 and an appeal lies from that order to the Appellate Tribunal.
12. This view of our court has been later on followed in yet another Division Bench decision of our court in the case of CIT v. Satya Narain Suresh Kumar [1979] 120 ITR 840.
13. The Punjab and Haryana High Court, in the case of CIT v. Beri Chemical Industries [1980] 121 ITR 87 has, by following the decision of the Gujarat High Court in the case of CIT v. Dines he handra Industries [ 1975] 100 ITR 660, held that an appeal lies.
14. In so far as the Madhya Pradesh High Court is concerned, it has, in the following four cases, agreed with the decision of our court in the case of ITO v. Vinod Krishna Som Prakash [1979] 117 ITR 594 (All) and has opined that an appeal lies against an order rejecting an application for registration as barred by time. These four cases are Durga Prasad Rajaram Adatiya v. CIT [1982] 134 ITR 601 (MP), CIT v. Devilal Shankardayal [1983] 140 ITR 413 (MP), CIT v. Jabalpur Transport Development Co. [1983] 143 ITR 964 (MP) and Dhanpat Pitamberlal Patni v. CIT [1983] 144 ITR 874 (MP).
15. The Rajasthan High Court has also, in the case of Asst. CIT v. Cha-turbhuj Radhakishan [1985] 156 ITR 25-7, agreed with the view of our court holding that an appeal lies against such an order,
16. The Karnataka High Court in the case of CIT v. Angadi Bros. [ 1986] 157 ITR 426, the Delhi High Court in the case of Grafik India v. CIT [1986] 159 ITR 528 and the Gauhati High Court in the case of CIT v. Assam Cold Storage Co. [1989] 178 ITR 396 have also taken the same view as that of our court in the case of ITO v. Vinod Krishna Som Prahash [1979] 117 ITR 594.
17. The Gujarat High Court has, in the case of Patel and Co. v. CIT [1986] 161 ITR 568, taken the view that an appeal ties against an order rejecting an application for registration on the ground of delay.
18. We have carefully gone through the aforesaid decisions cited before us, and the relevant provisions of law.
19. The relevant provisions of the Act for the purpose of our case are as follows :
"184. Application for registration.--(1) An application for registration of a firm for the purposes of this Act may be made to the Income-tax Officer on behalf of any firm, if--
(i) the partnership is evidenced by an instrument; and
(ii) the individual shares of the partners are specified in that instrument.
(2) Such application may, subject to the provisions of this section, be made either during the existence of the firm or after its dissolution . . . (4) The application shall be made before the end of the previous year for the assessment year in respect of which registration is sought;
Provided . ..
(5) The application shall be accompanied by the original instrument evidencing the partnership, together with a copy thereof; ...
(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."
"185. Procedure on receipt of application.--(1) On receipt of an application for registration of a firm, the Income-tax Officer shall inquire into the genuineness of the firm and its constitution as specified in the instrument of partnership, and
(a) if he is satisfied that there is or was during the previous year in existence a genuine firm with the constitution so specified, he shall pass an order in writing registering the firm for the assessment year ;
(b) if he is not so satisfied, he shall pass an order in writing refusing to register the firm.
(2) Where the Income-tax Officer considers that the application for registration is not in order, he shall intimate the defect to the firm and give it an opportunity to rectify the defect in the application within a period of one month from the date of such intimation ; and if the defect is not rectified within that period, the Income-tax Officer shall, by order in writing, reject the application.
(3) Where the Income-tax Officer considers that the declaration furnished by a firm in pursuance of Sub-section (7) of Section 184 is not in order, he shall intimate the defect to the firm and give it an opportunity to rectify the defect in the declaration within a period of one month from the date of such intimation ; and if the defect is not rectified within that period, the Income-tax Officer shall, by order in writing, declare that the registration granted to the firm shall not have effect for the relevant assessment year."
"246. Appealable orders.--(1) Subject to the provisions of Subsection (2), any assessee aggrieved by any of the following orders of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order ...
(j) an order under Clause (b) of Sub-section (1) or under Subsection (2) or Sub-section (3) or Sub-section (5) of Section 185."
20. From a perusal of the aforesaid provisions it is clear that, in law, there is no distinction in so far as the matters relating to the grant of registration of a firm or its continuation of registration are concerned. The principle in regard to the two are the same. In our considered view, therefore, no distinction in that regard can be drawn.
21. The moot question that remains for examination, however, still is as to whether an appeal lies against an order of the Income-tax Officer refusing to condone the delay in filing an application for registration. Let us examine this controversy.
22. Section 2, Clause (31), of the Act says that the word "person" includes a firm. In the case of a firm, if registration is granted to it, it is assessed as a registered firm. In case registration is not granted to a firm or it is cancelled or there is refusal to extend the registration, that means that the firm is liable to be assessed as an unregistered firm, that is to say that the "status" of the assessee for the purpose of assessment is altered from that of a registered firm to that of an unregistered firm. Under Section 246(c) of the Act, an appeal is provided to the Appellate Assistant Commissioner on various grounds one of which is where an assessee objects to the status in which he is assessed.
23. Explanation 2 to Section 143(3) of the Act which provides for an assessment, however, reads as follows :
"'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."
24. It is, therefore, clear that the assessment of a firm as a registered firm or as an unregistered firm, is a matter of "status" and in a dispute that a firm was entitled to be assessed as a registered firm, the claim relates to the status under which the assessee is liable to be assessed. The effect of the order of the Income-tax Officer refusing to condone the delay in filing the application for registration is a refusal to assess the firm as a registered firm. If the assessee claims that it was not liable to be assessed as an unregistered firm but was entitled to be assessed as a registered firm, then the assessee is to be assessed within the meaning of Clause (c) aforesaid. The incidence of tax in the two situations of status is quite different. The order refusing to condone the delay, therefore, is appealable to the Appellate Assistant Commissioner of Income-tax under Clause (c) as well. This is also the view of the Andhra Pradesh High Court in the case of Addl. CIT v. Chekka Ayyanna [1977] 106 ITR 313, as well as of our own court in the case of ITO v. Vinod Krishna Som Prakash [1979] 117 ITR 594.
25. In addition, we also find, after a perusal of the various provisions which have been set out above, that Section 184 deals with an application for registration and Section 185 deals with the procedure relating to such applications. Sub-sections (1) and (2) of Section 185 deal with the procedure to be followed when an application for registration is to be deaft with. But Sub-section (3) of Section 185 deals with the procedure to be followed when a declaration is furnished under Section 184(7).
26. In a case where the application is beyond time, then after receipt of the application or declaration under Section 184(7), the Income-tax Officer has to give notice under Sub-section (3) to the assessee stating that the application is not in order. He has to intimate the defect to the firm and give it an opportunity to rectify the same. In our opinion, to rectify such a defect, the only course open to an assessee is to urge that there was sufficient ground for condoning the delay. Now, suppose the Income-tax Officer does not agree with the explanation of the assessee for condonation of delay, then the result is that the defect of being barred by time in the application mentioned in Section 185(3) has not been remedied and the Income-tax Officer will have to pass an order refusing to condone the delay. Such an order, in our opinion, is "in effect" an order passed under Section 185(3) on a defective application and is not an order passed under Section 184(7) of the Act. Once it is an order passed under Section 185(3) of the Act, the said order becomes appealable under Section 246(j) of the Act. In taking this view, we are also supported by a decision of the Delhi High Court in the case of Grafik India v. CIT [ 1986] 159 ITR 528.
27. That apart, a reference may also be made to the decision of the Supreme Court in the case of Mela Ram and Sons v. CIT [1956] 29 ITR 607. In this case, the question was whether an order passed by the Appellate Assistant Commissioner refusing to condone the delay in filing an appeal is an appealable order and an appeal lies therefrom to the Income-tax Tribunal It may be mentioned that, under Section 33 of the Indian Income-tax Act, 1022 (as it was at that time), a right of appeal was conferred against all orders passed under Section 31. The argument was that, in an appeal against assessment, the only order that could be passed was one which confirms, reduces, enhances or annuls the assessment, that is an order made on a consideration of the merits of the appeal and that an order dismissing it on the ground of limitation was not one contemplated to be appealable under Section 33. The Supreme Court, in that case, noticed the unanimity of opinion among all the High Courts, except the Punjab High Court that, to fall within the meaning of Section 31 of the Act, it is not necessary that the order should expressly address itself to and decide on the merits of the assessment and that it is sufficient that the effect of the order is to confirm the assessment as when the appeal is dismissed on a preliminary point. The Supreme Court has, later on, at page 618 of the said report, affirmed the said majority view of the High Courts with regard to the plea of limitation. At page 618 of the report, the Supreme Court has observed as follows :
"Taking the plea of limitation--which is what we are concerned with in this appeal--when there is a judgment or order against which the statute provides a right of appeal but none is preferred within the time prescribed therefor, the respondent acquires a valuable right, of which he cannot be deprived by an order condoning delay and admitting the appeal behind his back, And when such an order is passed ex parte, he has a right to challenge its correctness at the hearing of the appeal. That is the position under the general law, vide Krishnawami Panikondar v. Ramaswami Chettiar [1918] LR 45 I. A, 25, and there is nothing in the provisions of the Income-tax Act, which enacts different principles. Therefore, if an appeal is admitted without the fact of delay in presentation having been noticed, clearly it must be open to the Department to raise the objection at the time of the hearing of the appeal. That would also appear to be the practice obtaining before the Income-tax Tribunal, as appears from the decisions cited before -us, and that, in our opinion, is right. Similar considerations would apply to other objections of a preliminary character, such as the one based on Section 30, Sub-section (3). We should be slow to adopt a construction which deprives parties of valuable rights. We are, therefore, of the opinion that contentions relating to preliminary issues are open to consideration at the time of the hearing of the appeal, and that the jurisdiction of the Appellate Assistant Commissioner is not limited to the hearing of the appeal on the merits of the assessment only. In this view, the orders of the Appellate Assistant Commissioner holding that there were no sufficient reason for excusing the delay and rejecting the appeals as time-barred would be orders passed under Section 31 and would be open to appeal, and it would make no difference to the position whether the order of dismissal is made before or after the appeal is admitted,"
28. There is yet a decision of a Division Bench of our court in the case of Radhey Shyam v. CIT [1984] 146 ITR 374, which is to be noticed at this stage. In this case, the Income-tax Officer had disallowed registration. The Appellate Assistant Commissioner of Income-tax had dismissed the appeal as barred by time. The Commissioner of Income-tax had dismissed the revision on the ground that the order had been made the subject-matter of an appeal. The assessee was, therefore, left with no remedy. Thereupon, a petition was filed by the assessee under Article 226 of the Constitution for quashing the order of the Commissioner of Income-tax, under which he had dismissed the revision as infructuous. The question that arose was what is the meaning that is to be assigned to the word "order has been made the subject of an appeal", occurring in Section 264(4)(c) of the Act. Dealing with the said controversy, this court held as follows (p, 376) :
"We may now consider if the dismissal of an appeal on ground of limitation results in the order having been made the subject of an appeal. Before answering this we may point out that where the Legislature confers more than one remedy then the provisions have to be construed in a manner in which the intention of the Legislature is carried into effect and not so as to frustrate it. Moreover, a provision excluding jurisdiction must be construed strictly. The apparent intention of Section 264 appears to be to enable an assessee to get the correctness of an order passed by the Income-tax Officer examined either by the Commissioner (Appeals) under Section 246 or by the Commissioner under Section 264. That is, at least one higher authority may examine it on merits. If Clause (c) is construed in the manner as it has been done by the Commissioner, it would result in negativing the remedy of an assessee which would be contrary to the intention of the Legislature."
29. After referring to the rival arguments advanced by the parties, the court held (p. 377) :
"But, on the intention of the Legislature and the language of the section, we are not inclined to accept it. Appeal, in ordinary sense, means taking the order to a higher authority for examination of its correctness. Where an appeal is dismissed as barred by time or because it was deficiently stamped or it was not presented before the appropriate authority, it may result in finality of the order passed by a subordinate authority and may even operate as res judicata but it cannot be considered to have been examined by a higher authority."
30. Thus, the emphasis put by this court in such a situation was as to whether the impugned order puts a finality on the controversy involved, that is to say an order dismissing the appeal as barred by time may be construed as an order passed in appeal.
31. On a careful consideration of the matter, we are of the opinion that, on the analogy of the ratio of the decision in the case of Mela Ram and Sons [1956] 29 ITR 607 (SC) and Radhey Shyam v. CIT [1984] 146 ITR 374 (All) as discussed above, it could safely be held that the impugned order passed by the Income-tax Officer refusing to condone the delay was an appealable one. This will be more so on the further principle that the court will lean in favour of putting an interpretation conferring a right of appeal in a case like the present one. Thus, in our opinion, against an order passed by the Income-tax Officer, an appeal ties to the Appellate Assistant Commissioner.
32. At this stage, it will be pertinent to notice that we do not agree with the earlier decision of this court in the case of Ashwani Kumar Maksudan Lal [1972] 83 ITR 854 on two counts : firstly, this very court has, in a later and well-reasoned judgment, taken the view that an appeal lies against such an order passed by the Income-tax Oficer and, secondly also, that, for the reasons and discussion stated by us in the earlier part of our judgment, we propose to agree with the law laid down in the later decision of this court in the case of ITO v. Vinod Krishna Som Prakash [1979] 117 ITR 594.
33. Lastly, it may be pointed out that, for taking the view that an appeal lies to the Appellate Assistant Commissioner against an order passed by the Income-tax Officer, we also derive support from the book "The Law and Practice of Income-tax" by N.A. Palkhivala and S.A. Palkhivala, Volume I, Eighth Edition 1990, where, at page 1499, the learned author has also opined that an appeal under Clause (g) (which was formerly Clause (j) and now amended) lies from an order of the assessing authority rejecting an application for registration on the ground that the said application was barred by time.
34. In view of the above discussion, we answer the question referred to us in the affirmative and against the Department with costs of Rs. 250 (rupees two hundred fifty only) payable to the assessee by the Department.