Patna High Court
Amarsinh Gowamal And Sons vs Commissioner Of Income-Tax on 23 November, 1973
Equivalent citations: [1976]105ITR857(PATNA)
Bench: N.L. Untwalia, Nagendra Prasad Singh
JUDGMENT Untwalia, C.J.
1. This is a reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter called "the 1961 Act"), made by the Income-tax Appellate Tribunal, Patna Bench. The question of law referred for determination by this court is the following :
"Was the application for registration made in Form No. 11A on September 29, 1962, validly refused ?"
The relevant facts may largely be stated from the statement of the case prepared by the Tribunal. There was a partnership firm of the name of Amarsinh Gowamal and Sons which was constituted originally on August 23, 1943. There were three partners named, Amarsinh, Manji Gowamal and Keshavji Shivji. The former two had 7 annas 6 pies share each and the third one had one anna share in the partnership. A copy of the partnership deed is annexure "A" to the statement of the case. There was a change in the constitution of the firm with effect from August 22, 1945. We are told that Amarsinh was dead by that time and his brother, Manji, was out from the partnership. In their places came the widow of Amarsinh--Virbai--having 5 annas share and the two sons of Amarsinh--Ramniklal and Nanalal--each having 5 annas share, the remaining partner Keshavji Shivji retaining his one anna share. A copy of the partnership deed dated December 6, 1945, giving effect to the change in the constitution of the firm in 1945 is annexure "B" to the statement of the case. The firm applied for registration under Section 26A of the Indian Income-tax Act, 1922 hereinafter called "the 1922 Act"). Registration was allowed. Renewal was allowed up to the assessment year 1961-62. In this case we are concerned with the assessment year 1962-63 which is governed and covered by the 1961 Act. The corresponding previous accounting year of the assessee was November 1, 1960, to November 8, 1961. The firm as constituted in the year 1945 continued up to the last day of the previous year relating to the assessment year 1962-63. But on the commencement of the next accounting year, i.e., on and from November 9, 1961, a new instrument of partnership was executed on that date, a copy of which is annexure "C"; to be more accurate, the deed was actually executed on November 8, 1961, but it was operative and effective from November 9, 1961, thus bringing into effect a change in the constitution of the firm on and from that date.
2. The assessee first filed an application on April 19, 1962, in accordance with the 1922 Act and the Rules framed thereunder for registration of its firm. Copy of this application is annexure "D". It was for registration of the firm showing in the two schedules the names of the partners constituting the firm on the date of the application and the apportionment of the profits in respect of the previous year amongst the old partners. It was perhaps realised thereafter that since the assessment year 1962-63 will be governed by the 1961 Act, the application filed on April 19, 1962, was not correct. We are informed at the Bar that the Central Board of Direct Taxes during the transitional period, because of the coming into force of the 1961 Act, had extended the time for filing applications for registration of the firm under the new Act up to the 30th September, 1962. Accordingly, it appears, on September 29, 1962, an application for registration of the firm was filed by the assessee in Form No. 11 A, a copy of which is annexure "E" to the statement of the case. The Income-tax Officer took the view that it was not a case where registration for the first time could be granted to the firm under the 1961 Act, but it was a case which was covered by Sub-section (7) of Section 184 of that Act. He, therefore, refused the registration of the firm as requirement of Sub-section (7) had not been complied with. The order of the Income-tax Officer is dated August 19, 1963 (annexure "F"). The Appellate Assistant Commissioner, by his order (annexure "G") dated April 3, 1964, dismissed the appeal filed by the assessee from the order of the Income-tax Officer refusing registration. The assessee went up in second appeal before the Income-tax Appellate Tribunal. The Tribunal affirmed the order of the authorities below and dismissed the appeal by its order (annexure "H") passed on November 6, 1965. It took almost the same view as the one taken by the authorities below and held that a declaration in Form 12 ought to have been filed, as required by Sub-section (7) of Section 184 of the 1961 Act; that having not been done, registration was rightly refused. On being asked to state a case to this court under Section 256(1) of the 1961 Act, the Tribunal, by its order dated October 9, 1968, has stated a case and referred the question of law aforementioned for determination by this court.
3. The answer to the question of law referred involves some difficult points for determination, and, I think, they have got to be resolved before a final answer is given to the question posed.
4. An application had to be made under Section 26A of the 1922 Act to the Income-tax Officer on behalf of any firm constituted under an instrument of partnership specifying the individual shares of the partners. Such an application under Sub-section (2) had to be made by such person or persons, at such times, containing such particulars and in such form as may be prescribed. The Central Board had power to make rules under Section 59 of the 1922 Act. In exercise of that power, rules were made. Rule 2(a)(i) required the filing of an application for registration within a period of six months of the constitution of the firm or before the end of the previous year of the firm whichever is earlier or in any other case before the end of the previous year, as required by Clause (ii). Application for renewal of registration under Rule 6 was to be filed before the 30th day of June of a particular assessment year. There are two types of forms given in Form I which is the form of application for registration of the firm under Section 26A of the 1922 Act. One is an application for registration simpliciter where there is no registration. But when the firm as constituted on the date of the application is different from the one whose income is under assessment then in Schedule (B) of the form particulars of the apportionment of the income, profits or gains (or loss) of the business, in the previous year, between the partners who in that previous year were entitled to share in such income, profits or gains (or loss) had to be given. The form of the renewal application is appended to Rule 6. It would thus be seen that if the application was filed in time before the close of the previous year, it was not necessary to fill up the two schedules but if the application was filed for the first registration of the firm which was in existence in the previous year, at a point of time when the firm was reconstituted then particulars of both kinds had to be given. It may be for the purpose of facilitating the assessment in accordance with Section 26(1). But assessment on the newly constituted firm on the date as it is constituted at the time of assessment can be made when it is found that the firm as constituted is different from the one which had earned the profit in the previous year. What is to be emphasised with reference to the 1922 Act and the Rules framed thereunder is that both the forms given in Form I were meant for the purpose of first registration of the firm and not renewal; the form of renewal appended to Rule 6 was different.
5. Similar seems to be the position under the 1961 Act and the Rules framed thereunder. If the application is filed during the previous year, as required by Section 184(4) of the 1961 Act then there is no difficulty in filing such an application in Form 11, as required by Rules 22(2)(i) and 22(4)(i). But suppose under the proviso to Sub-section (4) of Section 184 the application is entertained by the Income-tax Officer after the end of the previous year and by that time there is a change in the constitution of the firm then in accordance with Rule 22(4)(ii) an application for the first registration under the 1961 Act has got to be filed in Form 11A. The scheme of renewal under the 1961 Act is different. Under the 1922 Act, it is well-settled, the application far renewal of registration meant application for registration every year and had the effect of registering the firm every year. But the scheme of Sub-section (7) of Section 184 of the 1961 Act is different. Sub-section (7) of Section 184 provides :
"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, along with its return of income for the assessment year concerned, a declaration to that effect, in the prescribed form and verified in the prescribed manner."
Under the scheme of the 1961 Act, when once registration is granted--which must mean granted under this Act--to any firm for any assessment year, it (registration) enures for every subsequent assessment year if the requirement is fulfilled. A declaration along with the return, in accordance with proviso (ii), has to be furnished in Form 12. Sub-section (8) says :
"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 this section."
It would thus be seen that under the scheme of the 1961 Act also, when an application for registration has to be made for the first time, it has to be either in Form 11 or 11A. If any change has taken place in the previous year then the firm has to apply for fresh registration. But if during the previous year there has been no change in the constitution of the firm then, on fulfilment of the conditions, the registration continues for subsequent years also. The question for determination is whether the application filed by the assessee for registration of the firm on September 29, 1962, in Form 11A was a good application in accordance with the 1961 Act and the Rules framed thereunder or whether it was a case of continuance of the registration granted under the 1922 Act, within the meaning of Sub-section (7) of Section 184. Before, however, I proceed to discuss and answer the question just posed, in passing I would like to dispose of one argument put forward on behalf of the assessee that even if the application filed in Form 11A was defective then the Income-tax Officer ought not to have rejected that application for registration and ought to have allowed the defect to be removed by permitting the firm to file a declaration in Form 12 in place of the application in Form 11A as provided for in Sub-section (2) of Section 185 of the 1961 Act. I do not think that this argument could be sustained because if it was a case where an application for registration was not to be filed then the defect is not in the form of the application but is one of substance. Instead of filing an application for registration, it was necessary for the assessee to claim continuance of the registration by filing the declaration in Form 12. But, in my opinion, this question does not arise in this case as, for the reasons to be stated hereinafter, the application filed by the assessee in Form 11A was a good application and ought not to have been rejected on the ground that it was invalid.
6. Sub-section (I) of Section 184 of the 1961 Act reads as follows:
"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."
7. Sub-section (4) of Section 185 provides :
"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."
8. Reading the provisions aforesaid in the background of the provisions contained in Section 184(7), it is clear that a registration granted under the 1922 Act cannot have the effect of continuing the registration for the assessment year 1962-63 to which the 1961 Act became applicable. For that year an application for registration of the firm for the purposes of the 1961 Act has got to be made in accordance with Section 184(1) and the fact of registration under this Act has got to be noted under Sub-section (4) of Section 185. Until that is done for the assessment year 1962-63, Sub-section (7) does not come into operation for that year ; it comes into operation for the subsequent assessment year beginning from 1963-64.
9. An argument on the lines just discussed was advanced before the Appellate Tribunal but it has been rejected with reference to the saving clause contained in Section 297(2)(k) of the 1961 Act. In my opinion, the Tribunal has committed an error of law in that regard. The provision aforesaid reads as follows :
"(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (XI of 1922) (hereinafter referred to as the repealed Act),--...
(k) any agreement entered into, appointment made, approval given, recognition granted, direction, instruction, notification, order or rule issued under any provision of the repealed Act shall, so far as it is not inconsistent with the corresponding provision of this Act, be deemed to have been entered into, made, granted, given or issued under the corresponding provision aforesaid and shall continue in force accordingly." The argument which was advanced before the Tribunal by the departmental representative was that the previous order made under Section 26A of the 1922 Act, granting renewal of registration for the assessment year 1961-62, will be deemed to be an order granting registration under the 1961 Act, within the meaning of Clause (k). Learned counsel for the department feeling difficulty in sustaining this argument which seems to have been accepted by the Appellate Tribunal has now submitted that the renewal of registration granted under the 1922 Act is a recognition granted within the meaning of Clause (k). In my opinion, neither of the two arguments is correct. It is neither a recognition granted nor an order issued under any provision of the repealed Act, namely, the 1922 Act. The phrase "recognition granted" will have reference to grant of recognition to provident fund in accordance with Section 58B of the 1922 Act. The expression "order issued" will have reference to the orders issued in accordance with Section 5(8) of the 1922 Act, which provides :
"All officers and persons employed in execution of this Act shall observe and follow the orders, instructions and directions of the Central Board of Revenue : ...... "
It is to be noticed that the word "issued" in Clause (k) of Sub-section (2) of Section 297 of the 1961 Act governs not only the word "order" but also the words "directions, instructions, notifications and rules" ; three of these words are of Sub-section (8) of Section 5 of the 1922 Act. The expression "order issued" cannot be equated with an order made granting renewal of registration under Section 26A of the 1922 Act. To my mind, therefore, an application for registration of the firm, as if it was a first registration under the 1961 Act, for the first year of assessment 1962-63 was necessary. It was not a case which was covered by Sub-section (7). That being so, the assessee was right, on the facts of this case, in filing the application in Form 11 A. This application, obviously, could not be and had not been filed under the 1961 Act before the close of the previous year which closed on November 8, 1961. The application was filed, as already stated, in September, 1962. On that date the constitution of the firm had changed. The application for registration under the 1961 Act was for registration of the firm which was in existence throughout the length of the previous year in relation to the first assessment year under the 1961 Act. That being so, in accordance with Rule 22(4)(ii) the application filed in Form 11A was a good and valid application; it ought not to have been rejected. It has been rejected by taking an erroneous view of law in my considered judgment.
10. For the reasons stated above, the answer to the question referred to this court must be given in the negative, in favour of the assessee and against the revenue. It is accordingly held that the application for registration made in Form 11A on September 29, 1962, by the assessee-firm was not validly refused. In the circumstances, there would be no order as to costs of this reference.
Nagendra Prasad Singh, J.
11. I agree.