Gujarat High Court
Commissioner Of Income-Tax vs Kirit Wood Works on 22 December, 1998
Equivalent citations: [2000]241ITR231(GUJ)
Author: A.R. Dave
Bench: A.R. Dave
JUDGMENT Rajesh Balia, J.
1. At the instance of the Revenue, the Tribunal, Bench 'B', has referred the following question of law arising out of its order dt. 15th March, 1983 in IT Appln. No. 2486 (Ahd) of 1989 relating to the asst. yr. 1978-79. "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the assessee-firm was entitled to registration under the IT Act, 1961 for the asst. yr. 1978-79 ?"
2. The facts and circumstances of the case, as narrated by the Tribunal, may be briefly noticed. The assessee is a registered firm upto the previous year relevant to the asst. yr. 1977-78. The relevant accounting period for the assessment year in question 1978-79 was from 24th October, 1976 to 11th November, 1977. Before the end of the previous year one of its partners died on 16th September, 1977. An application was filed on 29th June, 1978, that is to say, after the end of the previous year, under Form No. 12 that the firm continued to be registered for the first part of the previous year from Kartik Sud 1 to Bhadarwa Sud. 3, that is to say, from 24th October, 1976 to 16th September, 1977 disclosing that Manilal Lalji Mistry has died on 16th September, 1977. The partnership deed of the firm provided that the firm shall not be dissolved on the death of one of the partners. The AO pointed out that as it is not a case of dissolution of the firm, the declaration furnished by the firm in pursuance of sub-s. (7) of s. 184 is not in order. According to the AO, it was a case where there has been a change in the constitution of the firm resulting on account of death of the partner coupled with provision in the partnership deed. In order to avail the benefit of continued registration for the previous year in question, the assessee must have filed an application in Form Nos. 11 and 11A for registration afresh in terms of s. 184(8) and as the assessee has not done so, he made order that the registration granted to the firm shall not have the effect for the relevant assessment year. This order of the AO was affirmed by the AAC vide his order dt. 19th September, 1981. On further appeal, the Tribunal, relying on its earlier decision in IT Appeal No. 360 (Hyd) of 1969-70 dt. 19th August, 1971 and a decision of Madras High Court in Addl. CIT vs. Abdul Kareem & Co. (1979) 117 ITR 233 (Mad) : TC 33R.1594 set aside the order of the lower authorities. It held :
"In this case the firm was filing for registration only for a part of the accounting period, i.e., upto the death of one of the partners. There can be no dispute that there was no change in the constitution of the firm upto that date. It would be another situation if the firm is asking for registration for the entire period. In that event Form Nos. 11 and 11A may be required to be filled up but that, as stated above, is not the position here. Therefore, the change in the constitution of the firm is irrelevant for our purpose. All the more the question whether there was a change in the constitution of dissolution of the firm on the death of a partner is irrelevant."
3. Relying on the decision of the Madras High Court in Abdul Kareem & Co.'s case (supra), it further held that the ratio of the case, therefore, is that the firm is entitled to registration for a part of the accounting period ending on a certain date on the basis of application in Form No. 12 if upto that date the partnership continues as it was from the beginning of the accounting period.
4. We have heard the learned counsel for the Revenue at sufficient length and also Mr. Soparker who, in the absence of any representative of the assessee, lent his assistance to the Court as amicus curiae.
5. It would be appropriate here to notice in brief the scheme relating to registration of the firms under the IT Act, 1961, to the extent relevant for the present purposes. A firm for the purposes of the IT Act is an independent assessable entity from its partners. The firm under the IT Act for the purposes of computation of taxable income and other purposes is dealt with differently depending on whether the firm is registered or deemed to be registered under the IT Act or is an unregistered firm. Presently we are not concerned with such difference. Chapter XVI of the Act deals with special provisions applicable to firms. In Part B of Chapter XVI are the provisions relating to registration of firms. The procedure prescribed for registration of a firm is that an application under s. 184 for registration of the firm for the purposes of the Act is to be made to the ITO on behalf of the firm which could be made either during the existence of the firm or after its dissolution subject to other provisions of s. 184. Apart from other requirements as to signature, etc., it also requires the application to be made in the prescribed form which is to contain prescribed particulars. Sub-s. (7) of s. 184 envisages that 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 in the shares of the partners as evidenced in the instrument of partnership on the basis of which registration was granted, and (ii) the firm furnishes, before the expiry of the time allowed under sub-s. (1) or sub-s. (2) of s. 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. Sub-s. (8) of s. 184 envisages that where any such change in the constitution of the firm or in the shares of the partners 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.
6. As we have noticed that there is requirement for the purposes of furnishing an application for registration as well as the requirement for furnishing a declaration under sub-s. (7) of s. 184 to have continued effect of registration for subsequent assessment year, and that such application is to be made in the prescribed form and to contain prescribed particulars, it would be relevant to refer to the rules framed in this connection which prescribes for such matters. Part V of the IT Rules, 1962 deals with registration of firms. Rule 22 in substance requires that an application for registration of a firm for the first time is to be in Form No. 11, which can be made before or after the end of the previous year for which registration is sought and there is no change in the constitution of the firm or change in the share of partners since the constitution of the firm upto the date of making of the application. In the latter case, that is to say, where there is such change, the application is to be in Form No. 11A. Once registration is granted, again an application for registration afresh is envisaged only when during any subsequent previous year relevant to the concerned assessment year there is such change in the constitution of the firm or in the share of partners. Such application too is to be in Form No. 11A. Rule 23 of the Act requires "if after the date of the application, or of the last application where more than one application are made, for registration of a firm for any assessment year and before the assessment for that assessment year is completed by the ITO, so far as known to the firm, any change or changes take place in the constitution of the firm or the shares of the partners, the details of such change or changes shall be communicated by the firm to the ITO as soon as possible after each such change takes place." Rule 24 of the Act deals with the declaration for continuation of registration where there is no such change in the constitution of the firm or in the share of partners since registration. It requires a declaration to be furnished as required under sub-s. (7) of s. 184. Such declaration is to be furnished in Form No. 12. Rule 25 of the Rules requires that certificate shall be recorded on the last of the instruments evidencing the partnership during the relevant previous year (or on the certified copy submitted in lieu thereof) attached with the application for registration of the firm.
7. Section 185(4) of the Act requires the ITO where a firm is registered for any assessment year, to record a certificate on the instrument of partnership that the firm has been registered under this Act for that assessment year. Where it is a case for declaration under Form No. 12 for the registration to have continued effect for the subsequent assessment year, the ITO is to record such certificate for the relevant subsequent assessment year. Section 185(3) envisages that before a certificate for continued effect of registration for subsequent year is endorsed, the ITO while considering the declaration furnished by a firm in pursuance of sub-s. (7) of s. 184, finds it to be defective in any manner, he is required to give a notice to intimate defect to the firm and give opportunity to rectify the defects. On failure to rectify the defects, he is to order in writing and declare that the registration granted to the firm shall not have effect for the relevant assessment year.
8. Parent provision also requires that declaration shall contain prescribed particulars. Such particulars have been prescribed by way of prescribing form of application or declaration, as the case may be. In this connection, we may consider relevant particulars which the forms in question are required to contain. In case of application for registration of a firm for the first time, the simple requirement is that the form contains prayer for registration of the firm for the purposes of the Act for the relevant assessment year, and the original or certified copy of the instrument evidencing the partnership together with a copy or duplicate copy is to be enclosed and the particulars as to the name of partnership and particulars as to partners, their names, date of their admittance to the partnership, the share in the balance of profits in percentage, etc., need to be annexed to the schedule. It should also contain a declaration that none of the partners of the firm was at any time during the previous year upto the date of the application a benamidar of any other partner to whom he is not related as spouse or minor child, and also certification to the effect that the profits and loss of the previous year will be or upto the date of dissolution will be divided or credited as shown in the schedule and that information given in the application to the schedule is correct.
9. In contrast to this, Form No. 11A, which is applicable to applications where there has been a change in the constitution of the firm or in the share of the partners, apart from all the requirements of Form No. 11, a further requirement is to produce the instrument or instruments evidencing the partnership in existence from time to time during the previous year upto the date of the application or during the previous year and upto the date of application, as the case may be, together with a copy or duplicate copy of each of such instruments is to be enclosed, and the prescribed particulars are to be given in schedule which include the particulars of the firm as constituted at the date of application and of the shares of the partners in the income or loss of the firm and the particulars of the apportionment of the income or loss of the firm for the relevant previous year between the partners who in that previous year were entitled to share in such income or loss, in accordance with change or changes that have taken place during the previous year concerned.
10. Form No. 12 which prescribes the form of declaration under s. 184(7) when there is no change in the constitution of the firm during the previous year and for continuation of the registration for the previous year in question, the relevant declaration with which we are concerned reads as under :
"(ii) there has been no change in the constitution of the firm or the shares of the partners since the last day of the previous year relevant to the asst. yr. 19. . . -19. . . upto the last date of the previous year relevant to the asst. yr. 19. . . -19. . . or to the date (. . . . . . . . 19. . . .) of dissolution of the firm.
11. It may not be out of place to notice here the distinction in treatment for the purposes of income-tax between (i) a firm which is not dissolved but reconstituted or (ii) a firm which is dissolved and (iii) a firm where there is change resulting in succession by any other firm. Section 187 envisages that where there is change in the constitution of the firm at the time of making assessment under s. 143 or s. 144, the assessment has to be made on the firm as constituted at the time of making the assessment provided that the income of the previous year shall, for the purposes 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 can be recovered from the firm as constituted at the time when making the assessment. It envisages one assessment for the whole previous year. Section 188 provides that where a firm carrying on a business or profession is succeeded by another firm, and the case is not one covered by s. 187, separate assessments shall be made on the predecessor firm and the successor firm in accordance with the provisions of s. 170, that is to say, it envisages more than one assessment for the previous year concerned. Section 189 provides for, where any business or profession carried on by a firm has been discontinued or where a firm is dissolved, the ITO shall make an assessment of the total income of the firm as if no such discontinuance or dissolution had taken place and all the provisions of this Act, including the provisions relating to the levy of penalty, etc., shall be applied. However, the assessment is made in respect of dissolved firm or in the case of a business that is discontinued only upto the date of dissolution or the discontinuance of the business, as the case may be.
12. From the aforesaid scheme it is apparent that once a firm is registered, the registration enures for succeeding years without any requirement of fresh registration but subject to declaration required to be submitted in the prescribed Form No. 12 that no change has occurred in the constitution of the firm or no change in the shares of the partners has taken place from the last date of the preceding year to the last day of the previous year relevant for the assessment year and also to the date of making of the application. Thus, the declaration is required to be made for continued existence of the firm for the whole of the previous year in question. The certificate that is required to be entered under s. 185(4) on the deed of partnership for each succeeding year in that regard also speaks about continued registration for the whole of the previous year and not for the part of the previous year. In the case of dissolution of the firm or discontinuance of the firm's business, declaration is made showing the date upto which the business continued or the firm stood dissolved. Section 184(7) envisages that registration granted to any firm is to continue for every subsequent assessment year. The provision is not to envisage continuance of registration until there is change in the constitution of the firm. The distinction between continuance of the registration upto the date of dissolution in the case of dissolution of the firm and for whole of the previous year in question becomes relevant in view of the scheme that where there is change in the constitution of a firm as distinct from dissolution of the firm under s. 187, the assessment of such entity continues to be the same and exists during the whole of the previous year and only one assessment is contemplated for the whole of the period covered under the assessment year. There is no truncated assessment for the period upto the reconstitution of the firm or after the reconstitution of the firm. The only difference which it makes about the assessment of the firm is in the apportionment of profits or loss amongst partners during the year as per changes for the purpose of assessment of partners and about the continued responsibility of firm to make payment in case the partners have failed to make payment of tax in respect of shares allotted to them, as a result of reconstitution of the firm, notwithstanding that such persons may have ceased to be partners after reconstitution. On the other hand, in case of dissolution of the firm the assessment as well as source of income itself comes to an end on a particular date and the question of any assessment of such entity after that date does not arise except in accordance with special provisions relating to it; so also, in case where, as a result of any alteration in the affairs of the firm, it does not amount to change in the constitution of the firm but results in succession of the firm by another firm, that is to say, a new entity, two separate assessments for different periods of the same previous year are contemplated under s. 188. It is precisely for this reason, if one looks at the rules and forms prescribed thereunder. Form No. 12, except in the case of dissolution of the firm, requires an unequivocal declaration as under :
"there has been no change in the constitution of the firm or the shares of the partners since the last day of the previous year relevant to the asst. yr. 19. . . -19. . ., upto the last date of the previous year relevant to the asst. yr. 19. . . -19. . . ".
In the case of dissolution of the firm the declaration required under Form No. 12 is to be :
"there has been no change in the constitution of the firm or the shares of the partners since the last day of the previous year relevant to the asst. yr. 19. . . . . -19. . ., upto date of the dissolution of the firm."
We mark the difference that while declaration of no change in the constitution of the firm or in the shares of the partners is required for the whole of the previous year, in the latter case declaration is required only upto the date of dissolution. If there is any change not amounting to dissolution at any time during the previous year, declaration of continued existence upto the date of change only and there is continued existence of the firm for the whole year is not in accordance with the requirement of s. 184(7), read with the rules and forms prescribed thereunder. If the declaration is not in accordance with the statutory provisions, there cannot be any endorsement about continued registration for that year under s. 185(4), or in other words, there cannot be automatic continuance of registration within the meaning of s. 184(7). As soon as change occurs in the constitution of the firm, the provision under s. 184(8) springs into operation requiring a fresh application of registration in Form No. 11A r/w r. 22 of the IT Rules. Therefore, in our opinion, the Tribunal was not correct when it said that at the time of considering the application for continued registration, it is not relevant to consider whether the change that has occurred during the previous year amounts to change in the constitution of the firm or amounts to dissolution of the firm. The Tribunal also erred in not appreciating the distinction which was brought to its notice that exists between a case of dissolution with which the Madras High Court was concerned in the case of Abdul Kareem & Co. (supra) and the case of change of constitution with which we are concerned.
13. It is not in dispute that the firm continued to maintain one account, it filed one return for the whole of the previous year and did not put forward any claim of the dissolution of the firm. Without laying any claim for the dissolution of the firm, in our opinion, there could not have been any application for continued registration for the part of the previous year and leaving it to be determined thereafter, whether change in the constitution of the firm has taken place or death of partner has amounted to dissolution of the firm.
14. In the present case, agreement to the contrary has been found to be there in the deed of partnership of the firm that was enjoying benefit of registration under the Act, that death of a partner shall not result into dissolution of the firm. Therefore, there was nothing before the Tribunal to presume that as a result of death of one of the partners the firm is to dissolve and the declaration could be made of continued existence of the firm only upto the date of death of the partner which ordinarily would have been the date of the dissolution of the firm to secure registration only upto the date of existence of the entity. The evidence points to other direction. In fact, it is not being seriously disputed either at any stage of the proceedings that it was only a change in the constitution of the firm and was not dissolution. On the other hand, it has been suggested at one stage that for the first part of the previous year registration may be granted as a matter of course and for the balance part it may be treated as registered firm though unregistered under s. 183 of the Act and the income of two periods be clubbed together for the purposes of assessment. We have not been able to understand the rationale behind the suggestion. If it was a case of dissolution and thereafter constitution of a new firm, the question of clubbing of the income would not arise merely by altering the status from registered to unregistered and if that was not a case of dissolution of the firm, there cannot be two separate assessments for period upto the date of death of the partner and thereafter by treating the firm to be in two different stages differently for the same previous year, namely, registered for the earlier part of the year and unregistered for the latter part of the year.
15. As a result of the aforesaid discussion, we answer the question referred to us in the negative, that is to say, in favour of the Revenue and against the assessee by holding that the firm was not entitled to continued registration for the part of the year on the basis of declaration made by it under s. 184(7), r/w r. 24 and Form No. 12. There shall be no order as to costs.