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Bhausa Ganusa Pawar and Co. Vs. Commissioner of Income-tax, Poona - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 22 of 1962
Judge
Reported in[1966]62ITR75(Bom)
ActsIncome Tax Act, 1922 - Sections 26A
AppellantBhausa Ganusa Pawar and Co.
RespondentCommissioner of Income-tax, Poona
Appellant AdvocateJ.P. Pandit, Adv.
Respondent AdvocateG.N. Joshi, Adv.
Excerpt:
.....of new firm - as assessee had been granted registration in previous years up to present assessment year assessee ought to apply for registration of old firm - held, registration could not be granted for relevant assessment year since there was no proper application for registration. - section 31(4) (since repealed) :[tarun chatterjee & h.l.dattu, jj] jurisdiction of high court - respondent, a government company, chartered appellants vessel to carry rock phosphate from togo to west coast india - dispute arose between parties - under agreement, respondent had chosen mumbai as port of delivery vessel carrying rock phosphate was delivered at port of bombay - application filed by respondent earlier before delhi high court for appointment of certain individual as arbitrator had become..........deed of 13th september, 1945, but in the application for registration made by the assessee-firm, registration was not in terms asked for of the said partnership. mr. pandit says that the said defect in the application for registration was not treated as a fatal defect disentitling the assessee from obtaining registration of the firm, because the application was found to be signed by the partners of the firm as it was constituted on the date of the application as required by law and the two schedules contained all the necessary information, which had got to be supplied by a party applying for registration. 7. in commissioner of income-tax v. dayaram gangabishan & co., which was also a case of a change of constitution of a firm, the firm, which could be entitled registration for.....
Judgment:

V.S. Desai, J.

1. The reference arises out of the assessment made upon the assessee-firm for the assessment year 1956-57 in the status of an unregistered firm and a penalty of Rs. 3,400 imposed by the Income-tax Officer under the provisions of section 46(1) on account of the assessee's default to pay the amount of tax as demanded by the Income-tax Officer.

2. The relevant account year for the assessment year 1956-57 was S. Y. 2011 from October 27, 1954, to November 14, 1955. The partnership firm in the name and style of M/s. Bhausa Ganusa Pawar & Co., which carried on business during the whole of this account year as well as certain prior years, consisted of four partners, who were : (1) Shri R. S. Pawar, (2) Shri D. S. Pawar, (3) Shri A. S. Pawar and (4) Shri G. R. Pawar. Ever since its formation in the year 1946, or thereabouts, this firm had been granted registration under section 26A of the Indian Income-tax Act up to the assessment year 1955-56. On 3rd February, 1956, that is, some time after the close of the account year with which we are concerned in the present case, one of the four partners, viz., Shri R. S. Pawar, died. The surviving partners formed another partnership firm in the same name and style taking up a major son of Shri R. S. Pawar as a partner and admitting two other minor sons of him to the benefits of the partnership. They also took up a major son of another partner, Shri A. S. Pawar, as a partner in the fresh partnership. An agreement of partnership in respect of this partnership was duly executed on 28th June, 1956, and it stated in terms that it was operative from the very day on which Shri R. S. Pawar had died, viz., 3rd February, 1956. It is the new partnership firm which is the assessee in the present case. On the 30th June, 1956, it made an application under section 26A for registration on the basis of the instrument of partnership dated the 28th June, 1956. The application was made in the form prescribed under rule 3 of the Indian Income-tax Rules, 1922. It was signed by the five major partners of the new firm and in the schedule, on the reverse of it, it was clearly indicated what were the individual shares of the four partners, who were actually partners in the account year and what were the shares of the partners in the new firm. The Income-tax Officer refused to grant registration on the ground that the instrument of partnership dated 28th June, 1956, on the basis of which the application under section 26A was made, was not the one which was operative in the year of account and the firm as constituted by that instrument of partnership was not entitled to obtain registration for the said year of account; that the firm to be registered for the assessment year 1956-57 was the firm, which was in existence during the account year 2011, and that the proper procedure for the assessee was to apply for the renewal of registration of the said old firm and inasmuch as the application, which the assessee had made, could not be treated as an application for the renewal of registration of the old firm as it had not been signed by all the living partners and the legal representatives of the deceased partner, renewal of registration could not be granted for the old firm on the basis of the present application. According to the Income-tax Officer, since there was no recital in the deed governing the old firm that the business would be continued in the event of the death of any of the existing partners of the said firm, it was not a case of the old firm continuing but the case of a new firm formed after the dissolution of the old firm and, consequently, the assessee ought to have applied for the registration or the renewal of registration of the old firm and not of the new firm. Against the order of the Income-tax Officer refusing registration, the assessee appealed to the Appellate Assistant Commissioner. He allowed the appeal of the assessee and cancelled the Income-tax Officer's order refusing registration and directed him to grant registration to the firm as applied for. According to him, since the newly constituted firm had come into existence immediately after the death of one of the partners of the old firm taking up one major son of the deceased partner as a partner and admitting his two minor sons to the benefits of the partnership and since the business of the firm had continued without a break, there was in fact no dissolution of the old firm and the formation of a new firm, but merely a change in the constitution of the firm. Under section 26(1) the assessment was to be made on the newly constituted firm and it was, therefore, entitled to ask for its registration under rule 2 of the Income-tax Rules. According to him, since the assessee-firm was the firm on which the assessment had to be made in respect of the year of account, it was entitled to be registered for the said year of account. In his opinion, therefore, the Income-tax Officer had erred in refusing registration to the firm. Against this decision of the Income-tax Appellate Assistant Commissioner, the department went in appeal to the Income-tax Appellate Tribunal. The Tribunal agreed with the view taken by the Income-tax Officer and held that inasmuch as the firm of which registration could be obtained for the relevant account year was the old firm and inasmuch as there was no application made by the assessee for the registration of the said firm, it was not entitled to registration of that firm. The Tribunal, accordingly, allowed the department's appeal, set aside the order of the Appellate Assistant Commissioner and restored that of the Income-tax Officer. At the instance of the assessee it has referred the following question to us as arising out of its order under section 66(1) of the Indian Income-tax Act, 1922 :

'Whether the new firm that was in existence at the time of making of the assessment for the assessment year 1956-57 is entitled to registration for that assessment year on the basis of the deed made on June 28, 1956, when in the material account year, S. Y. 2011, the old firm was really in existence ?'

3. Now, in the meanwhile, after having refused registration, the Income-tax Officer had completed the assessment upon the assessee for the relevant assessment year in the status of an unregistered firm and had raised a demand of Rs. 37,800 and odd. The payment under this demand fell due on or before the 6th July, 1958. The assessee asked for installments for making the payment but did not pay the installments regularly. Ultimately, after calling upon the assessee to make up the payment by a given date, the Income-tax Officer held that the assessee was in default and impose a penalty on it of Rs. 3,400 under section 46(1) by his order dated 7th November, 1958.

4. The assessee, who had already appealed against the order of the Income-tax Officer refusing to grant registration, filed an appeal against the order of penalty also. The appeal was filed on 21st November, 1958, but either at the time of the filing of the appeal nor until it came up for hearing before the Appellate Assistant Commissioner on the 26th of October, 1959, the assessee paid the amount of tax. The Appellate Assistant Commissioner rejected the appeal of the assessee against the order of penalty on the 23rd November, 1959, on a preliminary point that it was incompetent since the amount of tax had not been paid. On the same day, however, the Appellate Assistant Commissioner also decided the assessee's appeal against the Income-tax Officer's order refusing registration and allowed the said appeal and directed the Income-tax Officer to grant the assessee registration as was prayed for by it. The assessee appealed to the Tribunal against the order of the Appellate Assistant Commissioner rejecting its appeal against the penalty imposed by the Income-tax Officer. The Tribunal dismissed the said appeal and, thereafter, at the instance of the assessee, referred the following question to us under section 66(1) of the Indian Income-tax Act, 1922 :

'Whether the assessee's appeal against the penalty imposed under section 46(1) was properly rejected by the Appellate Assistant Commissioner as being incompetent ?'

5. Mr. J. P. Pandit, the learned counsel who appears for the assessee, has contended that on the application made by the assessee in the present case it was entitled to registration of the firm as it existed during the account year for the assessment year 1956-57. He has complained in the first instance of the question which has been framed by the Tribunal on the ground that it does not bring out the real controversy between the parties. The question as framed is : Whether the new firm which was in existence at the time of making the assessment for the assessment year 1956-57 was entitled to registration for that assessment year on the basis of its own instrument of partnership, when it was not the firm that was in existence in the material account year but some other firm was actually in existence in that year. Mr. Pandit says, the question, as it is framed, would answer itself, because there can be no doubt whatsoever that the firm, which will be entitled to registration, would be the firm which was in existence in the material account year and not the firm as it was constituted at the time of making the assessment. According to him, however, that was not the real point in dispute between the parties. The real dispute between the parties was whether, on the facts and in the circumstances of the case, on the application which the assessee-firm had made, it was entitled to obtain registration of the firm, which could be granted registration for the relevant account year, viz., the old firm. Mr. Pandit says that the application was made by the assessee-firm on the basis that there was a change in the constitution of the firm, and that under section 26(1) the assessment had to be made the application in the form specifically prescribed under rule 3. It had also given all the particulars which were necessary to be given with regard to the firm as it was constituted at the date of assessment and a sit existed during the relevant account year. No doubt, the instrument of partnership, which it had submitted along with its application, was the supplied also of the earlier constitution of the firm and moreover the deed of partnership relating to the firm before its reconstitution was also on the record of the Income-tax Officer. The procedure adopted by the assessee-firm of making an application as prescribed under rule 3 was perfectly justified on the facts and in the circumstances of the case, because the firm had continued without a break after the death of one of the partners of the old firm and it was really and in substance not a case of the dissolution of the old firm and constitution of the new firm. According to Mr. Pandit, therefore, the Income-tax Officer could have treated the application of the assessee-firm as for registration of the firm as it existed during the relevant assessment year and should have granted registration because not only all the information was supplied by the assessee in order to obtain the registration, but all other requirements had also been complied with by it. Mr. Pandit complains that the Income-tax Officer and the Tribunal, in refusing registration to the assessee on the ground that no application for the registration of the firm as it existed during the account year was made, have laid too much stress on technicalities. There is no difficulty in the present case, he says, in treating the application made by the assessee as for registration of the firm as it existed during the account year. In support of this submission he has sought to derive support from certain decisions of this court, viz., Commissioner of Income-tax v. Dayaram Gangabishan & Co. and Chhotalal Devchand v. Commissioner of Income-tax.

6. In Chhotalal Devchand v. Commissioner of Income-tax, a partnership firm was first constituted by a deed of partnership dated 13th September, 1945. This partnership contained till 22nd January, 1954, and on that date, a change in the constitution of the partnership having occurred by the retirement of one of the partners and by the admission of certain other persons as partners, another partnership agreement was executed on the said date. There was a further change of a similar nature in its constitution a little later and a third partnership deed was executed on the 29th November, 1954. On the 30th November, 1954, this last constituted firm applied for registration relying on the agreement year 1954-55, for which the corresponding account year was S. Y. 2009 (19th October, 1952, to 6th November, 1953). Now, along with this application, it had annexed the agreement of partnership dated the 29th November, 1954, and had not annexed the partnership deed of 13th September, 1945. It may be pointed out that the firm, which was in existence during the account year, was the firm as constituted under the partnership deed of 13th September, 1945, but in the application for registration made by the assessee-firm, registration was not in terms asked for of the said partnership. Mr. Pandit says that the said defect in the application for registration was not treated as a fatal defect disentitling the assessee from obtaining registration of the firm, because the application was found to be signed by the partners of the firm as it was constituted on the date of the application as required by law and the two schedules contained all the necessary information, which had got to be supplied by a party applying for registration.

7. In Commissioner of Income-tax v. Dayaram Gangabishan & Co., which was also a case of a change of constitution of a firm, the firm, which could be entitled registration for the relevant account year, was the firm as it existed under a partnership deed of 27th June, 1947. The firm, however, which had applied for registration was the firm as it was constituted after a change in the constitution of the original firm by a partnership deed of 16th January, 1948, and the partnership deed, on the basis of which registration was sought by the firm was the latter deed of 16th January, 1948, and not the earlier partnership deed of 27th June, 1947. This court, however, did not regard the defect in the application made by the assessee for registration as fatal but went on to consider whether on merits of the case registration could be granted to the firm as it as constituted under the earlier partnership deed and having found on merits that the assessee would not be entitled to registration of the firm as constituted under the said partnership deed, held against the assessee. Mr. Pandit has relied on these two decisions for his submission that what is required to be considered is not whether the assessee has followed the letter of the law but whether he has substantially complied with the requirements of law. Mr. Pandit has argued that in the present case the assessee has substantially fulfilled all the requirements of law and procedure to be entitled to obtain registration of firm as it existed during the year of account.

8. Mr. Joshi, learned counsel for the revenue, on the other hand, has contended that section 26A of the Indian Income-tax Act confers a benefit of registration, and it has been, time and again, emphasised by the Supreme Court that in order to be entitled to the said benefit, the requirements of the said section must be strictly complied with. According to him there has not been a strict compliance or even a substantial compliance with the material provisions in the present case and the assessee, therefore, has been rightly held to be not entitled to registration by the Income-tax Officer and by the Tribunal. Mr. Joshi points out that the present case is not, in the first place, a case of change in the constitution of the firm but the case of a dissolution of the firm and the creation of a new firm. Both the Income-tax Officer and the Income-tax Appellate Tribunal have held that on the death of Shri R. S. Pawar, the firm, as constituted in the year of account, had become dissolved and it was a new firm and not the same firm reconstituted that was in existence at the time of the assessment. The application, in the present case, which the assessee has made on the basis of the reconstituted firm, is in the first place a thoroughly misconceived application. Moreover, he contends that in the case of a dissolved firm, where the dissolution has occurred by reason of death of one of the partners, the application for registration of the firm as it existed during the year of account must be made by the living partners and the legal representatives of the deceased partner, which is an essential condition to be satisfied. In the present case there is no such application made for registration. The application made by the assessee is signed by the partners of the newly formed firm as partners of that firm. Moreover, even in the particulars which have been supplied, no information with regard to who the legal represent active of the deceased are has been supplied. It is impossible, in these circumstances, say the learned counsel, to treat the application as giving all the necessary particulars and satisfying the requirements of an application, which is required to be made in the case of registration of a dissolved firm, after its dissolution.

9. It seems to us that, although it is possible to take the view that where the requirements of law are in substance complied with and the conditions satisfied in substance, too much emphasis need not be laid on failure to comply literally and technically with the letter of the law, it is not possible to say that there has been such substantial and proper compliance with the requirements of law in the present case. Mr. Joshi, in our opinion, is right in his submission that the present case is really one of a dissolution of a firm and the formation of a new firm. The mere circumstances that the business has continued without interruption and the new firm has come into existence from the moment of the death of the deceased partner of the old firm is not sufficient to hold that there has been a mere change in the constitution of the old firm. The legal effect of the death of the partner of the old firm was its dissolution and the firm thereafter constituted in a new firm. Now, the firm, which existed during the year of account, was the old firm and registration of the said firm was necessary to be applied for. The said old firm had been granted registration in prior years up to the present assessment year. The proper procedure, therefore, was to ask for the renewal of the registration of the old firm in which case the provision of rule 6 had to be complied with or, even if a fresh registration was to be applied for, it had to be of that firm. In the present case, registration, which the assessee has applied for, is patently of the new firm. It is not possible also to regard it as in substance an application for registration of the old firm as well as containing, at any rate, all the particulars and requirements of an application for the registration of the said firm because the application is not signed by the legal representatives of the deceased partner nor do the particulars disclose who the legal representatives are. In our opinion, therefore, the application made by the assessee in the present case could not be said to be a proper application made for the registration of the firm which was in existence during the account year. Since the firm of which the assessee had asked for registration could not be granted registration for the relevant account year and since there is no proper application for the registration of the firm, of which registration could have been granted during that year, the Income-tax Officer was right in refusing registration and the Income-tax Appellate Tribunal was also right in confirming the order.

10. In that view of the matter, the first question referred to us must be answered in the negative. If the first question is answered in the negative, the seconded question must obviously be answered against the assessee. We accordingly answer it in the affirmative. The assessee to pay the costs of the department.


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