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Commissioner of Income-tax Vs. Hormusji Hirjibhai and Co. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 59 of 1970
Judge
Reported in(1982)27CTR(Bom)248; [1983]140ITR966(Bom)
ActsIncome Tax Act, 1922 - Sections 26A; Indian Partnership Act, 1932; Indian Registration Act, 1908
AppellantCommissioner of Income-tax
RespondentHormusji Hirjibhai and Co.
Excerpt:
.....as by the tribunal. provided that the income-tax officer may entertain an application made after the expiry of the time-limit specified in this rule, if he is satisfied that the firm was prevented by sufficient cause from making the application within the specified time. it is obvious that both the aac as well as tribunal took the date of the constitution of the firm as october 14, 1958, on which date the partnership deed was formally executed, in the process ignoring the very vital recital in the deed of partnership and the admitted fact on record that the partnership was, in fact, constituted and it started working as such with effect from october 23, 1957. having landed in this error, both the authorities below came to the conclusion that the application for registration made under s......homi jamshedji, son of one of the two partners, as a partner and carried on its own business. the deed of partnership was executed on october 14, 1958, and an application for registration under s. 26a of the indian i.t. act, 1922 (hereinafter referred to as 'the act'), was filed before the ito on november 6, 1958. it is also necessary to note that the firm had applied for registration under the indian partnership act, with the registrar of firms on october 24, 1958, and the registrar of firms, after necessary enquiries, granted registration on december 31, 1958.2. the ito held that the firm was not genuine. he also held that as the firm was not registered with the registrar of firms before the end of the accounting year, the application for registration filed by the firm was out of time.....
Judgment:

Sawant, J.

1. The assessee is a firm and the assessment year is 1959-60, the relevant accounting period being from October 24, 1957, to November 11, 1958. The assessee consisting of two partners was assessed for the assessment years 1948-49 to 1958-59, in the status of a registered firm. In the accounting year ending Dewali 1958, the two partners admitted one Shri Homi Jamshedji, son of one of the two partners, as a partner and carried on its own business. The deed of partnership was executed on October 14, 1958, and an application for registration under s. 26A of the Indian I.T. Act, 1922 (hereinafter referred to as 'the Act'), was filed before the ITO on November 6, 1958. It is also necessary to note that the firm had applied for registration under the Indian Partnership Act, with the Registrar of Firms on October 24, 1958, and the Registrar of Firms, after necessary enquiries, granted registration on December 31, 1958.

2. The ITO held that the firm was not genuine. He also held that as the firm was not registered with the Registrar of Firms before the end of the accounting year, the application for registration filed by the firm was out of time as per r. 2(a)(i) of the I.T. Rules. Hence, he refused registration to the firm.

3. In the appeal filed by the assessee against the said order of the ITO the AAC held that the firm was genuine and that the application for registration was filed in time. He, therefore, directed the grant of registration to the assessee. The Department having preferred an appeal against the said order of the AAC, the Tribunal, in appeal, agreed with the view of the AAC that the firm was genuine. The Tribunal also held that the application for registration was in time by observing that the application could not be said to be out of time as it was quite in conformity with the rules for granting registration. According to the Tribunal, there was a proper deed duly executed by the three partners and the new partner had been taken for the work of the firm. According to the Tribunal, the application to the Registrar of Firms was filed within the year of account, and though the registration was accorded after the accounting year, it took effect from the date of application, which date was within the accounting year. It was for this reason that the Tribunal held that since there was a proper deed duly executed by the three partners and not the application for a registration under s. 26A of the Act was within time s per the I.T. Rules, the decision of the AAC was proper. The Tribunal, therefore, dismissed the Department's appeal. The Department having applied for a reference of the question under s. 256(1) of the I.T. Act, 1961, the following question has been referred to us:

'Whether, on the facts and in the circumstances of the case, the application for registration was filed in time and in conformity with the rules for granting registration ?'

4. We have already stated hereinabove the relevant dates on which the partnership deed was executed, the application for registration was made under s. 26A of the Act, the application for registration was made to the Registrar of Firms and the certificate of registration was granted to the firm by the Registrar of Firms. There is, however, one important fact as well as the date which need to be stated, the significance of which seems to have been overlooked both by the AAC as well as by the Tribunal. That fact is, that although the partnership deed was executed on October 14, 1958, according to the recitals in the deed itself, the business of the partnership was to be deemed to have commenced with effect from October 23, 1957. There is also further no dispute that, as per the said recital, in fact, the business of the partnership deed commenced from October 23, 1957. Hence, it will have to be held that the partnership deed came into existence and it started working as such partnership with effect from the said date and not from the date of the execution of the deed, which is October 14, 1958. With these undisputed facts on record we may now examine the relevant rule under which the registration was to be affected under s. 26A of the Act. The rule in question is r. 2 of the Indian I.T. Rules, 1922, which is as follows:

'2. Any firm constituted under an instrument of partnership specifying the individual shares of the partners may, under the provisions of section 26A of the Indian Income-tax Act, 1922, (hereinafter in these rules referred to as the Act), register with the Income-tax Officer, the particulars contained in the said instrument on application made in this behalf.

Such application shall be signed by all the partners (not being minors) personally, or in the case of a dissolved firm by all persons (not being minors), who were partners in the firm immediately before dissolution and by the legal representative of any such partner who is deceased, and shall, for any year of assessment up to and including the assessment for the year ending on the March 31, 1953, be made before the February 28, 1953, and for any year of assessment subsequent thereto, be made -

(a) where the firm is not registered under the Indian Partnership Act, 1932 (IX of 1932), or where the deed of Partnership is not registered under the Indian Registration Act, 1908 (XVI of 1908), and the application for registration is being made for the first time under the Act.

(i) 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, if the firm was constituted in that previous year,

(ii) before the end of the previous year in any other case;

(b) where the firm is registered under the Indian Partnership Act, 1932 (IX of 1932), or where the deed of partnership is registered under the Indian Registration Act, 1908 (XVI of 1908), before the end of the previous year of the firm, and

(c) where the application is for renewal of registration under rule 6 for any year, before the June 30, of that year.

Provided that the Income-tax Officer may entertain an application made after the expiry of the time-limit specified in this rule, if he is satisfied that the firm was prevented by sufficient cause from making the application within the specified time.'

5. The provision of the aforesaid rule which will be applicable in the present case is that contained in sub-cl. (i) of cl. (a) which states that the application for registration under s. 26A of the Act has to be made 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, if the firm was constituted in that previous year. Admittedly, as has been pointed hereinabove, since the firm will be deemed to have been constituted with effect from October 23, 1957, the application for registration under s. 26A of the Act, which was made on November 6, 1958, was not within six months. It is obvious that both the AAC as well as Tribunal took the date of the constitution of the firm as October 14, 1958, on which date the partnership deed was formally executed, in the process ignoring the very vital recital in the deed of partnership and the admitted fact on record that the partnership was, in fact, constituted and it started working as such with effect from October 23, 1957. Having landed in this error, both the authorities below came to the conclusion that the application for registration made under s. 26A on November 6, 1958 was within a period of six months from the date of October 14, 1958, when the partnership deed was formally executed and further that the same was made before the end of the previous year, viz., 1957-58. We may also in this connection point out that both the authorities committed another error in holding that the grant of certificate of registration by the Registrar of Firms related back to the date on which the application for registration was made. The correct position in law is that a firm is deemed to have been registered only on the date when the certificate of registration is granted. Admittedly, in the present case, the certificate of registration was granted on December 31, 1958 although the application for registration was made on October 24, 1958. Therefore, even under the provisions of the said sub-cl. (b) of r. 2, the firm was not registered before the end of the previous year, the previous year having ended admittedly on November 11, 1958. Hence, even under the said sub-cl. (b) the application made for registration under s. 26A of the Act was not within time.

6. It is also not disputed that the assessee-firm had made no application for a condonation of the delay, and, therefore, whether the delay in making the said application was justified or not was not considered, the said question having never fallen for consideration before any of the authorities. Looked at from any angle, therefore, the application made by the assessee for its registration under s. 26A was barred by time, and, therefore, the ITO was justified in refusing registration to the assessee under the Act. We may point out in this connection that in the view that we are taking we are supported by a decision of the Kerala High Court in Kerala Road Lines Corporation v. CIT : [1964]51ITR711(Ker) . In that case the firm was constituted under an instrument of partnership on April 5, 1957, and applied for registration under s. 26A of the Act for the assessment year 1958-59 on March 31, 1958, which was the last day on the previous year. On the same date, the firm delivered to the Registrar of Firms an application in the prescribed form under s. 58(1) of the Indian Partnership Act. The papers were, however, returned by the Registrar for due compliance with the formalities and the firm was subsequently registered under the Partnership Act on the November 15, 1958. The application for registration under s. 26A of the Act was rejected on the ground that the firm had not been registered under the Partnership Act on March 31, 1958, and that the application was not filed within six months of the date of the constitution of the firm, and, therefore, it was time barred under r. 2(a)(i) of the Indian I.T. Rules, 1922. On these facts, the High Court held that reading ss. 58 and 59 of the Indian Partnership Act together, a firm cannot be said to be registered when the statement prescribed by s. 58 and the required fee are sent to the Registrar; the registration of the firm is effected only when the entry of the statement is recorded in the register of firms and the statement is filed by the Registrar as provided in s. 59 of the Partnership Act. The court, therefore, held that in the circumstances, it could not be held that the firm had been registered under the Partnership Act before the end of the previous year. The application for registration under s. 26A was, therefore, time-barred under r. 2(a)(i) of the I.T. Rules, as it was not filed within six months of the constitution of the firm. In the circumstances, the question referred to us will have to be answered against the assessee and in favour of the Revenue.

7. Our answer to the question, therefore, is in the negative and against the assessee. In view of the fact that there was no appearance on behalf of the assessee, there will be no order as to costs.


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