Skip to content


Jagjivandas Govindji and Co. Vs. Central Board of Direct Taxes and Others - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberSpecial Civil Application No. 126 of 1974
Judge
Reported in[1981]132ITR769(Bom); [1982]9TAXMAN194(Bom)
ActsIncome Tax Act, 1961 - Sections 2(23), 184, 184(1), 184(2), 184(4), 184(7), 184(8), 185, 185(1), 186 and 264
AppellantJagjivandas Govindji and Co.
RespondentCentral Board of Direct Taxes and Others
Excerpt:
- - the proviso to this sub-section empowers the ito to entertain an application made after the end of the previous year, if he is satisfied that the firm was prevented by sufficient cause from making the application before the end of the previous year. best automobiles [1979]117itr877(ker) ,also submitted that as the registration of the firm confers certain benefits on the firm, strict compliance with the provisions of the act and the rules requiring registration is necessary and substantial compliance with the requirement of the section would not suffice. 184 lays down for the assessment year in respect of which registration is sought and the proviso to this sub-section empowers the ito to entertain such an application made after the end of the previous year, if he is satisfied that.....ginwala, j.1. the petitioner is a partnership firm carrying on business of running saw mill, rice mill, etc. this partnership was originally constituted under a partnership deed dated november 15, 1958, with effect from january 11, 1958, and consisted of two partners, namely, nagindas and nagardas. this partnership so constituted was registered for the purpose of the indian i.t. act, 1922 (hereinafter referred to as 'the act of 1922') for the assessment year 1960-61, and this registration continued for the subsequent assessment years. there was a change in the constitution of the partnership on october 18, 1963. three major sons of nagardas joined the partnership along with one ramniklal who is the brother of nagindas. one vinodrai who was then a minor was admitted to the benefits of the.....
Judgment:

Ginwala, J.

1. The petitioner is a partnership firm carrying on business of running saw mill, rice mill, etc. This partnership was originally constituted under a partnership deed dated November 15, 1958, with effect from January 11, 1958, and consisted of two partners, namely, Nagindas and Nagardas. This partnership so constituted was registered for the purpose of the Indian I.T. Act, 1922 (hereinafter referred to as 'the Act of 1922') for the assessment year 1960-61, and this registration continued for the subsequent assessment years. There was a change in the constitution of the partnership on October 18, 1963. Three major sons of Nagardas joined the partnership along with one Ramniklal who is the brother of Nagindas. One Vinodrai who was then a minor was admitted to the benefits of the partnership. Thus, this reconstituted partnership consisted of six major partners. The seventh being Vinodrai (minor) who was admitted to the benefits of the partnership. The proportions in which the major partners and Vinodrai were to share the profits were specified in the partnership deed executed on October 30, 1963. Vinodrai, being a minor, was not to share any loss which was to be borne by the six major partners in a certain proportion specified in the deed. The accounting year of the firm was from Diwali to Diwali and before the end of Diwali of 1964, the reconstituted firm applied for registration under s. 184 of the I.T. Act, 1961 (hereinafter referred to as 'the Act'). The ITO granted registration under s. 185(1)(a) of the Act. The assessments for the years 1965-66 and 1966-67 were made on the basis of this registration of the firm as constituted under the partnership deed dated October 30, 1963.

2. On August 28, 1966, Vinodrai attained majority and opted to become a fullfledged partner in the firm. A deed of partnership was, therefore, executed on that day, and thereby Vinodrai confirmed the terms and conditions of the partnership deed executed on October 30, 1963. Now, under the partnership deed dated October 30, 1963, Vinodrai being a minor was not to share any loss in the same proportion as his share in the profit. In other words, under the deed dated August 28, 1966, the seven partners including Vinodrai were to share the profits and losses in the same proportion in which they were to share the profits under the deed dated October 30, 1963.

3. A firm which seeks registration under s. 184 of the Act has to apply in Form No. XI prescribed under the I.T. Rules, 1962 (hereinafter referred to as 'the Rules'). Sub-section (4) of s. 184 of the Act lays down that this application should be made before the end of the previous year for the assessment year in respect of which the registration is sought. The proviso to this sub-section empowers the ITO to entertain an application made after the end of the previous year, if he is satisfied that the firm was prevented by sufficient cause from making the application before the end of the previous year. Sub-section (7) of s. 184 of the Act further provides that where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment year. However, this rule is subject to certain conditions contained in the proviso to the sub-section, to which we shall refer presently.

4. After the execution of the deed dated August 28, 1966, the petitioner firm did not seek a fresh registration by making an application in Form No. 11A before the end of the previous year for the assessment year 1967-68, which previous year ended on Diwali, 1966. On the other hand, the petitioner-firm made a declaration in Form No. 12 which was filed along with the return on October 3, 1967, for the assessment year 1967-68. A similar form was also submitted for the assessment year 1968-69 along with the return on September 30, 1968. It appears that the assessment for these two years was not finalised till March, 1969. During the assessment proceedings for these two years, the petitioner-firm made an application in Form No. 11A for a registration of the firm on the basis of the deed dated August 28, 1966. This application came to be made on March 14, 1969.

5. The ITO, respondent No. 3, by two orders purported to have been passed under s. 185(1)(b) of the Act, refused registration and decided to treat the firm as unregistered. He was of the view that the partnership deed dated August 28, 1966, brought about a change in the constitution of the firm and, hence, the application in Form No. 11A should have been filed in time and since this was not done, the registration was refused.

6. The petitioner-firm moved the AAC against these two orders of the ITO. Before the AAC it was contended by the firm that Vinodrai was already a partner of the firm during his minority and even after attaining majority he elected to continue as partner and, hence, there was no change in the shares or the constitution of the firm and the only change was that Vinodrai attained majority. It was further contended that though it was not necessary toe execute a fresh deed of partnership on Vinodrai attaining majority, a deed was executed on August 28, 1966, as a measure of abundant precaution and filed before the ITO on March 14, 1969. It was, therefore, submitted by the firm that since there was no change, the ITO was not justified in refusing the renewal of the registration or at least the registration of the firm. However, this submission did not weigh with the learned AAC, who upheld the view taken by the ITO. The AAC held that the business of the partners underwent a material change on Vinodrai attaining majority. Relying on the judgment of the Allahabad High Court in Ganesh Lal Laxmi Narain v. CIT : [1968]68ITR696(All) he held that if a minor attains majority it was necessary under the provisions of the I.T. Act to execute a fresh partnership deed and make a proper application to the ITO in the accounting year. He held that in the absence of a fresh partnership deed and a proper application filed before the end of the accounting year the firm was not entitled to registration or renewal of registration for the two assessment years 1967-68 and 1968-69. In the view which he took, he dismissed the appeal.

7. Being aggrieved by this order of the AAC, the firm filed revision applications under s. 264 of the Act before the Commissioner, respondent No. 2. The latter by his order passed on February 5, 1971, dismissed then upholding the order passed by the AAC. It appears that the firm moved the CBDT, respondent No. 1, against the order of the Additional Commissioner but to no effect. Even an application for a review filed by the firm under s. 154 of the Act was in vain. The position, therefore, was that for the assessment years 1967-68 and 1968-69 the firm was treated as an unregistered firm for the purpose of income-tax and its application for the registration of the firm on the basis of the partnership deed dated August 28, 1966, was rejected and the continuation of the earlier registration was also refused. Being aggrieved by these various orders passed by the above-said authorities, the petitioner-firm has filed the present writ petition.

8. Mr. C.J. Thakkar, the learned counsel for the petitioner-firm, submitted that on Vinodrai attaining majority on August 28, 1966, no change in the constitution of the firm had taken place. He had been already admitted to the benefits of the partnership during his minority and the only change which was brought about on his attaining majority was that he became a fullfledged partner. Thus, according to Mr. Thakkar, the number of the partners and the identity of the partners were the same and there was no change in that. He further submitted that there was no change in the shares of the partners so far as the profits were concerned, because the seven partners were to continue to share the profits in the same proportion as they used to do under the earlier partnership deed of 1963. Mr. Thakar submitted that the only change, which if at all could be said to be a change, was the change in the proportion in which the partners were to share the loss, as, under the deed of 1963, only six partners were to share the loss in certain proportion while under the deed of 1966, seven partners had to share the loss including vinodrai. However, according to Mr. Thakar, the change in the shares in loss would not be change of shares in profit within the meaning of the first proviso to sub-s. (7) of s. 184 of the Act. For this proposition Mr. Thakar has relied on two decisions of a Division Bench of this court, In re Parekh Wadilal Jiwanbhai : [1961]42ITR266(Bom) and Imdad Ali v. CIT [1972] M. LJ 285; [1972] Tax LR 655. According to Mr. Thakar, since on the facts of the case, the first proviso to sub-s. (7) of s. 184 was not attracted firm and should have given the benefit of the substantive provision contained in sub-s. (7) of s. 184 and should have allowed the firm to have the benefit of the earlier registration for the subsequent assessment years also. Mr. Thakar submitted that the phrase 'change in the constitution of the firm' has been defined in sub-s. (2) of s. 187 of the Act and even if this definition is adopted for the purpose of the said phrase occurring in the first proviso to sub-s. (7) of s. 184, on the facts of the case, it is not possible to say that there was a change in the constitution of the firm because of Vinodrai's attaining majority and sharing the loss.

9. Mr. Thakar further submitted that even if the ITO was not inclined to hold the view that there was no change in the constitution of the firm or the shares of the partners on Vinodrai attaining majority, he ought to have condoned the delay which was caused in applying for the registration of the firm on March 14, 1969, and this the ITO could have done under the proviso to sub-s. (4) of s. 184. Mr. Thakar in this connection submitted that the application in Form No. 11A had been made before the assessment for the said two years had bee completed, and the reason given for the late submission of this application was that the firm was under the bona fide belief that there was no change in the constitution of the firm and, hence, it was not necessary to apply for a fresh registration. Mr. Thakar complains that while rejecting the application the ITO has not considered this aspect and the Additional Commissioner has merely said that no sufficient reasons are shown. Mr. Thakar, therefore, submits that either the firm should be treated as a registered firm for the two assessment years under sub-s. (7) of s. 184 on the basis of Form No. 12 or in any case the firm should be registered on the basis of the partnership deed dated August 28, 1966.

10. No return has been filed on behalf of any of the respondents. Mr. A. Shelat, who appears for all the respondents, however, submitted that when Vinodrai attained majority and came in as a major partners there was a change in the constitution of the firm as one more partner joined the firm. He also submitted that the word 'shares' occurring in the first proviso to s. 184(7) also includes share in losses besides share in profits. He submitted that there was a divergence of judicial opinion on the interpretation of this word and the view taken by this court in the abovesaid two cases requires to be reconsidered. However, in fairness, he pointed out that the decision of the Allahabad High Court in Ganesh Lal's case : [1968]68ITR696(All) has been overruled by the Full Bench of that court in Badri Narain Kashi Prasad v. Addl. CIT : [1978]115ITR858(All) . According to Mr. Shelat, at the time when the AAC passed the order, the decision of the Allahabad High Court in Ganesh Lal's case : [1968]68ITR696(All) was holding the field and, relying on that decision, the AAC held against the petitioner-firm, and it could not be said that there was an error apparent on the face of the record and, therefore, no interference in writ petition was called for. Mr. Shelat, relying on the decision of the Kerala High Court in CIT v. Best Automobiles : [1979]117ITR877(Ker) , also submitted that as the registration of the firm confers certain benefits on the firm, strict compliance with the provisions of the Act and the Rules requiring registration is necessary and substantial compliance with the requirement of the section would not suffice. Mr. Shelat, therefore, submits that as required by sub-s. (4) of s. 184, the application for registration in Form No. 11A was required to be made before the end of the previous year for the assessment year, viz., 1967-68 and as this application was not made within the time so specified, there was no compliance with sub-s. (4) of s. 184 and hence the question of registering the firm could not arise.

11. Before we go to discuss the merits of the case, it would be convenient to refer to a few provisions contained in the I.T. Act, 1961. The registration of a firm under the provisions of the Acts confers certain benefits in the matter of assessment. The provision for registration of the firm is made in Sec. B of Chap. XVI of the Act. Sub-s. (1) of s. 184 provides that be made to the ITO on behalf of any firm, if the partnership is evidenced by an instrument, and the individual shares of the partners are specified in that instrument. As already seen above, sub-s. (4) of s. 184 lays down for the assessment year in respect of which registration is sought and the proviso to this sub-section empowers the ITO to entertain such an application made after the end of the previous year, if he is satisfied that the firm was prevented by sufficient cause from making the application before the end of the previous year. Sub-section (6) then says that the application should be made in the prescribed form and shall contain the prescribed particulars. As already stated above, the form prescribed is Form No. 11A under the Rules. A perusal of this form would indicate that certain information with regard to the share in profit and share in loss of each partner has to stated in the schedule attached to the application. Sub-section (7) of s. 184 is the material section so far as the present petition is concerned and it would be convenient to reproduce it.

'(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) 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.'

12. Sub-section (8) states that where any change has taken placed in the previous year, the firm should apply for fresh registration for the assessment year concerned in accordance with the provisions of the section, viz., s. 184. Section 185 then provides for the procedure to be adopted by the ITO on receipt of the application for registration. He has to pass an order registering the firm, if he is satisfied that there is or was during the previous year in existence a genuine firm with the constitution so specified or he has to pass an order refusing to register it if he is not so satisfied.

13. Section 186 provides for the cancellation of a registration and sub-s. (1) thereof provides that where a firm has been registered, or its registration has effect under sub-s. (7) of s. 184 for an assessment year, and the ITO is of opinion that there was during the previous year no genuine firm in existence as registered, he may, after giving the firm a reasonable opportunity of being heard and with the previous approval of the IAC, cancel the registration of the firm for that assessment year. We are not concerned here with the other sub-section of s. 186. Section 187 makes a provision for making an assessment when there is a change in the constitution of the firm. Sub-section (2) of this section, as stated earlier, defines as to what is meant by 'a change in the constitution of the firm' and this sub-section is in the following terms :

'(2) For the purposes of this section, there is a change in the constitution of the firm -

(a) if one or more of the partners cease to be partners or one or more new partners are admitted, in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change; or

(b) where all the partners continue with a change in their respective shares or in the shares of some of them.'

14. These are all the provisions which require consideration in this petition.

15. We may first consider the question if the ITO was right in not giving the benefit of sub-s. (7) of s. 184 of the partnership firm for the assessment years 1967-68 and 1968-69. Now, reading that sub-section, it would be clear that once a registration is granted to any firm for any assessment year, it has effect for every subsequent year. This is the substantive provision contained in that sub-section and it is subject to certain conditions as stated in the two provisions. In this case we are not concerned with the second proviso and what falls for consideration is the first proviso. Now, under the first proviso, sub-s. (7) of s. 184 would operate, if 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. In other words, therefore, if there is a change in the constitution of the firm, the registration granted to the firm earlier will not have effect for the subsequent assessment years. So also if there is a change in the shares of the partners as evidenced by the instrument will not have effect for the subsequent assessment years. Hence, if the firm wants its earlier registration to have effect for the subsequent assessment year, it has to steer clear of these two conditions. Let us, therefore, proceed to see if on the attainment of majority by Vinodrai and on his joining the firm as a major partner and agreeing to share the losses, there was any change in the constitution of the firm or in the shares of the partners.

16. As stated earlier, the phrase 'change in the constitution of the firm' has been defined in sub-s. (2) of s. 187. However, it has to be remembered that by virtue of this sub-section, the definition is for the purposes of s. 187. The Legislature has not extended this definition to apply generally to all the provisions of the I.T. Act, 1961, or particularly to the sections incorporated in Sec. B of Chap. XVI which deal with registration of the firm. Strictly speaking, therefore, this definition would have to be restricted to s. 187 only. However, since the same phrase occurring in the first proviso to s. 184(7) has not been defined or explained anywhere, it would not be inappropriate to derive assistance from the definition contained in s. 187(21) for the purpose of construing this phrase in that proviso. If the Legislature uses words or phrases in a certain provision of the enactment with a certain meaning, the same meaning can be attributed to those words and phrases occurring in other provisions, if in the context of those provisions any other meaning is not attributed and attributing the same meaning would be consistent with the object of the Act.

17. Clause (a) of sub-s. (2) of s. 187 says that there would be a change in the constitution of the firm, if one or more partners cease to be partners or one or more new partners are admitted in such circumstances that one or more of the person ho were partners of the firm before the change continue as partner or partners after the change. In other words, this means that in a firm already in existence, some of the partners, but not all, cease to be partners, or if some more partners are admitted to such an existing firm, then there would be a change in the constitution of the firm. This is so far as cl. (a) is concerned. Now, cl. (b) says that where all the partners continue with a change in their respective shares or in the shares of some of them, even then there is a change in the constitution of the firm.

18. It is to be borne in mind that the word 'partner' used in the first proviso to s. 184(2) or in the two clauses of sub-s. (2) of s. 187 is not used in the same sense in which it has been used in the Indian Partnership Act, 1932. Clause (23) of s. 2 of the Act defines 'firm', 'partner' and 'partnership' and states that they have the meanings respectively assigned to them in the Indian partnership Act, 1932. However, it further says that the expression 'partner' shall include any person who, being a minor, has been admitted to the benefits of a partnership. Thus, according to this definition, even if a minor who is admitted to the benefits of a partnership would be deemed to be a partner for the purposes of the Act and, particularly, for the first proviso to s. 184(7) and s. 187(2). It is in the context of this definition that these two provisions would have to be read. Hence, if a partnership consists of some major partners and one or more minors are admitted to the benefits of the partnership, all of them including the minors would be partners with the meaning of the Act. In that event, if one of the minors so admitted joins the partnership as a major partner, the number of the partners would not change and if that is so, there would not be any change in the constitution of the firm within the meaning of cl. (a) of sub-s. (2) of s. 187. Even if the definition contained in sub-s. (2) of s. 187 is not applied to the first proviso to s. 184(7), the same result would follow in view of the definition of the term 'partner' in s. 2(23) of the Act. Even for the purpose of that proviso, there would be no change in the constitution of the firm, if a minor admitted to the benefits of the partnership continues in the partnership on attaining majority as even before his attaining majority he was deemed to be a partner of the firm.

19. Applying this test to the present case, it would be clear that when Vinodrai attained majority and elected to join the partnership on August 28, 1966, by executing a deed, there was no change in so far as the constitution of the firm was concerned, meaning thereby the number of partners and the identity of the partners. Admittedly, the original six major partners continued to be the partners and the only change was that Vinodrai having become major agreed to share the loss which he could not have done during his minority. Therefore, in this view of the matter, there is no difficulty in holding that there was no change in the constitution of the firm within the meaning of the first proviso to s. 184(7).

20. That takes us to the question whether there was any changes in the shares of the partners. As seen above, the only change which has been brought about on August 28, 1966, was that Vinodrai agreed to share the losses in the same proportion in which he was also sharing the profits as minor. Consequent to this, there was a change in so far as the proportion in which the partners had to share the loss. It could be seen that, earlier, the loss had to be borne by six major partners and on Vinodrai's agreeing to share the loss, this proportion underwent a change. It may be mentioned here that there was no change in the proportion in which the partners including Vinodrai had to share the profits. The question, therefore, is whether the word 'shares' occurring in the first proviso to s. 184(7) also takes within its ambit the share in losses. A similar question arose in the context of the provisions contained in s. 26A of the Act of 1922 and s. 184 of the Act of 1961 before a Division Bench of this court in Imdad Ali v. CIT [1972] M LJ 285; [1972] Tax LR 655. The Division Bench relying on the decision of an earlier Division Bench in Parekh Wadilal Jiwanbhai : [1961]42ITR266(Bom) , and after considering the decisions of the Mysore, Allahabad and Gujarat High Courts held that for the purposes of the Act what is required to be shown in the instrument of partnership is the specification of the individual shares of the partners in the profits alone and not the shares in losses. It may be mentioned here that the Division bench has followed the decisions of the Mysore and Allahabad High Courts in R. Sannappa and Sons v. CIT : [1967]66ITR27(KAR) and Hiralal Jagannath Prasad v. CIT : [1967]66ITR293(All) , and has dissented from a contrary view taken by the Gujarat High Court in Thacker & Co. v. CIT : [1966]61ITR540(Guj) . It would, therefore, appear that in the state of divergence of judicial views on this question, this High Court has preferred to follow the decisions of the Mysore and Allahabad High Courts. As stated earlier, Mr. Shelat sought to persuade us to reconsider this court's decision in Imdad Ali's case [1972] Tax LR 655. However, we respectfully agree with the view taken in that case and we do not find any reason for taking a different view or to differ from the view taken by the Division bench.

21. While we are on this question we may make a mention of the decision of the Supreme court in Mandyala Govindu & Co. v. CIT : [1976]102ITR1(SC) . There also one of the questions which fell for consideration of the Supreme Court was whether in the absence of a specific statement in the instrument requirement of s. 26A can be said to have been satisfied. The Supreme Court took note of the conflict of decisions of the High Courts and referred to the above-said three decisions of the Mysore, Allahabad and Gujarat High Courts and also to a decision of the Kerala High Court in C. T. Palu & Sons v. CIT : [1969]72ITR641(Ker) , which followed the view taken by the Gujarat High Court in Thacker's case : [1966]61ITR540(Guj) . The Supreme Court, however, did not resolve this conflict of views of the High Courts on this point and left the question open as, in its view, the case before it could be decided on facts. It would thus appear that there is no pronouncement of the Supreme Court on this question and the decision of this court in Imdad Ali's case [1972] Tax LR 655, holds good so far as this court is concerned.

22. It would, therefore, appear from the discussion above, that what is contemplated by shares of partners within the meaning of the first proviso to s. 184(7) is the share in profits alone and not the share in losses. Hence, if there is any change in the shares of the partners in respect of profits, the case would come within the mischief of the first proviso. However, if there is no change at all in the shares of the partners with respect to profits but only with respect to losses, it would not be a change of shares of partners within the meaning of the first proviso to s. 184(7).

23. Applying this construction and interpretation of the phrase 'shares of partners' occurring in the first proviso to s. 184(7) to the facts of the case, it at once follows that the change which occurred as stated earlier on Vinodrai attaining majority was not the change in the share of profits of partners but only the change in the share of losses. If that was so, it is not possible to say that there was any change of shares of partners within the meaning of the first proviso.

24. It would, therefore, appear that Vinodrai's joining the partnership as a major partner and agreeing to share losses, would not bring the registration of the firm granted on the basis of the partnership deed of 1963 to jeopardy as the first proviso to s. 184(7) would not apply. In that event the substantive provision would apply and the registration granted to the petitioner-firm for the earlier assessment year would have its effect for the subsequent assessment years particular for 1967-68 and 1968-69.

25. It would, therefore, be clear that the view which has been taken not only by the ITO, but also by the AAC, the Additional Commissioner and presumably by the Board of Direct Taxes cannot hold good, on a plain construction of these provisions, as applied to the facts of the present case.

26. It would appear that the view of the ITO was that on Vinodrai's attaining majority there was a change in the constitution of the firm and it was necessary to execute a fresh deed of partnership and to produce it before him within the time specified. It is on this ground that he not only rejected the application for registration, but also for continuation of the registration. In view of the discussion above, it would appear that this view is not correct and not supported by the provisions of the Act. As mentioned earlier, the AAC had relied on the decision of the Allahabad High Court in Ganesh Lal's : [1968]68ITR696(All) , where it had been held that on a minor attaining majority, a change takes place in the constitution of the firm and the firm must apply for fresh registration under s. 184(8) of the Act. Now, this view of the Division Bench of that court has been disapproved by the Full Bench of that court in Badri Narain Kashi Prasad v. Addl. CIT : [1978]115ITR858(All) . We find that the Full Bench has taken the same view, which we have taken earlier. As already stated above, Mr. Shelat has contended that the AAC followed Ganesh Lal's case : [1968]68ITR696(All) , because at the time when he passed the order that was the only case in the field on the point, and, hence, it could not be said that he was wrong in taking that view. However, we need not go into that question for the simple reason that the matter had not stopped at the stage of the order passed by the AAC. It went further in revision to the Addl. Commissioner who confirmed the appellate order after recording a speaking order. We may only refer to the decision of the Supreme court in CIT v. Amritlal Bhogilal & Co. : [1958]34ITR130(SC) , in which the Supreme Court has observed that if an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority is the operative decision in law. If the appellate authority modifies or reverses the decision of the Tribunal, it is obvious that it is the appellate decision that is effective and can be enforced. The Supreme Court further said that in law the position would be just the same even if the appellate decision merely confirms the decision for the Tribunal. It held that as a result of the confirmation or affirmation of the decision of the Tribunal by the appellate authority, the original decision merges in the appellate decision and it is the appellate decision alone which subsists and is operative and capable of enforcement. It is true that in this case the Supreme court has spoken about the merger of the original decision in the appellate decision. However, the same principle would apply to an order passed in revision and the Supreme court has taken this view in U. J. S. Chopra v. State of Bombay, : 1955CriLJ1410 , wherein the law with regard to the effect of the decision passed in revisional proceedings has been exhaustively discussed. Suffice it to say that, according to the Supreme Court, a decision rendered in revisional proceeding after giving an opportunity to both the sides to be heard, would have the effect of merger of the decision against which the revision is filed and if that is so, the decision of the AAC has merged in the decision of the Addl. Commissioner and what fell for consideration is the order of the Addl. Commissioner which affirmed, as stated above, the order of the AAC. It is pertinent to note that the Addl. Commissioner has not sought any reliance from the judgment of the Allahabad High Court and has recorded his finding independently of it. It is for this reason that we do not think it necessary to enter into a detailed discussion on the submission made by Mr. Shelat.

27. Lastly, Mr. Shelat, relying on the decision of the Supreme Court in Mandyala Govindu & Co. v. CIT : [1976]102ITR1(SC) , submitted that even if it is not necessary that the share in losses has to be specified in the deed of partnership or that a change in the share of profits would not be a change within the meaning of the first proviso to s. 184(7), yet it is necessary for the ITO to know in what proportion the various partners would share the losses as that is necessary for a proper assessment of the income of the partners. Mr. Shelat in this respect seeks support from the abovesaid decision of the Supreme Court. As stated earlier, the decisions in Mandyala's case : [1976]102ITR1(SC) , on its own showing, proceeds on the facts of that case. It is true that there are observations in that case to the effect that it is necessary for the ITO to know what are the respective shares of the partners in the losses and, hence, a statement to that effect must be contained in the application for registration even though the partnership deed is silent on this point. The case before the Supreme Court was one of registering the partnership under s. 26A of the Act of 1922 on the attainment of majority by one of the partners. There, an application for registration was made in Form No. 11A and though the deed of partnership was silent as regards the shares of losses, no mention had been made in the application Form No. 11A in that respect. The position here is quite different. Here, in so far as the application of s. 184(7) is concerned, the registration is already there on the basis of the partnership deed of 1963, but it would not be difficult for the ITO, while finalising the assessment for the years 1967-68 and 1968-69, to ascertain the shares of losses, if any, with regard to the seven partners of the firm as the partnership deed of 1966 is before him. It is, therefore, not possible to uphold the decision of the respondents on this fresh ground urged by Mr. Shelat.

28. In the view we take, it is not necessary for us to consider if the ITO or for the matter of that the Addl. Commissioner or the Board of Direct Taxes were justified in refusing registration to the firm on the basis of the partnership deed of 1966 for the two assessment years. We have held that the petitioner-firm was entitled to the benefit of sub-s. (7) of s. 184 for these two years and, hence, the question of a fresh registration does not arise.

29. In the result, the writ petition is allowed and the impugned orders are hereby set aside and the ITO is directed to continue the registration of the petitioner-firm for the assessment years 1967-68 and 1968-69. In the circumstances of the case, there shall be no order as to costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //