1. The question referred in this reference must be answered against the assessee on the short ground that the entire order of the Tribunal is based on a misapprehension of the provisions of section 184(7) of the Income-tax Act, 1961. Then question referred is whether, on the facts and in the circumstance of the case, the assessee is not entitled to be registered under section 185 of the Income-tax Act, 1961.
2. The question arises out of the proceedings for the assessment year 1963-64 and must be considered to be in respect of that year. The assessee having failed to file a return within the time within the assessee, which is a partnership firm, was called upon to file it by a notice under section 139(2), the Income-tax Officer proceeded to make an ex parte assessment order under section 144 of the Act. Even though notice under section 142(1) of the Act was served on the assessee calling upon him to produce account books on August 28, 1964, the assessee did not produce the account books. An application for extension of time made by the assessee was rejected and finally an ex parte assessment order under section 144 was passed on September 14, 1964, the assessee filed a return of income. While making an ex parte order of assessment under section 144 of the Act, the Income-tax Officer observed :
'As the assessment is made u/s. 144 of the Act, I refuse to register the firm for the assessment year 1963-64.'
3. It does not appear that the assessment itself was challenged, but the order of the Income-tax Officer in so far as he had refused to register the firm was challenged in appeal. That appeal having been dismissed by the Appellate Assistant Commissioner, the assessee filed a second appeal before the Tribunal. The Tribunal has taken the view that there was nothing in sub-section (7) of section 184 requiring that the declaration, which is required to be filed by the assessee under clause (ii) of the proviso to sub-section (7) of section 184, had necessarily to be filed before the date of the assessment and that what was necessary was that a declaration should be filed with the return of income. The Tribunal then further took the view that the delay in submission of the declaration 'should not be regarded as a matter of relevance...' Consequently, an order was made directing the registration to be allowed for the year under appeal, and a further direction was given that the order of assessment and the notice of demand should be amended suitably. Now, at the instance of the revenue, the question reproduced above has been referred.
4. Now, it is difficult to see how the Tribunal has taken the view that there was no time limit within which the declaration contemplated by clause (ii) of the proviso to section 184(7) could be filed. It is, no doubt, true that where a firm is already registered under sub-section (7), it is statutorily provided that the registration shall have effect for every subsequent year. But before this happens, two conditions are required to be satisfied which are stated in the proviso to sub-section (7). The first condition is that there should be 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. The second condition which is required to be satisfied is put in clause (ii) as follows :
'the firm furnishes, before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 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, 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 allowed, he may allow the firm to furnish the declaration at any time before the assessment is made.'
5. Now, a bare reading of clause (ii) of the proviso makes it clear that the declaration contemplated by clause (i) is to be filed before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139. But the outer limit of time is fixed by the same clause as 'any time before the assessment is made' and it is discretionary for the Income-tax Officer to allow the assessee-firm to file a declaration after the expiry of the period referred to in the earlier part of that clause. In the instant case, admittedly neither before the expiry of the period provided under section 139(2) nor before the assessment was made was any declaration filed. In the face of the provisions of clause (ii) of the proviso to sub-section (7) of section 184, it is obvious that the Tribunal was in error in observing :
'There is nothing in the terms of sub-section (7) requiring that such declaration must be filed before the date of the assessment.'
6. If both the conditions prescribed in the proviso to sub-section (7) section 184 are not satisfied or even if any one of those conditions is not satisfied, the effect is that the registration granted for the earlier year cases to have effect for the subsequent year for which the declaration was required to be filed.
7. Mr. Dwarkadas, appearing on behalf of the assessee, contends that the Tribunal has taken an equitable view of the matter and that since the firm has been registered and has been assessed as such for a long period of time, the order of the Tribunal shows that it did not wish to inflict a penalty of having the partnership treated as an unregistered firm for the purposes of the assessment.
8. Now, as we have already pointed out, the view of the Tribunal runs counter to the plain terms of the proviso. If Parliament has made it obligatory that the conditions should, at the latest, be satisfied before the assessment is made as a registered firm for the year in question, those conditions will have to be fulfilled within the period prescribed by the proviso.
9. In this view of the matter, it is difficult to sustain the view taken by the Tribunal. The question referred will, therefore, be answered in the negative and in favour of the revenue. However, in the circumstances of the case, there will be no order as to costs.