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B.S. Ramiah Setty and Bros. Vs. Commissioner of Income-tax, Bangalore - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Referred Case No. 31 of 1965
Judge
Reported in[1967]65ITR146(KAR); [1967]65ITR146(Karn); (1967)1MysLJ215
ActsIncome Tax Act - Sections 184, 184(7), 185, 185(1), 297 and 297(2); Income Tax (Removal of Difficulties) Order, 1962
AppellantB.S. Ramiah Setty and Bros.
RespondentCommissioner of Income-tax, Bangalore
Appellant AdvocateK. Srinivasan, Adv.
Respondent AdvocateG.R. Ethirajulu Naidu, Adv.
Excerpt:
.....- registration - income tax act, 1922 and section 184 (7) of income tax act, 1961 - whether assessee's application for registration should have been considered under provisions of act of 1961 or under provisions of act of 1922 - under act of 1922 application for renewal of registration to be dealt with in same manner as application for registration for first time - as per section 184 (7) where registration is granted to any firm for any assessment year it shall have effect for every subsequent assessment year - act of 1961 came into force on 01.04.1962 and from that date act of 1922 stood repealed - assessment of assessee for assessment year 1961-62 to be dealt with under provisions of act of 1961 and not under act of 1922 - registration proceedings to be considered as part of..........essential that the entire profits of the business carried on by the firm should be divided, the assessee firm was not entitled to renewal of registration. he, therefore, confirmed the order of the income-tax officer refusing renewal of registration to the assesses firm for the assessment year 1961-62. this order of the appellate assistant commissioner is appendix 'b' and forms part of the statement. 5. the assessee preferred a further appeal before the tribunal against the order of the appellate assistant commissioner refusing renewal of registration for the assessment year 1961-62, and raised the following contentions : (i) in view of the fact that registration had been granted to the assessee by the appellate assistant commissioner for the assessment year 1960-61, the assessee was.....
Judgment:

1. By this application under section 256(1) of the Income-tax Act, 1961, the assessee requires the Tribunal in I. T. A. No. 5394 of 1963-64 dated June 5, 1964. As, in our view, a question of law does arise out of the said order of the Tribunal, we state a case and refer the question to the High Court. There is a delay of three days in filing this application. We are satisfied with the explanation for the delay, viz., that the late sending of the application by the assessee was due to his assumption that there will not be any delay in transit. We, therefore, condone the delay in filing the application.

2. The assessee is a firm of four partners constituted under a partnership deed dated March 26, 1960. The assessee carries on several businesses including business in contracts. By an application dated March 31, 1960, the assesses firm applied for registration for the assessment year 1960-61 under section 26A of the Income-tax Act, 1922, and by another application dated June 30, 1961, it applied for renewal of registration for the assessment year 1961-62 under section 26A of the Act. In this application for renewal of registration, a certificate was given by the assessee to the effect that the profits of the previous year were divided or credited. As a matter of fact, the profits from the P. W. D. contracts and the lock-up contracts had not been divided at all and only the profits from the other businesses had been divided. The Income-tax Officer was of the view that the certificate filed by the assessee along with its application for registration was not correct as the total profits of the firm had not been divided or credited and that, therefore, the firm was not entitled to the grant of registration. The order of the Income-tax Officer refusing grant of registration for the assessment year 1961-62 was passed under section 185(1)(a) of the Income-tax Act, 1961. A copy of the order is appendix 'A' and forms part of the statement. The Income-tax Officer also refused registration to the firm for the assessment year 1960-61.

3. The assesses firm preferred appeals to the Appellate Assistant Commissioner against the orders of the Income-tax Officer refusing registration for the assessment year 1960-61 and renewal of registration for the assessment year 1961-62. So far as the appeal for the assessment year 1961-62 was concerned, the assessee contended that the profits of the previous year need not be actually divided or credited to get registration of the firm and that it was enough if there was a declaration of intention by the partners to the effect that the profits of the previous year would be divided or credited as shown in section 'B' of the schedule. It was further contended that the term 'profits' meant profits as arrived at by the firm after the completion of the contract and that, therefore, so far as the business in contracts was concerned, no profits had accrued during the assessment year 1961-62, which should have been divided amongst the partners. The Appellate Assistant Commissioner passed separate orders in the two appeals preferred by the assessee. By his order in I. T. A. No 1047/62-63, the Appellate Assistant Commissioner granted registration for the assessment year 1960-61, but as regards the assessment year 1961-62, the Appellate Assistant Commissioner held that unlike the application for registration, in respect of an application for renewal of registration, it was essential that the entire profits of the business carried on by the firm should be divided, the assessee firm was not entitled to renewal of registration. He, therefore, confirmed the order of the Income-tax Officer refusing renewal of registration to the assesses firm for the assessment year 1961-62. This order of the Appellate Assistant Commissioner is appendix 'B' and forms part of the statement.

5. The assessee preferred a further appeal before the Tribunal against the order of the Appellate Assistant Commissioner refusing renewal of registration for the assessment year 1961-62, and raised the following contentions :

(i) In view of the fact that registration had been granted to the assessee by the Appellate Assistant Commissioner for the assessment year 1960-61, the assessee was entitled under section 184(7) of the Income-tax Act, 1961, to renewal of registration for the assessment year 1961-62;

(ii) that the certificate of the assessee furnished along with its application for renewal of registration was not incorrect in view of the fact that the profits from the contract business could be divided only after the work was completed; and

(iii) that the assessee was titled to renewal of registration at least so far as the businesses other than contract business were concerned.

6. The Tribunal negatived all these contentions of the assessee. As regards the first contention, the Tribunal held that the order granting registration for the assessment year 1960-61 was an order passed under section 26A of the Income-tax Act, 1922, and that, therefore, the provisions of section 184(7) of the new Act could not be invoked by the assessee. As regards the second contention, the Tribunal held that it respectfully followed the interpretation of paragraph 3 of the certificate given in the decision of the Madras High Court in Surajmalls v. Commissioner of Income-tax. As regards the third contention, the Tribunal held that the decision of the Mysore High Court in Rajulbandi Venkaiah Ramaiah v. Commissioner of Income-tax, relied upon by the assessee did not apply to the facts of the instant case. The order of the Tribunal is appendix 'C' and forms part of the assessment.

7. The following question is referred :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assesses firm was not entitled to renewal of registration for the assessment year 1961-6 ?'

8. Both the assessee and the departmental representative have agreed to the above statement of the case.

9. This is a reference under section 256(1) of the Income-tax Act, 1961, to be hereinafter referred to as the 'Act'. This reference was made at the instance of the assessee. The question of law referred for the opinion of this court is :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assesses firm was not entitled to renewal of registration for the assessment year 1961-62.'

10. The admitted facts of the case are these : The assesses firm was registered under section 26A of the Indian Income-tax Act, 1922, for the assessment year 1960-61. On June 30, 1961, the assessee filed an application for renewal of its registration for the assessment year 1961-62. That application was made under section 26A of the 1922, Act. A declaration as required by the Rules framed under the 1922 Act was also annexed to the application for registration. That application was dealt with by the Income-tax Officer under section 185(1)(a) of the Act. He rejected the same on the ground that the declaration made by the assessee was contrary to facts, inasmuch as it had not in fact distributed the income of the previous year. The contention of the assessee that his application for registration should have been dealt with under the provisions of the Act and the Rules framed thereunder was rejected by the Tribunal. It agreed with the Income-tax Officer and the Appellate Assistant Commissioner that as the assessee's declaration that the income of the previous year had been distributed is an incorrect declaration, the assessee is not entitled to the registration prayed for.

11. The principal question that arises for decision in this case is whether the assessee's application for registrations should have been with under the provisions of the Act and the Rules framed thereunder or under the provisions of the 1922 Act and the Rules framed under that Act. As mentioned earlier, the Income-tax Officer dealt with that application under section 185(1)(a) of the Act.

12. In the matter of registration of firms, substantial changes in law have been made under the Act. Under the 1922 Act, an application for renewal of registration had to be dealt with in the same manner as an application for registration for the first time. That is not the position now. Under section 184(7) of the Act, where a 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, along with its return of income for the assessment year concerned, a declaration to that effect, in the prescribed form and verified in the prescribed manner.

Section 297(2)(b) of the Act, which deals with the repeals and savings, says :

'Notwithstanding the repeal of the Indian Income-tax Act, 1922 (hereinafter referred to as the repealed Act), where a return of income is filed after the commencement of this Act otherwise than in pursuance of a notice under section 34 of the repealed Act by any person for the assessment year ending on the 31st day of March, 1962, or any earlier year, the assessment of that person for that year shall be made in accordance with the procedure specified in this Act.'

12. It may be incidentally noted that the Act came into force on April 1, 1962, and, from that date, the 1922 Act stood repealed. Therefore, the assessment of the assessee for the assessment year 1961-62 had to be dealt with under the provisions of the Act and not under the 1922 Act. The registration with which we are concerned in this case relates to the assessment of the assessee for the assessment year 1961-62.

Section 298(1) of the Act provides :

'If any difficulty arises in giving effect to the provisions of this Act the Central Government may, by general or special order, do anything not inconsistent with such provisions which appears to it to be necessary or expedient for the purpose of removing the difficulty'.

13. In pursuance of that provision, the Central Government issued the Income-tax (Removal of Difficulties) Order, 1962, on August 8, 1962. Clause 2 of that order says that registration and refund proceedings should be regarded as part of assessment proceedings. That clause reads :

'For the purposes of clauses (a) and (b) of sub-section (2) of section 297 of the Income-tax Act, 1961 (XLIII of 1961) (hereinafter referred to as the repealing Act), proceedings relating to registration of a firm or a claim for refund of tax shall be regarded as part of the proceedings for the assessment of the person concerned for the relevant assessment year'.

14. In view of this clause, the registration proceedings should be considered as a part of the assessment proceedings. Therefore, the provisions relating to assessment proceedings also governs registration proceedings, which means that the registration proceedings in this case should have been dealt with under the provisions of the Act and the Rules framed thereunder.

15. Form No. 12 of the forms prescribed under the Rules framed under the Act deals with declaration under section 184(7) of the Act for continuation of registration. That form reads :

Form No. 12.(See rule 24)Declaration under section 184(7) of the Income-tax Act, 1961, forcontinuation of registration.ToThe Income-tax Officer,.........................Re : Assessment year 19......19....We, on behalf of ............................................(Name of firm)declare that :-(i) our firm was granted registration for the/assessmentyear 19...... 19...... vide order dated......... 19......, passed by theIncome-tax Officer.......................; and(ii) there has been no change in the constitution of the firm or theshares of the partners since the last day of the previous year relevantto the/assessment year 19...... 19...... up to the last dateof the previous year relevant to the assessment year19....... 19.....[or to the date(......19......) of dissolution of the firm].We further declare that the information given above is correct andcomplete.Dated Signatures Addresses----------- ----------1.2.3.4.----------------------------------------------------------------------

16. This form is very much different from the form prescribed under the Rules framed under the 1922 Act. Under this form, the assessee is not required to give any declaration to the effect that the income of the previous year has been distributed among the partners of the firm.

17. From the foregoing, it is seen that the registration in the instant case is governed by the provisions of the Act and the Rules framed thereunder. The Tribunal was not right in considering that the correctness or the legality of the application made by the assessee should be considered under the provisions of the 1922 Act and the Rules framed thereunder. It should have considered its correctness or legality with reference to the Act and the Rules framed thereunder. In that view, we hold that the Tribunal was wrong in rejecting the application of the assessee for registration. From this conclusion, it does not follow that the application made by the assessee is in accordance with the provisions of the Act and the Rules framed thereunder. That question still remains to be examined as the same had not been examined by the Tribunal.

18. For the reasons mentioned above, we are of the opinion that, on the facts and in the circumstances of the case, the Appellate Tribunal was not right in law in holding that the assesses firm was not entitled to renewal of registration for the assessment year 1961-62.

19. In the circumstances of the case, we direct the parties to bear their own costs in this reference.


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