Skip to content


Commissioner of Income-tax, Andhra Pradesh Vs. Sri Ramakrishna Motor Transport - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Judge
Reported in[1983]144ITR797(AP)
ActsIncome-tax Act, 1961 - Sections 144, 147, 154, 154(1), 155, 184, 185, 186, 250, 263, 264 and 271
AppellantCommissioner of Income-tax, Andhra Pradesh
RespondentSri Ramakrishna Motor Transport
Appellant AdvocateM.S.N. Murthy, Adv.
Respondent AdvocateT. Shanker Rao, Adv.
Excerpt:
.....rejected registration when minor attained majority - registration to be granted to partnership firm as minor after attaining majority continued as full-fledged partner held, cancellation of registration during minority of one partner was valid but it was illegal when he attained majority. - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim, jj] insurers entitlement to defend the action joint appeal by insured and insurer - held, the language employed in enacting sub-section (2) of section 149 appears to be plain and simple and there is no ambiguity in it. it shows that when an insurer is impleaded and has been given notice of the case, it is entitled to defend the action only on grounds enumerated in sub-section (2) of section 149 of the act, and no..........with the words 'any order of assessment or of refund'. firstly we are of the opinion that the words 'assessment' and 'refund' do not constitute a class; and, secondly, having regard to the scheme and e object behind the act, we see no reason to given a restricted meaning to avowedly unrestricted words used in the statute. the words, 'any other order' are clear, and brook no ambiguity. it is not only in the interest of justice but also in the interest of assessee, as well as the revenue that manifestly erroneous orders are not allowed to stand. we see no reason to cut down the natural and plain meaning of the words, which course may, in some cases, work to the disadvantage of the assessee also. in lila vati bai v. statue of bombay, : [1957]1scr721 , it was contended that the words.....
Judgment:

Jeevan Reddy, J.

1. By a partnership deed dated January 1, 195 7, fourteen persons, including a minor, Sri Kameswara Rao, agreed to carry on the business of running buses and lorries in partnership. the minor was represented by his mother and guardian, and he was treated as a full-fledged partner, liable for losses, amount other things. REgistration of this partnership firm was applied of, for the assessment year 1958-59, and for the next assessment year 1959-60, renewal was applied for. According to the law as it was understood then, such a partnership was not invalid. The ITo granted registration, and also renewal. by him order dated March 18, 1960. the Supreme Court held in CIt v. Dwarhands Khetan & Co. : [1961]42ITR528(Ker) -a decision render on December 1, 1960-that a partnership deed in which a minor is admitted as a full partner, is not lid and cannot be registered under s. 26A of the Indian I. T. Act, 1922. The decision of the Madras High court and the other High Court to the country were e overruled. Pursud by him for the assessment year 1958-59 and 1959-60, involving his ant to this decision the ITo proposed to cancel the registration granted by him for the assessment years 1958-59 and 1959-60, invoking his power of rectification under s. 154. Meanwhile, the minor, Sri Kameswara Rao, became a major on October 27, 1958, and opted to continue as a partners, as contemplated by s. 30 of the Partnership Act. A rectification deed was executed on October 29, 1958, recording the said fact. Though this fact was brought to the notice of the ITo when he proposed to exercise his power of rectification, the ITo canceled e registration for the assessment year 1958-59, as also e renewal granted for the assessment year 1959-60, . On appeal, however, the AAC took the view that the ITo was not competent to cancel the registration under s, 154 and according set aside his order. The Revenue filed an appeal before the Income-tax Appellate Tribunal contending that, in view of the Supreme Court decision, it must be held that e partnership deed executed on January 1, 1957, was invalid and could not have been registered under s. 26A of the (1922) ACt and that the said error constituted an error apparent on the fact of the record liable to be rectified under s. 154. It was argued that s. 186(1) (of the 1961 Act) was not available in such a case inasmuch as a cancellation can be effected under that section only on one ground, viz, that there was ' no genuine firm in assistance as register'. The Tribunal, however, dismissed the appeal holding that e power under s. 154 did not extend to rectifying an order granting registration to a firm. The words :'any other order' occurring in s. 154 were sought to be construed ejusdem generis with the preceding words 'order of assessment or of refund : and, on that basis, it was held that the said words could not take in every type of order passed by the ITO. Another principle pressed into service by the Tribunal in support o the same conclusion is 'special excludes general'> The Tribunal held that the power to cancel the registration granted to a firm is contained in s. 186, which is a special provision,; and if so, e general power under s. 154 is not available for the purpose of canceling the registration of a firm, once granted. It was of the opinion that the Legislature has designedly condigned the power of the cancellation of the registration of a firm, once granted, only to once ground, viz. non-genuineness; and, therefore, th cancellation cannot be effected on any other ground. May be that an erroneous order granting registration can be corrected by the Commissioner under s. 263, or probably the ITO may himself involve s. 147; but in any event-the Tribunal observed-the power under s, 154 was not available for such a purpose. So far as the assessment year 1959-60 is concerned,. the Tribunal referred to the further that the erstwhile minor became a major on October 27, 1958, and opted to continue as a full-fledged partner, which was recorded by a rectification deed, dated October, 29, 1958, and the further fact that an independent application for registration of the firm was made for this assessment year. It, therefore, held that so far as the assessment year 1959-60, is concerned, there is absolutely no ground for canceling the renewal.

2. Thereupon, e Department applied for and obtained this reference under s, 256(1) of the 1961 Act. The question referred for our opinion is;

'Whether, on the facts and in the circumstance of the case, the canceling of registration could be made under section 154 of the Income-tax Act, 1961

3. Sri M. S Murthy, the learned standing counsel for the Department, assailed the correctness of th interpretation placed by the Tribunal upon the words 'any other order' in s. 154. he contend that there is no scope for applying the rule of ejusdem generis to give a restricted meaning to the said words. Accordingly to him the words 'any other order' must he given their full effect, and must beheld to cover all types of orders. he contended further that the decision of the Supreme Court in CIt v. Dwarkadsa khetan & Co, : [1961]41ITR528(SC) which overruled the decision of the Madras High Court, does constituted a valid and sufficient ground for involving the power of rectification under s. 154. Even with respect to the assessment year 1959-60, learned counsel submitted, the red into by the partner after the erstwhile, minor, Sri Kameswara Rao, position cannot be different, because no fresh partnership was entered ito by the partners after the erstwhile minor, Sri kameswara Rao, attained majority. ACcordingly to the learned counsel, the rectification deed executed on October 29, 1958, is not sufficient compliance with the requirements of s 26A.

4. On the other hand, e learned counsel for the assessee, Sri T, Shanker Rao, supported then reasoning and the conclusions of the Tribunal. He contend that, if the words 'any other order' in s. 154 were conceived to take in every type of order, there was no necessity for Parliament to use the words 'any order of assessment or of refund', preceding the said words. Counsel contended farther, that, in any the assessment year 1959-60 there is no basis for canceling the registration in view of the fact that the erstwhile minor attained majority and opted to continue as a full-fledged partner, which was also record by a rectification deed.

5. In Jakka Devayya and Sons v. CIT : [1952]22ITR264(Mad) a Bench of the Madras High Court held that a deed of partnership executed between three persons of whom one wa a minor and was represented by his father-in-law, was not invalid in laws and that, in such a case, it must be deemed that the minor has been admitted to the benefits of the partnership firm by the two adults. Accordingly, they held that such a firm is entitled to registration under s. 26A of the 1922 Act. This wa also he view taken by certain other High court, while the Calcutta High Court took a contrary view (It must be remembered that the law laid down by the Madras High Court was held ton the binding on, and followed in the stated of Andhra Pradesh-See M. Subbarayudu v. State : AIR1955AP87 (FB). In view of this decision, the ITO granted registration for the assessment year 1958-59, and renewal for the assessment year 1959-60 notwithstanding the fact that one of the partners was a minor, who was shown as a full-fledged partner, and made liable alia, for the losses as well. The Supreme Court, however, overruled this decision in CIT v. Dwarkadsa Khetan & Co. : [1961]41ITR528(SC) , approving he decision of the Calcutta High Court, and it is then that the ITO sought in invoked his power of rectification under s. 154.

6. Section 154 in so far as it is relevant reads as follows -

'154. (1) With a view to rectifying any mistake apparent from the record-

(a) the Income-tax Officer may amend any order of assessment or of refund or any other order passed by him;

(b) the Appellate Assistant Commissioner or the Commissioner (Appeals) may amend any order passed by him under section 250 or section 271;

(c) the Commissioner may amend any order passed by him in revision under section 263 or section 264.

(1A) Where any matter has bene considered and decided in any proceedings by way of appeal or revision relevant to an order referred to is sub-section (1), e authority passing such order may notwithstanding anything contained in any law for the time being in force, amend that order under that sub-section in relation to any matter other than the matter which has bene so considered and decided.

(2) Subject to the other provision of this section the authority concerned-

(a) may make an amendment under sub-section (1) of its own method, and

(b) shall make such amendment for rectifying any such mistake which gas bene brought to its notice b y the assessee, and where the authority concerned is the Appellate Assistant Commissioner or the Commissioner (Appeals) by the Income-tax Officer also.

(3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under their section unless the authority concerned has given notice to the assessee of its intention so to do and has allowed thee assessee a reasonable opportunity of being heard...

(7) Save as otherwise provided in section 155 or sub-section (4) of section 186, no amendment under this section shall be made after the expiry of four year form the date of the order sought to be amended.'

7. We will not refer to th4 provisions relating to the registration of firms, and the cancellation thereof. Section 184 provided for the application fro registration of a firm. The application has to be made to the ITO by a firm, provided the partnership is evidence by an instrument, and the individual shares of the partners are specified in that instrument. Such an application has to be signed by all the partners, and has be made before the end of the previous year for the assessment year, in respect of which the registration is sought. The application has to be made in the prescribed form, containing the prescribed particulars, Registration once granted shall ensure for every subsequently assessment year, provided there is no change in e constitution of the firm, and the firm furnishes, before e prescribed date, a declaration in the prescribed form contained the prescribed particulars. Sub-section (1) of s. 185 prescribed the inquiry to be made by the ITO on receipts of an application for registration of a firm. In so far as it is relevant for the present purpose, it reads :

'185. (1) On receipts of an application for the registration of a firm, the Income-tax Officer shall inquiry into the genuineness of the firm and its constitution as specified in the instrument of partnership, and-

(a) if he is satisfied that the is or was during the previous year in existence a genuine firm with the constitution so specified, he shall pass an order in writing registering the firm for the assessment year :

(b) if he is not so satisfied, he shall pass an order in writing refusing to register the firm.'

Sub-section (2) and (3) of s. 185 provides that if the application received is defective in any particular, e ITo shall given an opportunity for its rectification, and if not rectified in spite of such opportunity, he we shall reject the application. Section 186, which provides for cancellation of registration, reads as follows :

'186. (1) If, where, firm has been registered, or its registration has effect under sub-section (7) of section 184, for an assessment year, m the Income-tax officer is of opinion theist 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 thee INspecting Assistant Commissioner, cancel they registration of the firm for that assessment year. :

Provided that no such cancellation shall be made after the expiry of eight year from the end of e assessment year in respect of which registration has been granted or has effect.

(2) If, where a firm has bene registered or its registration has effect under sub-section (7) of section 184 for any assessment year, there is, on the part of the firm, any such failure in respect of the assessment year as is mentioned in section 144, the Income-tax Officer may cancel the registration of the firm for the assessment year, after giving the firm not less then fourteen days' notice intimation his intention to canceled its registration and after giving it a reasonable opportunity of being heard.

(3) Where the register5ration of a firm is cancelled for any assessment year, the Income-tax Officer shall amend the assessment of the firm and its partners for that assessment year on the footing that the firm is an unregistered firm.

(4) The provision of section 154 shall, so far as may be, apply to the amendments of the assessments of the firm and its partners under sub-section (3) of this section, the period of four years specified in sub-section (7) of that section being reckoned from the date of the order canceling the registration.'

8. A reading of s. 186 shown that the power of cancellation conferred by it is confined only to one ground, viz, the genuineness. In other words, only where the ITO, after notice to the affected firm, comes to the opinion that 'during the previous year there was no genuine firm registered', he shall cancel the registration. On no other ground can be power of cancellation be invoked. Without a doubt, genuineness and validity are two distinct things. This is also the view taken by a Bench of this court in R. C. NO. 84 of 1970, dated November 22, 1971, (CIT v. Balaji Picture : [1983]144ITR807(AP) (Appx) (infra) where, e Bench observed (at p. 807) :

'It is clear that under r. 6B, the ITO was empowered to cancel the certificate of registration only if he was satisfied that the firm was not a genuine firm in existence. the learned counsel for the Department submitted that a firm which included a full-fledged minor partner was not a firm in e eye of law and, therefor, e action could be taken under r. 6B. We are not prepared to agree with e submission of the learned counsel. The use of the expression 'genuine' puts the matter beyond doubt. We are of opinion that r. 6B applies only to firms which do not exist in fact as distinguished from firm which may exist in fact but my a considered as non-existence in law. We are supported in our view by the decision of Obul Reddi and Venkateswara Rao JJ. in RC No. 83 of 1968'. (Rule 6B of the Indian I. T. Rules, 1922, corresponds to s. 186(1) of the 1961 Act).

9. We are unable to aged with the Tribunal that the words 'any other order'occurring in s. 154(1)(a) should be construed ejusdem generis with the words 'any order of assessment or of refund'. Firstly we are of the opinion that the words 'assessment' and 'refund' do not constitute a class; and, secondly, having regard to the scheme and e object behind the Act, we see no reason to given a restricted meaning to avowedly unrestricted words used in the statute. The words, 'any other order' are clear, and brook no ambiguity. It is not only in the interest of justice but also in the interest of assessee, as well as the REvenue that manifestly erroneous orders are not allowed to stand. We see no reason to cut down the natural and plain meaning of the words, which course may, in some cases, work to the disadvantage of the assessee also. In Lila Vati Bai v. Statue of Bombay, : [1957]1SCR721 , it was contended that the words 'or otherwise' in s. 6 of the Bombay Land Requisition Act of 1948-the relevant portion whereof read as follows : 'ceases to be in occupation upon termination of his interest in the premises or otherwise.. '-should be read ejusdem generis. This argument was rejected by e Supreme Court in the Following words (p. 528) :

'The rule of ejusdem generis sought to be pressed in aid of the petitioner can possibly have no application. The Legislature has been cautious and thorough-going enough to bar all avenues of escape by using the words 'or otherwise', those words are not words of limitation but of extension so as to cover all possible ways in which a vacancy may occurs... The Legislature, when it used e words 'or otherwise', apparently intended to cover other case when may into come within meaning of the preceding clause, for example, as cases when the tenants occupation has ceased as a result of trespass by a third-party. The Legislature, in our opinion, intended to cover all possible cases of vacancy occurring due to any reasons whatsoever. Hence far from using those words ejusdem generis with the preceding cause of the explanation, the Legislature used those words in an all-inclusive sense.'

10. This decision, in our opinion, clearly answer the argument based upon ejusdem generis, as also the argument of M. T. Shanker Rao, learned counsel for the assessee, that if Parliament intended s. 154(1)(a) to cover all types of orders, there was no reason for it to specify two types or orders, viz, order so assessment and order of refund, therein. Merleue because s. 154(1)(a) refers to an order of assessment, and to an order of refund, there is no reason to hold that the following general words should be confined to a limited filed. it may also be seen that cls. (b) and (c) of s, 15491) confer a similar power upon the AAC/Commissioner of Appeals, and upon the Commissioner; and there, the words used are 'any order passed by him'. No reason is shown why the ITO's power of rectification should be limited, whereas the powers of the other authorities mentioned in cls. (b) and (c) are wide enough to cover every order passed by th rule We are also unable to agree with the Tribunal that, by applying the rule of 'special excludes general' it should be held that the only ground upon which registration once granted can be cancelled, is non-genuineness and that, ln no other ground, can it be cancelled. We see no reason to import such a theory to cut down the plain meaning and scope of the word used in s. 154(1)(a). No decision has been bright to our noice taking such a view. If anything, sub-s. (4) of s. 186 gives an indication that both ss. 186 and 154 can operate simultaneously.

11. In this context, we do not think it irrelevant to point out that some High Court have construed s. 186 to include even case of illegality. In Bahagat Shyam & Co. v. CIT [1980] 123 ITR 163 the Allahabad High Court has held, in a similar case, that registration can be canceled by the s. 186 itself. In that case, the registration was first granted by the ITO for the assessment year 1963-64, which benefit continued up to the assessment year, 1968-69. The Commissioner cancelled the registration for 1968-69 under s. 263 of the ACt. Thereafter, the ITO cancelled the registration for the assessment year 1965-66 to 1967-68, under s. 186 on the ground that though the minor had attained majority on different dates in the previous year, ending March 31, 1964, no fresh partnership deed was drawn up[thereafter. The Allahabad High Court held that, in the circumstance, it must be held that a change had taken place in the constitution of the firm necessitating the drawing up of a fresh registration and further that, in the circumstance, the cancellation under s. 186 was valid.

12. Similar, the Gauhati High Court in Mahabir Prasad Kishantal & Co. v. CIT held that where a partnership deed sought to make the minors full partners, it is illegal and that the ITo has jurisdiction to cancel the registration of the firm, once granted, under s. 186(1) of the Act.

13. In the case before us, indeed, the action of the ITO will be justified both under s. 154(1)(a) as well as under s. 186(1). Merely because the ITO purposed to act under s. 154, there is no bar to relate it to the power under s, 186(1), if necessary, and to sustain it on that basis. Both procedure-wise and limitation-wise, the action taken can be sustained under s. 186(1) as well, if held applicable. Looked at form either angle, we are of the opinion that the ITO had power to cancel the registration on the ground that the partnership itself was illegal in the eye of law.

14. We must, however, uphold the contention of Mr. Shanker Rao and the finding of the Tribunal that, in so far as the assessment year 1959-60 is concerned, there is absolutely no ground warranting the cancellation of the registration. As stated above, the erstwhile minor, Sri Kameswara Rao, attainted majority on October 27, 19598, and elected to continue as a full-fledged partner, as contemplated by s, 30 of the Partnership Act, which fact was recorded by a rectification deed October 29, 1958. This fact was also brought to the notice of e ITO, within the prescribed time, and all the papers filed before him. For this assessment year, there was not only an application for renewal, but there wa a fresh application for grant of registration. In this view, it cannot be said that the partnership deed, as modified by e rectification deed, was in any manner illegal, so far as the accounting year relevant to the assessment year 1959-60 is concerned. of course, the partnership was undoubtedly illegal so far as the accounting year relevant to the assessment year 1958-59 is concerned.

15. For the above reason, our answer to the question referred is that the cancellation of registration made under s. 154 of the Act is competent and valid, in so far as the assessment year 1958-59, is concerned,; but is incompetent and unsustainable, in so far as the assessment year 1959-60 is concerned. The reference is ordered accordingly. No costs.


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