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Additional Commissioner of Income-tax Vs. Chekka Ayyanna and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 37 of 1974
Judge
Reported in[1977]106ITR313(AP)
ActsIncome Tax Act, 1961 - Sections 184(7), 185(1) and 246
AppellantAdditional Commissioner of Income-tax
RespondentChekka Ayyanna and ors.
Appellant AdvocateP. Rama Rao, Adv.
Respondent AdvocateY.V. Anjaneyulu, Adv.
Excerpt:
.....he would have to pass an order under section 185(4) to the effect that the firm has been registered under the act for that assessment year; therefore, an income-tax officer by pointing out the functionless nature of the declaration or its incompleteness or the shortcomings therein, would call upon the assessee-firm to make the declaration perfect, and if the assessee-firm does not utilise this opportunity, the income-tax officer is empowered to declare that the registration granted to the firm for any assessment year shall not be effective for the relevant assessment year, in which case such an order would be an appealable order......filing of the declaration. he, therefore, refused 'to allow continuation of registration to the assessee-firm'.the assessee went in appeal to the appellate assistant commissioner who held that since the order of the income-tax officer was passed under section 184(7) of the act, no appeal was maintainable as section 184(7) is not included in section 246 of the act.2. the assessee filed an appeal before the income-tax appellate tribunal which held that since the order of the income-tax officer tantamounts to refusal of registration an appeal to the appellate assistant commissioner was maintainable. in other words, the appellate tribunal construed the order of the income-tax officer refusing 'to allow continuation of registration to the assessee-firm' as amounting to refusal of.....
Judgment:

Muktadar, J.

1. The following question has been referred by the Income-tax Appellate Tribunal for our consideration :

'Whether, on the facts and in the circumstances of the case, the order passed by the Income-tax Officer purporting to be under Section 184(7) is appealable to the Appellate Assistant Commissioner under Section 246 of the Income-tax Act, 1961 ?'

The facts leading to this reference are these :

The assessee which is a firm was granted registration for the assessment year 1970-71. For the assessment year 1971-72, there was no change in the constitution of the firm. The assessee taking advantage of the provisions of Section 184(7) of the Income-tax Act, 1961, hereinafter referred to as 'the Act', filed a declaration under that section for the assessment year 1971-72 along with the return of income on September 27, 1971. It appears that a notice under Section 139(2) of the Act was issued and served on the assessee on July 17, 1971. The return of income, therefore, had to be filed within one month therefrom, viz., before August 16, 1971. The declaration also under Section 184(7) of the Act ought to have been filed before August 16, 1971, but, as stated above, the assessee filed it on September 27, 1971. The assessee was called upon to explain the reasons for the delay in filing this declaration. Its explanation was that it had not received the notice under Section 139(2) of the Act, but when the service of the notice was brought to the knowledge of the assessee, it accepted the same. The Income-tax Officer, therefore, found that there is no convincing explanation on behalf of the assessee for the late filing of the declaration. He, therefore, refused 'to allow continuation of registration to the assessee-firm'.

The assessee went in appeal to the Appellate Assistant Commissioner who held that since the order of the Income-tax Officer was passed under Section 184(7) of the Act, no appeal was maintainable as Section 184(7) is not included in Section 246 of the Act.

2. The assessee filed an appeal before the Income-tax Appellate Tribunal which held that since the order of the Income-tax Officer tantamounts to refusal of registration an appeal to the Appellate Assistant Commissioner was maintainable. In other words, the Appellate Tribunal construed the order of the Income-tax Officer refusing 'to allow continuation of registration to the assessee-firm' as amounting to refusal of registration of the firm. Hence, this reference.

3. Mr. Rama Rao, the learned standing counsel for the revenue, contends that the order of the Income-tax Officer was passed under Section 184(7) of the Act. He submits that according to the proviso to Section 184(7) of the Act, in case the declaration is filed beyond the period allowed, the Income-tax Officer has discretion either to condone the delay or refuse to condone the delay. He further submits that although the proviso to Section 184(7) of the Act gives power to the Income-tax Officer to condone the delay, it is implicit in that section that he also has the power to refuse to condone the delay. Therefore, in the instant case, what the Income-tax Officer had done was that he had exercised his discretion and come to the conclusion that the explanation put forth by the assessee was not convincing enough to condone the delay ; therefore, he had exercised his discretionunder the proviso to Section 184(7) of the Act. When such is the case, submits Mr. Rama Rao, it should be construed that the order of the Income-tax Officer was passed under the proviso to Section 184(7) of the Act. Since Section 246 of the Act deals with appeals against orders and is not subject-wise but section-wise, and as Section 246 of the Act is silent with regard to any order passed by the Income-tax Officer under Section 184(7), it would only mean that the legislature intended that there should be no appeal against an order of the Income-tax Officer under Section 184(7) of the Act. He further submits that it was, therefore, incorrect on the part of the Appellate Tribunal to treat the case on subject-wise basis and bring it within the ambit of Section 246(j) of the Act. The learned standing counsel in support of his contention cited Ashwani Kumar Maksudan Lal v. Addl. Commissioner of Income-tax : [1972]83ITR854(All) , Chandrasekaran v. Commissioner of Income-tax : [1974]96ITR711(Mad) and Sandersons & Morgans v. Income-tax Officer : [1973]87ITR270(Cal) .

4. On the other hand. Mr. Y.V. Anjaneyulu, appearing for the assessee-respondent, contends that the proviso to Section 184(7) of the Act only gives discretion to the Income-tax Officer to condone the delay if the circumstances so permit. He submits that he is not contending that the Income-tax Officer has no power to refuse to condone the delay, but what he submits is that if the Income-tax Officer finds that there are no circumstances to condone the delay, he will have to pass an order under Section 185(1)(b) or Section 185(3) of the Act. Mr. Anjaneyulu submits that what the Income-tax Officer had done in this case is that he had refused 'to allow continuation of registration to the assessee-firm', and, therefore, it would mean that this order was an order under Section 185(1)(b) of the Act. Therefore, considering the order of the Income-tax Officer either under Section 185(1)(b) or under Section 185(3), an appeal was maintainable under Section 246(j) of the Act. In support of his contention, Mr. Anjaneyulu cited Commissioner of Income-tax v. Dineshchandra Industries : [1975]100ITR660(Guj) and Sir Hukumchand and Mannalal Co. v. Commissioner of Income-tax : [1966]60ITR99(SC) .

5. In order to appreciate the respective contentions advanced by the learned advocates, it is necessary to examine the relevant provisions of Sections 184 and 185 along with Section 246(j) of the Act. Section 184 deals with the filing of applications for registration of a firm. Section 184(1) of the Act provides for the filing of an application by a firm to get itself registered if the partnership is evidenced by a partnership deed and the individual shares of the partners are specified in that deed. Such an application may be filed either during the existence of the firm or after its dissolution.

6. Sub-section (3) of Section 184 provides that such an application should be made to the Income-tax Officer having jurisdiction to assess the firm andshould be signed by all the partners who are majors personally or in the case of a firm which has already been dissolved, by persons who were partners in the firm immediately before its dissolution and by the legal representatives of the partners who have since died. The Explanation to Sub-section (3) makes provision for partners who are absent from India or are lunatics or idiots in which case the application may be signed by persons duly authorised by them in this behalf or by persons entitled under law to represent them.

7. Sub-section (4) of Section 184 of the Act provides for the time when the application should be filed. It provides that the application should be made before the end of the previous year for the assessment year in respect of which registration is sought. A proviso is added to Sub-section (4) providing for an eventuality where an application is made after the end of the previous year, and it gives discretion to the Income-tax Officer to entertain such an application if he is satisfied that the firm was prevented by sufficient cause from making the application before the end of the previous year.

8. Sub-section (5) of Section 184 of the Act provides for the filing of the documents along with the application to prove the partnership. The proviso to Sub-section (5) gives discretion to the Income-tax Officer to accept a copy of the original partnership deed if the original cannot be conveniently produced, if such a copy is certified in writing by all the major partners, and in case an application is made after the dissolution of the firm, such a copy should be certified by all the persons referred to in Clause (b) to Sub-section (3) to be a correct copy.

9. Sub-section (6) of Section 184 of the Act provides that the application should be made in the prescribed form and should contain the particulars as prescribed by the rules.

10. Sub-section (7) of Section 184 which is relevant for purposes of this case deals with the effect with regard to registration in respect of a firm to which registration has already been granted for any assessment year, and it provides that such a registration granted to a firm for any assessment year should have effect for every subsequent assessment year. Two provisos are added to this sub-section. Proviso (i) is to the effect 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 for any assessment year. Proviso (ii) gives discretion to the Income-tax Officer and it provides that where under Sub-section (1) or Sub-section (2) of Section 139 time is allowed for furnishing the return of income for such subsequent assessment year, the firm has to file a declaration to that effect in the prescribed form and verified in the prescribed manner, and if the Income-tax Officer is satisfied that the firmwas prevented by sufficient cause from furnishing the declaration within the time allowed, he may allow the firm to furnish the declaration at any time before the assessment is made.

11. Sub-section (8) of Section 184 provides for an eventuality where there is any change in the constitution of the firm or the shares of the partners in the previous year when the firm would have to apply for fresh registration for the assessment year concerned.

12. It would thus be seen that the entire Section 184 of the Act deals with the procedure for the filing of applications.

13. Section 185 of the Act provides the procedure to be followed by the Income-tax Officer on receipt of such an application for registration of the firm. Sub-section (1) provides that the Income-tax Officer, on receipt of such an application for registration of the firm, should inquire into the genuineness of the firm and its constitution as specified in the instrument of partnership. If in such an inquiry, the Income-tax Officer is satisfied that there is or was during the previous year in existence a genuine firm with the constitution as specified in the instrument of partnership, he should pass an order in writing registering the firm for the assessment year. Sub-section (2) provides that if he is of the opinion that there is or was no genuine, firm in existence with the constitution as specified in the instrument of partnership, he should pass an order in writing refusing to register the firm.

14. Sub-section (2) of Section 185 provides that, where the Income-tax Officer considers such an application for registration to be not in order, he should intimate the defect to the firm and give it an opportunity to rectify the defect within a period of one month from the date of such information, and if the defect is not rectified within that period, he is empowered to reject the application. This sub-section deals with the case of registration of the firm for the first time.

15. Likewise, Sub-section (3) of Section 185 also provides for the case of a partnership which has already been given registration for the assessment year as envisaged in Section 184(7) of the Act. If the declaration filed by the firm is defective, the Income-tax Officer would inform the firm of the defect and call upon the firm to rectify the defect within a period of one month from the date of such intimation, and if the defect is not rectified within that period, the Income-tax Officer would, by an order in writing, declare that the registration granted to the firm in any assessment year would have no effect for the relevant assessment year.

16. Sub-section (4) of Section 185 provides that where a firm is registered for any assessment year as envisaged in Section 184(7) of the Act, and if the declaration is in order, the Income-tax Officer should record a certificate on the instrument of partnership or on the certified copy submitted in lieu ofthe original instrument, as the case may be, to the effect that the firm has been registered under the Act for that assessment year.

17. Section 246 of the Act deals with appeals to the Appellate Assistant Commissioner against orders of the Income-tax Officer. A perusal of this section would show that the orders against which appeals could be filed before the Appellate Assistant Commissioner are given in section-wise manner, and Clause (j) is relevant for purposes of this case. It provides that any assessee aggrieved by the order of an Income-tax Officer under Clause (b) of Sub-section (1) or Sub-section (2) or Sub-section (3) or Sub-section (5) of Section 185, may appeal to the Appellate Assistant Commissioner. Therefore, if under Section 185(1)(b) of the Act, the Income-tax Officer refuses to register a firm, then that order is an appealable order. Similarly, where an Income-tax Officer rejects an application which is defective and which has not been rectified by the assessee when it was given an opportunity to do so, such an order also would be appealable. Again, where a declaration under Section 184(7) of the Act is found to be defective by the Income-tax Officer, and the assessee-firm does not rectify the defect within the time allowed, the Income-tax Officer would pass an order declaring that the registration granted to the firm would have no effect for the relevant assessment year, such an order is also appealable.

18. A reading of Section 185 of the Act would reveal that on receipt of an application for registration of a firm either for the first time or for the subsequent assessment year as envisaged in Section 184(7), the object of inquiry under Section 185 is to find out ultimately whether the firm is genuine or not, and whether its constitution is as specified in the instrument or not, and it is only with this idea that the Income-tax Officer makes an inquiry into the application along with the documents filed therewith. If the Income-tax Officer is satisfied that there is or was during the previous year in existence a genuine firm with the constitution as specified in the partnership deed he would register the firm for the assessment year. If the Income-tax Officer comes to the conclusion for one cause or another that the firm is not genuine and its constitution is not the same as specified in the instrument, then he will pass an order refusing to register the firm, or if there is a defect in the application or in the declaration filed by the assessee-firm, and in spite of giving it an opportunity to rectify the defect, the assessee-firm does not so rectify within the time allowed, the Income-tax Officer would reject the application or would declare that the registration granted to the firm in any assessment year would have no effect for the relevant assessment year. Hence, with the ultimate idea of registering or refusing to register a firm, an inquiry has to be made by the Income-tax Officer under Section 185 of the Act. Therefore, any order passed by the Income-tax Officer refusing to register the firm on any ground would be an appealable order under Section 246(j) of the Act.

19. A close reading of Section 184(7), proviso (ii), in conjunction with Section 185(4) would show that, notwithstanding the condonation of delay by the Income-tax Officer when he is satisfied that the firm was prevented by sufficient cause from filing the declaration within the time allowed, nevertheless, he would have to pass an order under Section 185(4) to the effect that the firm has been registered under the Act for that assessment year; similarly, if the Income-tax Officer does not condone the delay under Section 184(7), proviso (ii), he would, nevertheless, have to pass an order under Section 185(3) declaring that the registration granted to the firm in any assessment year would have no effect for the relevant assessment year. In other words, mere condoning of the delay under Section 184(7), proviso (ii), would not by itself have the effect that the firm has been registered under the Act for that assessment year. The Income-tax Officer would have to go further and pass a specific order under Section 185(4); similarly, mere non-condoning of the delay by the Income-tax Officer under Section 184(7), proviso (ii) cannot absolve the Income-tax Officer from passing an order under Section 185(3). The Income-tax Officer will have to pass an order under Section 185(3) declaring that the registration granted to a firm in any assessment year would have no effect for the relevant assessment year, and this is exactly what has happened in this case. Having found that there was no convincing explanation by the assessee for the late filing of the declaration, the Income-tax Officer proceeded to pass the order refusing to allow continuation of the registration to the assessee-firm.

20. The Gujarat High Court in Commissioner of Income-tax v. Dineshchandra Industries : [1975]100ITR660(Guj) , by adopting somewhat the same reasoning, held that the Tribunal was right in holding that the appeal against the order refusing to condone the delay under Section 184(4) and consequently refusing registration was competent.

21. Mr. Anjaneyulu, appearing for the assessee-firm, has brought to our notice the judgment of the Supreme Court in Hukumchand and Mannalal & Co. v. Commissioner of Income-tax : [1966]60ITR99(SC) . In that case, the Income-tax Officer registered the firm under Section 26A of the Indian Income-tax Act, 1922, for the year 1950-51. That registration was renewed for the years 1951-52 and 1952-53. It was once again renewed on November 30, 1957, for the assessment year 1953-54. However, on March 6, 1959, the Income-tax Officer cancelled the registration under Rule 6B of the Income-tax Rules then in force on the ground that the firm was not a genuine one. In appeal, the Appellate Assistant Commissioner rejected it holding that no appeal lay against the order of the Income-taxOfficer cancelling the registration. The appeal filed by the assessee before the Income-tax Appellate Tribunal, Bombay, also was dismissed. The reference before the High Court of Madhya Pradesh : [1962]46ITR794(MP) was:

'Whether, on the facts and circumstances of this case, the order passed by the Income-tax Officer under Rule 6B of the Indian Income-tax Rules cancelling the certificate of renewal of registration granted to the assessee is appealable under Section 30 of the Income-tax Act ?'

The High Court of Madhya Pradesh held that no appeal lay to the Appellate Assistant Commissioner under Section 30 of the Indian Income-tax Act, 1922, against the order of the Income-tax Officer cancelling the registration.

22. After discussing the relevant provisions of the Indian Income-tax Act, 1922, it was observed by the Supreme Court : [1966]60ITR99(SC)

'The crucial point to be noticed is that the said three kinds of orders, having regard to the circumstances of each case, will be made only in the application for renewed registration. The rules do not provide for independent proceedings for the cancellation of the renewal certificate. In effect, the Income-tax Officer, after setting aside his earlier wrong order made under a misapprehension, refuses renewal of the certificate of registration. If so, it follows that the order cancelling registration is nothing more than refusing to renew the certificate of registration. If that be the construction of an order made cancelling the certificate renewed such an order directly attracts the appellate jurisdiction conferred on the Appellate Assistant Commissioner under Section 30 of the Act.'

The Supreme Court interpreted the words 'refusal to register a firm' in Section 30 of the Indian Income-tax Act, 1922, to include 'refusing to renew the registration and also cancelling the certificate so renewed'. We do not see why such an interpretation should not be applied to the order of the Income-tax Officer in the instant case. The Income-tax Officer, considering that the asses see-firm had not explained the delay in filing the declaration, had refused to allow continuation of the registration to the assessee-firm and, therefore, that also could be considered an order passed tinder Section 185(1)(b) of the Act.

23. Yet from another aspect, it is manifest from a reading of Section 185(3) of the Act that, where a declaration which is filed under Section 184(7) is found to be defective by the Income-tax Officer, he would call upon the assessee-firm to rectify the defect within a period of one month from the date of notice, and if that defect is not rectified within that period, the Income-tax Officer is empowered to declare that the registration granted to the firm would have no effect for the relevant assessment year.

24. Then arises the question as to whether a declaration filed beyond the period allowed would be considered to be a defective declaration. What is meant by 'defect' is answered in Webster's Dictionary to mean 'want or absence of something necessary for completeness, perfection, or adequacy in form or function'. It would, therefore, show that the delay in filing the declaration would make the declaration functionless because it is not a complete declaration. Similarly, the word 'defect' as given in the Concise Oxford Dictionary means, 'lack of something essential to completeness, shortcoming, failing'. It could safely be concluded that a declaration which is filed beyond the period allowed would be considered to be defective as it is functionless or it is not complete or falls short of something. Therefore, an Income-tax Officer by pointing out the functionless nature of the declaration or its incompleteness or the shortcomings therein, would call upon the assessee-firm to make the declaration perfect, and if the assessee-firm does not utilise this opportunity, the Income-tax Officer is empowered to declare that the registration granted to the firm for any assessment year shall not be effective for the relevant assessment year, in which case such an order would be an appealable order.

25. We are not prepared to subscribe to the view in Ashwani Kumar Maksudan Lal v. Additional Commissioner of Income-tax : [1972]83ITR854(All) . In that case the Income-tax Officer had passed the following order:

'The registration of the firm granted in the assessment year 1964-65 is not allowed to be continued for the assessment year 1965-66 and the firm is treated as unregistered for the purpose of tax.'

The Allahabad High Court observed that an appeal lay only against an order refusing to register the firm, and since under Section 184(7) all that the law required was a declaration that there was no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership, therefore, those considerations are not identical with the considerations under Section 185(1) of the Act. The Allahabad High Court thought that Section 185(1) applies only to a situation where the firm was being registered for the first time for an assessment year, and that an order under Section 184(7) applies to a situation where the effect of registration already granted is sought to be continued for the subsequent assessment year. Therefore, after discussing the provisions of Section 185(1) and Section 184(7) of the Act, the High Court held that Section 185(1) does not bring within its purview the provisions of Section 184(7) of the Act. Moreover, the Supreme Court case quoted above was not at all before the Allahabad High Court. Even so, we are of the opinion that Section 185(1)(b) of the Act brings within its purview not only an order in an application filed for the first time for registration but also cases where continuity of the previous registration is refused by the Income-tax Officer for subsequent years.

26. To our mind, the ruling in Sandersons & Morgans v. Income-tax Officer : [1973]87ITR270(Cal) has no relevancy to the case on hand because in that case the question was whether the death of a partner would mean a change in the constitution of a firm when the partnership deed specifically provided that the death or retirement of a partner shall not dissolve the partnership as between the other partners. It was held in those circumstances that the words 'change in the constitution of the firm' would include a case where one of the partners died in spite of the fact that the partnership deed provided that the death or retirement of a partner would not dissolve the partnership as between the other partners. It was only with reference to the jurisdiction of the Appellate Assistant Commissioner that it was observed that no appeal lay from an order under Section 184(4) and Section 184(7) of the Act.

27. Mr. Rama Rao brought to our notice the decision of the Madras High Court in Chandrasekaran v. Commissioner of Income-tax : [1974]96ITR711(Mad) to point out the meaning that was assigned to the word 'defect' in Section 185(2) and Section 185(3) of the Act. He submitted that the Madras High Court has held that the defects contemplated in Sub-sections (2) and (3) of Section 185 relate to formal defects when the application is filed in time and do not relate to the application being out of time. We have already referred to the meaning that should be given to the word 'defect' appearing in Section 185(2) and Section 185(3) of the Act. We hold that a declaration which has been filed beyond the period would be considered as a functionless declaration and, therefore, such a declaration would come within the ambit of the words ' defect' or 'not in order' as envisaged in Section 185(3) of the Act.

28. Finally, the ruling cited by Mr. Rama Rao in Commissioner of Income-tax v. Voleti Veerabhadra Rao : [1972]84ITR764(AP) does not decide the question under consideration. It only deals with the distinction between registration and continuation of registration.

29. Hence, in the ultimate analysis, we are of the opinion that looking at the question from the point of view of either Section 185(1)(b) or Section 185(3) of the Act, the order of the Income-tax Officer refusing 'to allow continuation of registration to the assessee-firm' tantamounts to refusing to register the firm and, therefore, comes within the ambit of Section 185(1)(b) of the Act and also since the declaration was defective and the assessee-firm had not rectified the defect within the time when called upon to do so, it would be considered an order under Section 185(3) and, therefore, such an order was appealable under Section 246(j) of the Act.

30. Hence, the reference is answered against the revenue with costs. Advocate's fee Rs. 250.


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