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Kanhaiya Lal Moti Lal Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Miscellaneous Case No. 265 of 1963
Judge
Reported in[1969]72ITR507(All)
ActsIncome Tax Act, 1922 - Sections 26A; Income Tax Rules, 1922 - Rules 2, 3, 4 and 6; Income Tax Act, 1961 - Sections 185(2)
AppellantKanhaiya Lal Moti Lal
RespondentCommissioner of Income-tax
Appellant AdvocateS.B.S. Srivastava and ;P.N. Pachauri, Advs.
Respondent AdvocateShanti Bhushan, Adv.
Excerpt:
.....pass an order in writing refusing to recognise the instrument of partnership .5. rule 6 ran thus :any firm to whom a certificate of registration has been granted under rule 4 may apply to the income-tax officer to have the certificate of registration renewed for a subsequent year .6. another form for application for renewal of registration was prescribed in rule 6. 7. on comparing the two forms given in rules 3 and 6, we find much similarity. under these circumstances, the assessee may well be excused if it applied for renewal of registration instead of registration as such......referred to in rule 2 shall be made in the form annexed to rule 3. a form was prescribed in rule 3. rule 4 ran thus: '(1) if, on receipt of the application referred to in rule 3, the income-tax officer is satisfied that there is or was a firm in existence constituted as shown in the instrument of partnership and that the application has been properly made, he shall enter in writing, at the foot of the instrument or certified copy .... a certificate .... and this certificate of registration shall have effect for the assessment for the year .... (2) if the income-tax officer is not so satisfied, he shall pass an order in writing refusing to recognise the instrument of partnership . . . .' 5. rule 6 ran thus : 'any firm to whom a certificate of registration has been granted under.....
Judgment:

V.G. Oak, C.J.

1. Messrs. Kanhaiya Lal Moti Lal, Banaras, was a Hindu undivided family. In connection with the assessment for 1946-47 it was claimed that there was a complete partition of the Hindu undivided family with effect from September 26, 1944. It was further claimed that the business was thereafter continued as partnership business by members of the erstwhile family. An application for registration of the firm was filed along with the deed of partnership dated September 26, 1944. The application for registration in the year 1946-47 remained pending for several years. The application was ultimately dismissed on March 15.19.51. In the meanwhile, the firm filed two applications for renewal of registration for the assessment years 1947-48 and 1948-49. The two applications for renewal of registration were filed on December 9, 1947, and July 12, 1948, respectively. Both the applications for renewal of registration were dismissed by the Income-tax Officer on various grounds. The decision of the Income-tax Officer was upheld in appeal by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. The Tribunal based its decision on the short ground that applications for renewal were not maintainable in view of the fact that the firm had never been registered. The assessee raised the contention that the Tribunal was not justified in dismissing the application for registration on the short ground that the firm had never been registered. As directed by this court, the Income-tax Appellate Tribunal, Allahabad, has referred the following question to this court:

'Whether, on the facts and in the circumstances of the case, when no orders were passed on the application of the assessee filed under Section 26A of the Income-tax Act in the assessment year 1946-47, an application other than for renewal of registration could be filed in law and whether the Tribunal was justified in dismissing the appeal of the applicant on that ground ?'

2. For answering this question, it is necessary to peruse the relevantprovisions in the statute and the rules. The present case is governed bythe Indian Income-tax Act, 1922 (hereafter referred to as the Act). Section 26A of the Act laid down the procedure for registration of firms.Section 26A stated:

'(1) Application may be made to the Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax.

(2) The application shall be made by such person or persons, and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed; and it shall be dealt with by the Income-tax Officer in such manner, as may be prescribed.'

3. It has to be noted that Section 26A refers to registration of firms. There is no separate mention of renewal of registration. Presumably, registration in the first instance and renewal of registration are both governed by Section 26A.

4. Rules framed under the Act were amended in 1952. We are concerned with the rules before the amendment of 1952. Rule 2 dealt with applications for registration. Rule 3 laid down that the application referred to in Rule 2 shall be made in the form annexed to Rule 3. A form was prescribed in Rule 3. Rule 4 ran thus:

'(1) If, on receipt of the application referred to in Rule 3, the Income-tax Officer is satisfied that there is or was a firm in existence constituted as shown in the instrument of partnership and that the application has been properly made, he shall enter in writing, at the foot of the instrument or certified copy .... a certificate .... and this certificate of registration shall have effect for the assessment for the year ....

(2) If the Income-tax Officer is not so satisfied, he shall pass an order in writing refusing to recognise the instrument of partnership . . . .'

5. Rule 6 ran thus :

'Any firm to whom a certificate of registration has been granted under Rule 4 may apply to the Income-tax Officer to have the certificate of registration renewed for a subsequent year .....'

6. Another form for application for renewal of registration was prescribed in Rule 6.

7. On comparing the two forms given in Rules 3 and 6, we find much similarity. There was one important difference. Under the form given in Rule 3, it was obligatory to attach the original instrument of partnership Or a certified copy of it to the application for registration. In the form under Rule 6 it was sufficient to refer to the previous order for registration. The applicant had to certify that the constitution of the firm remained unaltered.

8. Mr. Shanti Bhushan, appearing for the department, points out that in the present case the applications by the assessee were not accompanied by the original instrument of partnership or certified copies of the instrument as. required by the form given in Rule 3. But we may point out that all the time the original application for registration was pending before the Income-tax Officer; and the deed of partnership had been filed by the assessee with the application for registration.

9. It is, to be noted that the original application in the instant case remained undisposed of till the year 1951. When the firm applied for registration in the years 1947 and 1948, there was no order for registration in its favour. The question arises whether, under these circumstances, the application for renewal was competent.

10. In Bela Singh Daulat Singh v. Commissioner of Income-tax, [1966] 62 I.T.R. 250 it was held by this court that, so long as no certificate of registration has been granted to a firm, it cannot apply for renewal even if a prior application for a certificate of registration is pending-before the Income-tax Officer.

11. The situation in the instant case was similar. When the assesseeapplied for renewal of registration in the years 1947 and 1948, thereexisted no order for registration in favour of the firm. Mr. Shanti Bhushanis right in his contention that it was not proper for the assessee to move anapplication for renewal at that stage. The next question for consideration is whether the defect noticed bythe Tribunal was fatal. In Rao Bahadur Ravulu Subba Rao v. Commissionerof Income-tax, [1956] 30 I.T.R. 163: [1956] S.C.R. 577 it was held by the Supreme Court that the intention of theIndian Income-tax Act, 1922, is that a firm should be given the benefit of Section 23(5)(a) only if it is registered under Section 26A in accordance withthe conditions laid down In that section and the rules framed thereunder.As those rules require the application to be signed by the partner inperson, the signature by an agent on his behalf is invalid.In R.C. Mitter and Sons v. Commissioner of Income-tax, [1959] 36 I.T.R 194; [1959] Supp. 2 S.C.R. 641 the SupremeCourt laid down on page 198 certain conditions that have to be fulfilled inorder that a firm may be held entitled to registration; Condition No. 2mentioned there is that an application on behalf of, and signed by, all thepartners, containing all the particulars as set out in the Rules, has beenmade.

12. Section 185 of the income-tax Act, 1961, lays down the procedure for the disposal of an application for registration. Sub section (2) of Section 185 of the Income-tax Act, 1961, states:

'The Income-tax Officer shall not reject an application for registration merely on the ground that the application is not in order, but shall intimate the defect to the firm and give it an opportunity to rectify the 'defect in the application within a period of one month from the date of such intimation.'

13. It is true that Section 185(2) of the Income-tax Act, 1961, does not; in terms, apply to cases governed by the Indian Income-tax Act, 1922. But Section 185(2) of the new. Act recognises the broad principle that the Income-tax Officer has to consider the substance of the application, andmust not attach undue importance to the form of the application. That broad principle is applicable to cases governed by the old Act also.

14. Annexure E to the statement of the case is a copy of the order of the Appellate Assistant Commissioner. He observed :

'Though it is often done it is not mandatory on the part of the Income-tax Officer to point out the irregularities in the application.'

15. That observation indicates that, in practice, the Income-tax Officers do not attach much weight to such defects in form.

16. In the present case, the defect in the application was this: The assessee applied for renewal of registration, whereas the proper thing to do was to apply for registration. On examining the scheme of the Act and the rules, there is not much difference between registration and renewal of registration. In each case the authorities recognise that the firm if genuine, has a recognised constitution, and is entitled to certain benefits under the Act. It, therefore, makes little difference whether an application is described as an application for registration or as an application for renewal Of registration. In the present case, the assessee had applied for registration for the assessment year 1946-47. That application remained pending for several years. Under these circumstances, the assessee may well be excused if it applied for renewal of registration instead of registration as such. This defect in form should not have been treated by the Tribunal as fatal. The Income-tax Officer gave three different reasons for rejecting the assessee's applications for renewal of registration. Out of those three reasons, the Tribunal selected one reason only. The reason was that the application for renewal was irregular. Whether an irregularity is curable or not depends upon the nature of the irregularity. As explained above, the irregularity, committed by the assessee in the instant case was one of form, and not of substance. Under these circumstances, the Tribunal was not justified in dismissing the appeal merely because the assessee applied for renewal of registration.

17. Our answer to the question referred to this court is this : An application other than an application for renewal of registration could be filedin law. The Tribunal was not justified in dismissing the appeal of theapplicant on the short ground that the two applications were for renewalof registration. Parties shall bear their own costs in this reference.


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