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Commissioner of Income-tax Vs. Nityanand Deokinandan - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 301 of 1977
Judge
Reported in(1981)21CTR(All)68; [1981]129ITR177(All); [1981]5TAXMAN262(All)
ActsIncome Tax Act, 1961 - Sections 184(7), 185, 185(1), 185(2), 185(4) and 263
AppellantCommissioner of Income-tax
RespondentNityanand Deokinandan
Appellant AdvocateR.K. Gulati, Adv.
Respondent AdvocateV.K. Rastogi, Adv.
Cases ReferredBadri Narain Kashi Prasad v. Addl.
Excerpt:
- - 11a filed by the assessee at the time of making the prayer for registration of the firm for the year 1967-68. the commissioner was not satisfied that the copy obtained from the bank and produced by the assessee before him was a copy of the document on the basis of which the firm had been registered for the year 1967-68, and concluded that its registration for the year 1967-68, as also the renewals in subsequent years, were granted on wrong assumptions and that treating the firm as continuing to be registered was prejudicial to the interests of the revenue. 9. section 185 of the act is entitled 'procedure on receipt of application 'sub-section (1) thereof lays down that on receipt of an application for the registration of the firm the ito shall inquire into the genuineness of the.....h.n. seth, j. 1. at the instance of the commissioner of income-tax, the income-tax appellate tribunal, allahabad, has in the case of the assessee, nityanand deokinandan, kanpur, for the assessment years 1972-73 and 1973-74, stated the case and referred the following questions for the opinion of this court:' 1. whether, on the facts and in the circumstances of the case, the tribunal was right in holding that since, strictly speaking, there are no orders passed under section 184(7) as such, the benefit of continuance of registration being granted year after year automatically on the fulfilment of certain conditions laid down in the said section, the commissioner of income-tax had no jurisdiction under section 263, income-tax act, to cancel the same? 2. whether, on the facts and in the.....
Judgment:

H.N. Seth, J.

1. At the instance of the Commissioner of Income-tax, the Income-tax Appellate Tribunal, Allahabad, has in the case of the assessee, Nityanand Deokinandan, Kanpur, for the assessment years 1972-73 and 1973-74, stated the case and referred the following questions for the opinion of this court:

' 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that since, strictly speaking, there are no orders passed Under Section 184(7) as such, the benefit of continuance of registration being granted year after year automatically on the fulfilment of certain conditions laid down in the said section, the Commissioner of Income-tax had no jurisdiction under Section 263, Income-tax Act, to cancel the same?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the renewal of registration could not be cancelled by the Commissioner of Income-tax by invoking the provisions of Section 263, Income-tax Act, on the ground that there is a difference in the profit-sharing ratio shown in Form No. 11A and those mentioned in the partnership deed, the shares in fact having been divided on the basis of the deed in the account books in the assessment year 1967-68, when registration was duly granted and the same was renewed year after year '

2. The statement of the case submitted by the Tribunal reveals that the assessee-firm was allowed registration under Section 185 of the I.T. Act for the assessment year 1967-68, and that thereafter it continued to be treated as a registered firm right up to the assessment year 1973-74. On perusal of assessment records the Commissioner found that when on November 3, 1966, the assessee submitted its application for registration for the year 1967-68, in Form No. 11 A, there was a discrepancy regarding the shares of different partners as mentioned in the partnership deed and the shares of partners as shown in the application for registration made in Form No. 11 A. In each of the years relevant to the assessment years 1967-68 to 1973-74, the account books of the assessee showed that the profits in the firm had not been distributed amongst its partners in accordance with the shares as mentioned in Form No. 11A. Being of the view that various orders passed by the ITO registering the firm for the assessment year 1967-68, and treating the registration as continuing for the subsequent years, were erroneous and prejudicial to the interests of the revenue, the Commissioner required the assessee to show cause why the registration granted to it under Section 184(7) of the I.T. Act for the assessment years 1972-73 and 1973-74 be not cancelled. No action was taken by the Commissioner in respect of the years prior to 1972-73, as the action taken by the ITO in respect of those years fell beyond the period of two years, period of limitation for the purpose, laid down in Section 263(2) of the I.T. Act (hereinafter referred to as 'the Act').

3. The assessee appeared before the Commissioner and showed cause. It maintained that throughout the profits had been divided amongst the partners in accordance with the shares as shown in the partnership deed on the basis of which the firm had been registered by the ITO for the year 1967-68 (original partnership deed not being available, a copy of the same was obtained by the assessee from the bank and was produced for the perusal of the Commissioner). It contended that there was a mistake in Form No. 11A filed by the assessee at the time of making the prayer for registration of the firm for the year 1967-68. The Commissioner was not satisfied that the copy obtained from the bank and produced by the assessee before him was a copy of the document on the basis of which the firm had been registered for the year 1967-68, and concluded that its registration for the year 1967-68, as also the renewals in subsequent years, were granted on wrong assumptions and that treating the firm as continuing to be registered was prejudicial to the interests of the revenue. The Commissioner accordingly exercised his powers under Section 263 of the Act and cancelled the renewal of registration granted to the assessee-firm for the assessment years 1972-73 and 1973-74 and directed the ITO to reframe the assessments for each of the two years in accordance with law.

4. Being aggrieved by the aforementioned order of the Commissioner, passed under Section 263 of the Act, the assessee went up in appeal before the Income-tax Appellate Tribunal.

5. Before the Tribunal the assessee contended that the Commissioner erred in holding that during the relevant years the assessee had divided the profits amongst its partners in a manner different from that shown in the partnership deed on the basis of which the firm had been registered for the assessment year 1967-68, and that the initial order passed by the ITO registering the firm and his treating the said registration as continuing to be effective for the years 1972-73 and 1973-74 were vitiated. The assessee also contended that for the assessment years 1972-73 and 1973-74, for which the registration of the firm had automatically been continued under Section 184(7) of the Act, there existed no such order by the ITO which could be revised by the Commissioner in exercise of his powers under Section 263 of the Act. The order passed by the Commissioner was, therefore, liable to be set aside.

6. Relying on the decision of a Division Bench of this court in the case of Ashwani Kumar Maksudan Lal v. Addl. CIT : [1972]83ITR854(All) , the Income-tax Appellate Tribunal held that according to Section 184(7) the registration of the firm was to remain effective for the years subsequent to the years 1967-68 automatically, provided the conditions laid down in the said section were fulfilled. The section does not contemplate the passing of an order either for renewal or continuance of the registration of the firm. Accordingly no such order in regard to the initial registration continuing to be effective in the subsequent years which could be revised by the Commissioner under Section 263 of the Act, came into existence and the impugned order passed by the Commissioner was liable to be set aside. Besides, on merits also, the Tribunal ruled that profits of the firm in the various years had been divided amongst its partners in accordance with the shares mentioned in the partnership deed on the basis of which the firm was granted registration for the assessment year 1967-68. In the circumstances neither its registration for that year nor its being continued to be treated as registered for subsequent years, could be said to be erroneous merely for the reason that there was a discrepancy in the shares of the partners as mentioned in the application made in Form No. 11A for the registration of the firm for the assessment year 1967-68. In the result, the Tribunal allowed the appeal and set aside the order made by the Commissioner directing that the firm be reassessed to tax for the assessment years 1972-73 and 1973-74 treating it as an unregistered firm.

7. Being aggrieved, the Commissioner approached the Tribunal and got the two questions mentioned in the beginning of this judgment, referred to this court for opinion.

8. Special provisions applicable to firms, its registration and continuance of such registration are contained in Chap. XVI of the I.T. Act, 1961. Part B of Chap. XVI, which contains Sections 184 to 186, deals with the subject-matter of registration of firms. Section 184(1) lays down that an application for the registration of a firm for the purposes of the Act can be made to the ITO on behalf of any firm if, (i) the partnership is evidenced by an instrument, and (ii) the individual shares of the partners are specified in that instrument. Various other sub-sections of Section 184 then specify the time, the authority before which and the form in which such application is to be filed. Sub-section (7) of Section 184 then lays down that where registration is granted to any firm for any assessment year it shall have effect for every subsequent 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, 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 years, a declaration to that effect, in the prescribed form and verified in the prescribed manner. Prima facie neither of the two conditions in. which the registration once granted continue to be effective in the subsequent years, viz., whether there has in fact been a change in the constitution of the firm for the year for which the continuance of registration is to be effective or whether the requisite declaration has been filed by the assessee within the time specified and in the manner prescribed, contemplate passing of an order by the ITO. Sub-section (8) of Section 184 lays down that where any such change in the constitution of the firm has taken place in the previous year, the firm shall apply for fresh registration for that year.

9. Section 185 of the Act is entitled ' Procedure on receipt of application '. Sub-section (1) thereof lays down that on receipt of an application for the registration of the firm the ITO shall inquire into the genuineness of the firm and its constitution as specified in the instrument of partnership, and (a) if he is satisfied that there 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) of Section 185 provides that where the ITO considers that the application for registration is not in order, he 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 and if the defect is not rectified within that period, the ITO shall by an order in writing reject the application. Like Sub-section (2), which is applicable in the case of an application for registration, Sub-section (3) of Section 185 lays down that where the ITO considers that the declaration furnished by a firm in pursuance of Sub-section (7) of Section 184 is not in order, he shall intimate the defect to the firm and give it an opportunity to rectify the defect in the declaration within a period of one month from the date of such intimation ; and if the defect is not rectified within that period the ITO, by an order in writing, declare that the registration granted to the firm shall not have effect in the relevant assessment years. Whereas Section 185(3) contemplates the making of an order for non-continuance of registration in a case where the declaration made is defective and the defect has not been removed, it does not contemplate the making of any order in a case where a declaration contemplated by the section has been properly filed.

10. Sub-section (4) of Section 185 runs thus ;

' Where a firm is registered for any assessment year, the Income-tax Officer shall record a certificate on the instrument of partnership or on the certified copy submitted in lieu of the original instrument, as the case may be, to the effect that the firm has been registered under this Act, for that assessment year ; and where a declaration under Sub-section (7) of Section 184 is furnished by the firm, for the relevant subsequent assessment year.'

11. This sub-section merely requires the ITO to append a certificate on the instrument of partnership or on the certified copy submitted in lieu of the original instrument, as the case may be, that the firm stands registered in the following two circumstances :

(1) where an order has been passed under Section 185(1)(a) directing registration of the firm for a particular assessment year ; and

(2) where a declaration contemplated by Sub-section (7) of Section 184 has been furnished by the firm for the relevant subsequent assessment year.

12. Sub-section (4) clearly distinguishes between the making of an order under Section 185(1)(a) registering the firm for a particular assessment year and the furnishing of a declaration under Sub-section (7) of Section 184 for the subsequent years. It indicates that the Legislature did not equate the furnishing of a declaration under Sub-section (7) of Section 184 with an application for registration which is made under Section 185(1) of the Act. Whereas in the case of registration of the firm the ITO is required to append on the partnership deed the requisite certificate after making an order for its registration under Section 185(1)(a) of the Act, the certificate regarding contiuuance of registration for subsequent assessment years is to be appended by the ITO as and when a declaration under Section 184(7) of the Act is furnished by the assessee. The sub-section contemplates that as soon as the required declaration is furnished in proper form and which is not defective, the ITO shall, without anything more, proceed to endorse on the relevant document that the firm stands registered for the subsequent assessment year as well, that is, the registration granted in the earlier year enures for that year as well. In the case of an application for registration of a firm for a particular year the ITO has to first of all see whether the application is defective or not and whether it is in order. If he finds that the application is defective he has to afford an opportunity to the assessee under Sub-section (2) of Section 185 to remove that defect and where the application is either not defective or after the defect has, as provided in Sub-section (2), been removed, the ITO has to make a further inquiry and has to satisfy himself that there is or was during the previous year in existence a genuine firm with the constitution so specified and it is only on obtaining such satisfaction that he is under Section 185(1)(a) of the Act required to make an order in writing registering the firm for the relevant assessment year. After such an order is made, Sub-section (4) of Section 185 lays down an additional requirement that the ITO shall record a certificate on the instrument of partnership or on the certified copy submitted in lieu of the original instrument to the effect that the firm has been registered for that assessment year. We do not find any requirement for making an enquiry like that provided in Sub-section (1) of Section 185, before the ITO is, under Section 185(4), required to make the endorsement on the partnership deed about the continuance of registration on the basis of the declaration made under Section 184(7) of the Act. In the circumstances, it cannot be said that the making of an endorsement on the partnership deed, in consequence of an order made on an application under Section 185(1), amounts to an order directing the registration of the firm. Such endorsement is in a case where an application for registration is made under Section 185(1) and registration is granted, merely intended to serve as convenient evidence to show that an order for registration of the firm has already been made. Similarly, in a case where a similar endorsement is made on the basis of the declaration made under Section 184(7) the endorsement cannot be equated with an order passed by the ITO and it likewise merely goes to indicate that the necessary declaration for the purpose had been made by the assessee. As explained above, the ITO under Section 185(4) is required to append a certificate on the document in question that the firm stands registered for subsequent assessment year the moment the assessee gives a declaration in a proper form that there has been no change in the constitution of the firm or in the shares of the partners as evidenced by the instrument of partnership on the basis of which the firm had been registered in the earlier year. This section, like Sub-section (1) of Section 185, does not contemplate any inquiry being made about the existence of a genuine firm or on the question whether there has in fact been a change in the constitution of the firm, before the ITO complies with the mandate contained in Sub-section (4) of Section 185 for appending the certificate that the firm is registered for the subsequent assessment year as well. There is nothing in Sub-section (4) of Section 185 to indicate that the certificate given by the ITO, merely on the basis of a declaration made by the assessee under Sub-section (7) of Section 184, conclusively establishes that the first condition for continuance of registration provided in Sub-section (7) of s, 184, namely, that there has been 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 registration was granted factually exists. It will be for the ITO, while making the assessment, to determine whether the firm is on the basis of the registration granted in the earlier year entitled to be assessed as a registered firm or not for the subsequent assessment year as well for the reason that there has in fact not been any change in the constitution of the firm or in the shares of the partners as evidenced by the partnership deed on the basis of which the firm had been registered.

13. We are accordingly of opinion that in a case where the assessee claims that the registration granted to it for the earlier years had continued to be operative for the subsequent years on the basis of the relevant declaration made by it, as contemplated by Sub-section (7) of Section 184, the Act does not contemplate the making of any order by the ITO which can be revised by the Commissioner under Section 263 of the Act.

14. We may at this stage refer to certain decisions which were cited at the Bar.

15. In the case of Ashwani Kumar Maksudan Lal v. Addl. CIT : [1972]83ITR854(All) , to which decision one of us was a party, the ITO found that the declaration made, with the object of making the registration of the firm for the assessment year 1964-65 effective for the year 1965-66 as well, was not in order. He accordingly made an order directing that the registration of the firm granted in the assessment year 1964-65 was not allowed to be continued for the assessment year 1965-66 and that the firm was for purposes of the I.T. Act to be treated as unregistered. The question that arose for consideration was whether the order made by the ITO was, treating it to be an order refusing to register the firm under Clause (h) of Sub-section (1) of Section 185, appealable under Section 246(g) of the I.T. Act, while dealing with the question as to whether an order concerning a declaration made under Section 184(7) with a view to have the effect of registration granted in the earlier year continued in the subsequent year fell within the ambit of Sub-section (1) of Section 185, this court made the following observations (p. 856):

' When regard is so had to Section 185(1)(b), it is clear that the order contemplated by that provision is an order on the application for registration of a firm. The Income-tax Officer is called upon to consider whether during the previous year there was a genuine firm in existence and whether the firm had the constitution specified in the instrument of partnership. Under Section 184(7), on the other hand, all that the law requires is a declaration that there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership. The considerations under Section 185(1) are not identical with those under section 184(7). The first relate to a situation where the firm is being registered for the first time for an assessment year and the latter to a situation where the effect of registration already granted is sought to be continued for a subsequent assessment year. Then, it is plain that when registration is granted for the first time, the law requires an express order granting registration. But when the effect of such registration is sought for a subsequent assessment year, no such order is contemplated. Section 184(7), by its very operation, continues that effect provided the conditions mentioned therein are fulfilled. If there is no change in the constitution of the firm or the shares of the partners, and a declaration to that effect is furnished, the benefit of registration is continued for the subsequent assessment year. All that is contemplated is that the Income-tax Officer should record a certificate on the instrument of partnership or on the certified copy submitted in lieu thereof to the effect that the firm has been registered for the relevant assessment year. That is Section 185(4). No appeal has been provided against a refusal by the Income-tax Officer to record such certificate.'

16. The views1 expressed by us above is fully in consonance with the aforementioned observation made in Ashwani Kumar Maksudan Lal's case : [1972]83ITR854(All) , which we fully endorse.

17. Learned counsel for the revenue, however, contended that inasmuch as this court in the subsequent portion of the judgment in Ashwani Kumar Maksudan Lal's case : [1972]83ITR854(All) held that the order in that case was revisable by the Commissioner, it should be held that the continuance of registration as a result of a declaration being made by the assessee also results in an order which can be revised by the Commissioner. We fail to appreciate the logic behind this submission. As explained earlier, in a case where the ITO finds a declaration, contemplated by Section 184(7), to be defective and that defect has not been removed within the specified time, Sub-section (3) of Section 185, in so many words, requires the ITO to make an order in writing declaring that the registration granted to the firm shall not have effect for the relevant assessment year. Such an order treating the firm as not registered in the subsequent year may thus be a revisable one. But then it does not follow that where a certificate as required by Sub-section (4) of Section 185 is appended on the basis of a declaration made under Section 184(7) that also results in an order. We have already explained why we think that the Act does not contemplate the coming into existence of an order in such a case. Ashwani Kumar Maksudan Lal's case : [1972]83ITR854(All) , referred to above, was not a case where the ITO had acted upon a declaration made under Section 184(7) of the Act and the question whether; the making of an endorsement by the ITO in consequence of a declaration made by the assessee, that the firm stands registered for the subsequent year involved the passing of an order which could be made the subject-matter of revision tinder Section 263 of the Act, did not arise for consideration.

18. In the case of Sank Lal Kashmiri Lal v. CIT : [1972]86ITR76(Delhi) , a declaration made in Form No. 12 with a view to make the registration of a firm effective in a subsequent year was found to be defective. The ITO, without affording an opportunity to the firm to rectify the defect, made an order that as the declaration was incorrect the firm could not be treated as registered for the subsequent years. The question that arose before the Delhi High Court was whether such an order made by the ITO was appealable under Section 246(g) of the Act. It was an order of the nature similar to that involved in Ashwani Kumar Maksudan Lal's case : [1972]83ITR854(All) before the Allahabad High Court. Such an order obviously fell within the purview of Section 185(3) of the Act. The question whether automatic continuance of registration as a result of a declaration made by an assessee that there has been no change in the constitution of the firm or in the shares of the partners as evidenced by the instrument of partnership on the basis of which registration had been granted earlier, involved the making of a revisable order or not had not been raised before the Delhi High Court. It is true that the Delhi High Court took a view different from that expressed by this court in Ashwani Kumar Maksudan Lal's case : [1972]83ITR854(All) inasmuch as it held that an order made under Section 185(3) partook the nature of an order made under Section 185(1)(b) of the Act and was as such appealable under Section 246, but then this decision cannot, in our opinion, be called in aid for supporting the submission that an automatic continuance of registration, as a result of the declaration made under Section 184(7), also involves the making of an order.

19. In CIT v. Dinesh Chandra Industries : [1975]100ITR660(Guj) , the question that arose for consideration before the Gujarat High Court was as to whether an appeal lay against an order refusing to condone the delay in making an application under Section 184(4) for the registration of a firm. The Gujarat High Court held that such an order was not appealable. The controversy raised in this case did not touch the controversy with which we are concerned in this case.

20. In the case of Addl. CIT v. Chekka Ayyanna [1997] 106 ITR 313 the Andhra Pradesh High Court ruled that Section 185(1)(b) of the I.T. Act, 1961, covers not only the applications filed for the first time for the registration of a firm but also cases where the continuity of previous registration is denied in respect of subsequent years. Further, where the declaration made for the purpose is found to be defective and the assessee does not rectify the same within the time allowed, any order made by the ITO would be one made under Section 185(1)(b) and would be appealable under Section 246(j) either from the view-point of Section 185(1)(b) or Section 185(3) of the Act. It held that inasmuch as an order passed by an ITO under Section 184(7) refusing to allow the continuation of registration to a firm results in refusing to grant registration it would be appealable to the AAC under Section 246(j) of the Act. This decision is in line with the decision of the Delhi High Court in the case of Sant Lal Kashmiri Lal v. CIT : [1972]86ITR76(Delhi) and for the reasons already stated by us it has no bearing on the question as to whether the automatic continuation of registration under Section 184(7) in consequence of a declaration made with regard to there being no change in the constitution of the firm or the shares of the partners as evidenced in the instrument of partnership on the basis of which the registration was granted involves the passing of an order which could be revised under Section 263 of the Act. We, however, find that while dealing with the scheme underlying Section 184(7) and Section 185(4) the Andhra Pradesh High Court at page 319 made the following observation :

' 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.'

21. We are, however, for the reasons already stated, unable to accept that ascribing of the certificate under Section 185(4) of the Act that the firm stands registered for the subsequent years, results in an order.

22. Learned counsel for the revenue strongly relied upon a decision of this court in Badri Narain Kashi Prasad v. Addl. CIT : [1981]128ITR663(All) , wherein the firm in question was constituted on April 8, 1960, It was registered under Section 185(1) for the first time in respect of the assessment year 1961-62. Thereafter, its registration was continued up to and in respect of the assessment year 1969-70. The ITO purported to make the orders registering the firm for assessment years 1968-69 and 1969-70 while making the assessment orders for those years. The Commissioner was of opinion that the registration of the firm for the years 1965-66 onwards was erroneous and prejudicial to the interests of revenue. However, as the period in respect of the assessment years 1965-66 to 1967-68 fell beyond the period of limitation prescribed for exercising the power under Section 263(1) of the Act, the Commissioner issued notices under Section 263(3) to the assessee to show cause why its registration for the years 1968-69 and 1969-70 be not cancelled. Eventually, the Commissioner by his order dated February 25, 1971, cancelled the registration of the firm for those two years. Being aggrieved, the assessee took the matter in appeal before the Tribunal. It was contended on behalf of the assessee that the order granting registration being part of the assessment order itself which was appealable, the Commissioner had no jurisdiction to set it aside under Section 263 of the Act. The Tribunal repelled the plea raised by the assessee and held that the order passed by the Commissioner was, in the circumstances, apt. The assessee then got the following two questions of law referred for the opinion of this court:

' 1. Whether, on the facts and in the circumstances of the case, that part of the order of the Income-tax Officer by which he allowed continuation of registration to the assessee-firm for the assessment years 1968-69 and 1969-70 merged in the order of the Appellate Assistant Commissioner and

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Commissioner had jurisdiction to cancel the order of the Income-tax Officer granting continuation of registration to the assessee-firm for the assessment years 1968-69 and 1969-70 as the same was erroneous in law in so far as they were prejudicial to the interests of the State '

23. This court held that the assessment order computes the taxable income. The order granting registration changes the method of determining the taxable income. The two are independent and separate orders determining entirely different subject-matters. The appeal against the assessment order does not take within its purview the order granting registration. Accordingly, that part of the order of the ITO by which he allowed the continuation of registration to the assessee-firm for the assessment years in question did not merge in the order of the AAC passed in the appeal filed by the assessee against the order of assessment and that if an error is committed by the ITO it would result in a diminution in the quantum of tax payable by the assessee. It would clearly be a case of an order being prejudicial to the interests of the revenue. In the result the court answered both the questions referred to it in favour of the department and against the assessee. According to Sri Gulati, learned counsel appearing for the revenue, this decision postulates that the continuation of the registration of a firm in subsequent years as contemplated by Section 184(7) of the Act involves the making of an order for such continuation. In the circumstances, it cannot be said that there being no order, the Commissioner cannot act under Section 263 of the I.T. Act.

24. We find that in Badri Narain Kashi Prasad's case : [1981]128ITR663(All) this court proceeded to answer the questions referred to it on the assumption that there existed an order by the ITO for the continuation of the registration of the firm and that such an order stood on the same footing as an order made under Section 185(1) for the registration of the firm. It was on this basis that the court observed that the order granting registration though physically contained in the assessment order itself does not form part of the assessment order and as such it does not merge in the appellate order. According to it, it continues to retain its independent and separate identity. It further answered the second question referred to it by observing that the Commissioner had jurisdiction to cancel the order of the ITO granting continuation of registration to the asses-see-firm as the same was erroneous in law and was also prejudicial to the interest of revenue. The question whether the continuation of registration under Section 184(7) of the Act on the basis of a declaration made by the assessee, implies the making of an order was neither involved in the two questions referred to this court for opinion nor was it raised or argued before it. This court neither went into that question nor did it express any opinion on it. As stated above, it proceeded on the assumption that the continuation of registration of the firm envisaged the making of an order by the ITO. In these circumstances, we are unable to read the aforementioned decision as laying down a proposition contrary to the conclusion arrived at by us in this judgment.

25. In the case of Addl. CIT v. Murlidhar Mathura Prasad : [1979]118ITR392(All) , a Division Bench of this court, one of the members of which happened to be a party to the decision in the case of Badri Narain Kashi Prasad v. Addl. CIT : [1981]128ITR663(All) referred to above, observed thus (p. 395):

' The essence of Section 184(7) is that once registration has been granted to a firm, it is to have effect for every subsequent year, in case there has been no change in the constitution of the firm or in the shares of its partners. The other requirements are merely to evidence this fact. The requirement that the firm shall furnish a declaration in Form No. 12 is merely to prove the facts in a particular way. The requirement that the declaration shall be filed along with the return of income is not of the substance or the essence. It is a procedural requirement.

The legislative intent appears to be that while dealing with the assessment of a firm the ITO should have clear-cut evidence that the essential fact that there has been no change in the constitution of the firm or in the shares of the partners has been proved satisfactorily in the required manner. The procedural requirements hence are to be treated as directory. If there is some defect in the declaration form, the assessee is to be given an opportunity for rectifying it (see Section 185(2)). It cannot be ignored or rejected straightaway. Similarly, the requirement that the declaration should be filed along with the return of income is directory, because the ITO is enabled to assess the firm provided the return is filed up to the time he makes the assessment.'

26. These observations made by the learned judges appear to us to be in consonance with the view which we are taking, viz., that continuation of registration for subsequent years on the basis of a declaration that the firm in question has not undergone any change in its constitution or in the shares of the partners as evidenced by the instrument of partnership on the basis of which it was registered, does not require the passing of any order and the firm continues to be registered, if factually there has been no such change in the constitution and a declaration to that effect has been filed by the assessee.

27. In the result, we answer the first question referred to us in the affirmative and in favour of the assessee. In view of our answer to the first question, it is not necessary for us to answer the second question which becomes academic. We, accordingly, return the second question unanswered. The assessee will be entitled to receive the costs of this reference from the Commissioner which are assessed at Rs. 250.


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