1. The Income-tax Appellate Tribunal, Delhi Bench 'D', has referred the following question for the opinion of this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the order of the Income-tax Officer assessing the firm as registered was prejudicial to the interest of the revenue merely because one of the partners signed on behalf of the other partners under specific authority and no opportunity having been given to remove the defects, if any, when admittedly the Income-tax Officer had knowledge of the fact prior to the assessment ?'
2. The assessee-firm consisted of four partners, namely, Brij Rattan Lal, Bhoop Kishore, Ram Swamp and Jado Saran. The firm was initially registered under Section 185(1) of the I.T. Act (hereinafter referred to as 'the Act') for the assessment year 1964-65. The constitution of the firm remained unchanged till the assessment year 1968-69 to which this reference relates. For the assessment year 1968-69, the relevant previous year ended on March 31, 1968, but the firm was dissolved on January 31, 1968, under a deed of dissolution duly executed by the four partners. The firm filed its return of income for the assessment year 1968-69 along with Form No. 12 as required by Section 184(7) of the Act. The assessment proceedings were completed by the ITO on March 29, 1969. Before the completion of the assessment the ITO was informed through a letter by Sri Jado Saran that he had not personally signed Form No. 12 for the assessment year 1968-69, but the letter was not put up before the ITO at the time of completing the assessment. Acting on the information contained in the letter the ITO issued summons to Sri Jado Saran to appear before him. Sri Jado Saran personally attended and filed written submissions to the effect that there had arisen some misunderstanding between him and the other partners of the firm which prompted him to send the aforesaid complaint. His statement on oath was also recorded, wherein he stated, that he had gone to Alwar and had asked his partner, Sri Bhoop Kishore, to sign the declaration under Section 184(7) on his behalf and that it was with a view to bring pressure on the other partners that he had sent the complaint.
3. The Commissioner in exercise of powers under Section 263 of the Act, after notice to the assessee, cancelled the registration allowed by the ITO and directed that tax on the firm and the partners may be calculated afresh treating the firm as an unregistered firm. The assessee preferred an appeal against the order of the Commissioner. The Tribunal upheld the view taken by the Commissioner.
4. There is no dispute about the facts of the case. The application for renewal of registration was not personally signed by Jado Saran. He had, however, authorised his partner, Bhoop Kishore, to sign on his behalf. The ITO obviously felt satisfied about the genuineness of the firm and its constitution as specified in the instrument of partnership and, consequently, allowed renewal of registration.
5. Rule 24 of the I.T. Rules prescribes that the declaration to be furnished under Sub-section (7) of Section 184 shall be in Form No. 12 and shall be verified in the maner concerned in accordance with Sub-rule (5) of Rule 22. Sub-rule (5) of Rule 22 prescribed that the application shall be signed personally by all the partners (not being minors) in the firm as constituted at the date of the application. On the admitted facts, the application was not signed by one of the partners personally which rendered the application defective.
6. Sub-section (3) of Section 185 provides 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 shall, by order in writing, declare that the registration granted to the firm shall not have effect for the relevant assessment year. In the present case, when the defect in the application was brought to the notice of the ITO, he summoned Jado Saran and examined him on oath and felt satisfied with the explanation furnished. He, however, did not call upon the firm to rectify the defect since he did not entertain any doubt about the genuineness of the firm and its constitution. Section 26A of the 1922 Act did not contain any provision similar to the provisions contained in Sub-sections (2) and (3) of Section 185 of the present Act. The intention of the Legislature appears to be that registration to a firm should not be refused on account of defects which may be cured and the law now enjoins that an opportunity should be afforded to the assessee-firm to remove the defect, if any, and not to reject the application for registration without affording an opportunity to the assessee.
7. The question is whether the infirmity in the application in the present case was a defect which ought to have been allowed to be rectified by affording an opportunity to the assessee. Since the application was not personally signed by one of the partners of the firm, it could be treated to have been signed only by three of the partners constituting the firm. Suppose the application had initially been signed by only three partners, in such a case, the ITO was bound to afford an opportunity to the firm to have the application signed by the fourth partner also and the registration could not be refused without affording the assessee such an opportunity. The application could not be treated as non est in law.
8. We may now examine the cases having a bearing on the point. In Sant Lal Kashmiri Lal v. CIT : 86ITR76(Delhi) , one of the partners in a firm, which had been registered under the Act, died during the assessment year 1962-63. In the return of income for that year the names of all the partners including the deceased partner was shown. In col. 3 of Pt. III(b) of the return the shares of all the partners up to the date of death of the deceased partner and the shares of the remaining partners for the remaining period after the date of death were separately shown. In the declaration in Form No. 12 signed by the remaining partners the date of dissolution was not filled in. The fact that one of the partners had died and the remaining partners constituted a fresh partnership was brought to the notice of the ITO subsequently. The ITO, without giving any opportunity to the firm to rectify the defect, passed an order holding that the declaration was false and incorrect because it had been declared therein that there had been no change in the constitution of the firm or in the shares of the partners and though there had been a change in the constitution of the firm no application for registration had been made on the basis of the new partnership and, consequently, held that no registration or continuation of registration could be granted for the assessment year 1962-63. Against the above order the assessee went up in appeal before the AAC. One of the questions was whether the appeal was competent. The AAC treating the order as one under Sub-section (1) of Section 185 accepted the appeal. The order of the ITO was set aside and he was directed to proceed afresh in accordance with law. On appeal by the ITO, the Tribunal took the view that the order made by the ITO was under Section 184(7) and not one under Section 186(1). The Tribunal also held that the AAC was in error in holding that it was incumbent on the ITO to give the assessee a reasonable opportunity of being heard before he passed the order and since no appeal lay against an order passed by the ITO under Section 184(7), the order of the AAC was set aside and that of the ITO restored. The High Court held that an appeal lay to the AAC from the impugned order. It was also observed that the ITO committed an error in not affording an opportunity to the assessee to rectify the defect.
9. The Patna High Court in Alankar Jewellers v. CIT : 116ITR89(Patna) took the view that the defect may be either in the application for registration or in the documents which accompany the application. In either case it is mandatory on the part of the ITO to intimate the firm to rectify the defect in the application for grant of registration and an opportunity should be given to the firm to rectify such defect. Dealing with the 1922 Act, it was observed that under Section 26A of that Act, the ITO would have been justified in refusing to grant registration if the application for registration was not accompanied by the original or a certified copy of the partnership deed but the position is different under the Act of 1961, because refusal to grant registration should be an exception under the Act of 1961, and it is for this reason that the Legislature has engrafted Section 185(2) in the 1961 Act. We respectfully agree with the view that an application for registration cannot be rejected simply because it is not in order. The Act enjoins that an assessee should be given an opportunity to rectify the defect in the application; If the application was not personally signed by one of the members, the ITO ought to have afforded an opportunity to the assessee-firm to rectify the defect. The same view was taken by that court in Ganga Motor Service v. CIT : 106ITR132(Patna) .
10. Learned counsel for the revenue relied on the decision of the Supreme Court in Rao Bahadur Ravulu Subba Rao v. CIT : 30ITR163(SC) . That was a case under the Act of 1922, The principle laid down in that case would not apply to a case under the present Act, where the Legislature has expressly laid down that an opportunity should be afforded to the assessee to rectify the defect in the application.
11. In the result, the question referred is answered in the negative, against the department and in favour of the assessee. No order as to costs.