1. This is a departmental appeal challenging the order of the Commissioner (Appeals), directing the ITO to grant registration to the assessee-firm.
2. The facts bearing on the controversy are in a narrow compass and may be noted. The assessee-firm consisted of five partners named below as per partnership deed dated 31-5-1975 : The accounting year of the firm, constituted as above, was calendar year. The above deed continued to be in existence up to 27-1-1976. The period from 1-1-1975 to 27-1-1976 thus came to be governed by the above deed. On 28-1-1976, five partners mentioned above agreed to admit two more partners named as below : 3. Clause 1 of this partnership deed 'superseded' the partnership deed dated 31-5-1975 and as per Clause 2, it was provided that "all the terms and conditions of this deed shall be deemed to have come into operation from 1-1-1976,...". Clause 7 provided that the net profit and loss of the firm will be determined from year to year in the usual commercial manner and as per Clause 8, it was provided that the accounting year of the firm shall be English calendar year.
4. On 24-5-1976, the aforesaid seven partners agreed to admit one more partner, viz., Smt. Maina Devi Barjatya and, accordingly, a fresh deed of partnership was entered into on that date. In the preamble of the said deed of partnership, it was mentioned that the partnership deed dated 28-1-1976, was governing the aforesaid firm hitherto and that same had been registered with the Sub-Registrar at Gauhati on 14-5-1976 and that 'now it has been further decided' by the existing seven partners to expand the partnership by taking into partnership Smt.
Maina Devi Barjatya as eighth partner. Clause 1 of the deed, stipulated as follows: This deed supersedes, the partnership deed dated 28-1-1976, executed between the parties hereto of the first to seventh part in respect of the business run in the name and style of 'Nanak Singh Sujansingh Sadana Textiles' and the relationship of all the parties hereto with regard to the said business shall be governed by the terms of this deed'. By Clause 2 it was provided that 'all the terms and conditions of this deed shall be deemed to have come into operation on the first day of January, 1976...'. Clause 3 provided that 'all the parties hereto hereby confirm and declare that they have taken over the business of Nanak Singh Sujansingh Sadana Textiles as a running concern with all its assets and liabilities as the same stood in the balance sheet of the firm as on 31-12-1975 and all are bound by the same'. By Clause 7, the shares of the various partners were determined as follows : 5. The firm as constituted by the deed dated 24-5-1976 filed Form Nos.
11 and 11A in respect of the assessment year 1977-78, presently under consideration, in respect of the period 1-1-1976 to 31-12-1976 and claimed registration for the assessee-firm in respect of the said period, on the bases of the aforesaid partnership deed dated 24-5-1976.
6. The ITO pointed out in his order that the partnership deed dated 24-5-1976 could not have retrospective operation and that on 24-5-1976, a different firm had come into existence consisting of eight partners including the seven partners, who had carried on the business from 1-1-1976 to 23-5-1976 and, thus, the factual existence of the firm, consisting of eight partners during the entire accounting period from 1-1-1976 to 31-12-1976, could not be accepted as a reality and that inasmuch as no firm of 8 partners existed during the aforesaid period, viz., 1-1-1976 to 31-12-1976, registration of the firm as requested could not be granted. The ITO further pointed out that it was not a case where a partnership business was carried on on a verbal agreement and deed was executed later on embodying the terms of the verbal agreement, a giving effect from a date on which the partners united to carry on business of the partnership. The ITO referred to the provisions of Section 4 of the Partnership Act and emphasised that the partnership was the relation between the partners who had agreed to share the profits of a business carried on by all or any of them acting for all and inasmuch as, in the present case, the agreement between the eight partners to carry on the business to share the profit had been arrived at on 24-5-1976 only, the firm of eight partners could come into existence from that date onwards only and effect could not be given to that agreement in respect of the period when it did not exist.
Under Section 184, pointed out by the ITO, the registration could be granted to a firm only if it was evidenced by a partnership deed and that what has be to registered is the partnership firm evidenced by such partnership deed and, therefore, if it could be shown that the firm, as evidenced by the partnership deed, did not exist during the period mentioned in the application for registration, the said application had to be refused. The ITO, therefore, refused the registration to the assessee-firm. The above conclusion of the ITO was couched in the following language at page 6 of his order : ...I am not satisfied to hold, on the facts and circumstances of the case, that there is any firm in existence from 1-1-1976 in conformity with the terms of the deed of partnership executed on 24-5-1976, accompanying the application. As such, I am unable to grant registration to the firm for the assessment year 1977-78 under Section 185(1)(a) of the Income-tax Act, 1961.
7. The assessee appealed against the aforesaid order of the learned Commissioner (Appeals), who reversed the order of the ITO by pointing out inter alia as follows : 1. That taking in Smt. Maina Devi as a partner on 24-5-1976 effective from 1-1-1976 was not repugnant to any of the requirements of the Partnership Act.
2. That the ITO has not made out any case to show that the old firm of seven partners was dissolved on 24-5-1976 thereby bringing into force the provision of Sections 188 and 189 of the Income-tax Act, 1961 ('the Act') and that the case was governed by Section 187 of the Act. In the opinion of the Commissioner (Appeals), the ITO had made the assessment in terms of Section 184(8), read with Section 187(2) and taking into account the definition of 'change in the constitution of the firm' as given in Sub-section (2) of Section 187, it was a case of change of the constitution of the partnership and so the provisions of Sub-section (1) of Section 187 were applicable and one assessment had to be made on the firm on the basis of the latest partnership deed and registration had to be granted to the firm for the entire period.
8. The aforesaid finding of the learned Commissioner (Appeals) has been assailed by the revenue to be erroneous. The learned departmental representative draws our attention to the ratio of the decision of their Lordships of the Hon'ble Calcutta High Court in the case of Dawjee Dadabhoy & Co. v. CIT  49 ITR 698 wherein their Lordships have pointed out from the headnote as follows : A partnership business can only spring into existence after the partners have agreed to unite...the partnership business can only date from the moment the parties agreed to unite. It is not open to the partners to extend the life of the partnership by saying that they will be considered to have carried on a business as from a date then past.
It is urged by the learned departmental representative that the first finding of the learned Commissioner (Appeals) that the retrospectivity which had been given to the partnership deed dated 24-5-1976 was not repugnant to the Partnership Act was erroneous and against the interpretation of law as made by their Lordships of the Hon'ble Calcutta High Court. As regards the second finding of the learned Commissioner (Appeals), the learned departmental representative points out that while considering it, he has clearly forgotten that the assessee did not claim change in the constitution of the partnership firm in terms of Sub-section (2) of Section 187 and did not spell out in its application for registration that different constitution existed during the previous year under consideration and that registration be granted to the firm as constituted at the time of the assessment. Both Form Nos. 11 and 11A filed by the assessee disclosed only one constitution of the firm, viz., that of eight partners and held out as if it existed during the entire previous year, i.e., 1-1-1976 to 31-12-1976 and as this was not in accordance with the reality, the refusal of registration by the ITO was entirely justified.
9. The assessee contests the above contentions of the learned departmental representative and supports the order of the learned Commissioner (Appeals). He drew support for his stand from the decision of the Supreme Court in the case of CIT v. Ashokbhai Chimanbhai  56 ITR 42 and of the Jammu & Kashmir High Court in the case of CIT v.Ghulam Ahmad Khan & Bros.  130 ITR 636. According to him, the partners could make the partnership deed retrospective and, therefore, there was nothing wrong in the partnership deed of 24-5-1976 having been made retrospective.
10. In the alternative, the learned counsel for the assessee urged that if the ITO found Form No. 11A filed by the assessee to be defective, he should have given him an opportunity of curing the defect in terms of Sub-section (3) of Section 185 of the Act, read with Sub-section (3) of Section 184, of the Act and that, by not doing so, the ITO had failed to discharge his statutory obligation. If it had been pointed out by the ITO to the assessee that in Form No. 11A the assessee had not indicated the various dates on which the changes in the constitution of the firm had taken place, it would have cured the above defect and then it would not have been possible for the ITO to take the stand that the assessee's application for registration was not evidenced by the instruments of partnership.
11. We have carefully examined the facts of the case and the rival submissions. It appears to us that the Commissioner (Appeals) has clearly erred in holding that the partners could give retrospectivity to their agreement entered on 24-5-1976 and could supersede the earlier partnership deed dated 28-1-1976. Every partnership deed witnesses a relationship between the partners enumerated in the said deed who has agreed to share the profits and losses of the business on the basis of the terms and conditions incorporated in the said partnership deed.
Certain legal consequences flow from this agreement because one of the essential elements of partnership is agency and every partner binds the other partner by his action done with reference to the carrying on of the business of the firm during the continuance of partnership.
Admittedly, during the period 1-1-1976 to 27-1-1976, there were only five partners. The two partners, who were admitted to the partnership firm by the deed dated 28-1-1976 could not have been bound by the actions of the five partners done prior to that date. Besides, the contractual relationship between the five partners, which subsisted during 1-1-1976 to 27-1-1976, could not have been washed away by the agreement dated 28-1-1976. Similar will be the position with regard to the agreement dated 24-5-1976. The eighth partner who was admitted to the partnership by the said deed could not have been foisted with any liability of the firm incurred prior to her becoming a partner for she could not have constituted any one of the other seven partners as her agent when she was not in agreement with them during the period 1-1-1976 to 23-5-1976. The power to deem a putative situation as real has been conferred by jurisprudence on the sovereign only. No individual can deem a putative situation to be real and thereby alter the legal relationship between himself and the others which might have come into being as a result of his transactions in the meanwhile. The Commissioner (Appeals) apparently has omitted to bear in mind this fundamental notion of jurisprudence which has been given expression to by their Lordships of the Calcutta High Court in the decision of Dawjee Dadabhoy (supra).
12. There is also considerable merit in the contention of the learned departmental representative that, for granting registration to an assessee, the ITO has to look at the application, which has been filed by him seeking registration and, if he finds that the said application is not in accordance with the deed of partnership sought to be registered, the ITO can refuse registration to the firm. In the present case the firm has sought registration for the period 1-1-1976 to 31-12-1976 on the basis that only one partnership deed existed during the entire accounting period and it was the partnership deed dated 24-5-1976. This position is factually incorrect. The firm which was earlier registered for the assessment year 1976-77 on the basis of the partnership deed dated 31-5-1975 continued to remain operative during the part of the previous year under consideration, viz., from 1-1-1976 to 27-1-1976. On that date two new partners were taken in, as noted above and a new partnership deed dated 28-1-1976 was drawn up and it had governed the relations of the partners inter se during the period 28-1-1976 to 23-5-1976. On 24-5-1976, one more partner was admitted to the benefits of partnership and consequently a new partnership deed was executed on 24-5-1976, which governed the relations of the partners inter se during the period 24-5-1976 to 31-12-1976. Therefore, on the basis of the partnership deed dated 24-5-1976, the firm could have sought registration only if it had filed a proper form for the period 24-5-1976 to 31-12-1976 only. Seeking of registration on the basis of the above partnership deed for the period 1-1-1976 to 23-5-1976 could not be justified.
13. The assessee has claimed that it was the case of change of constitution of the firm as defined in Sub-section (2) of Section 187 and that it was not a case of Section 185 and that, therefore, the registration had to be granted to the firm as constituted at the time of making the assessment. The firm could, therefore, seek registration for the entire accounting period on the basis of the partnership deed dated 24-5-1976. This assertion appears to be in accordance with the provisions of Section 187 ; but it is noteworthy that the assessee's application in Form No. 11A is not in accordance with the reality inasmuch as it does not indicate the various changes in the constitution of the firm during the previous year. It has been made on the basis as if there has been only one constitution during the entire previous year. The ITO, therefore, was not, in our opinion, justified in not accepting this assertion of the assessee and not granting registration to the assessee-firm on the basis of Form No. 11A filed by it.
14. This brings us to the alternative argument of the assessee, viz., that if there was a defect in the form of the assessee, it was the duty of the ITO to have pointed out the said defect to the assessee in terms of Sub-section (2) of Section 185 and inasmuch as the ITO did not do so, he erred and that, therefore, the ITO should be directed to comply with the provisions of law now. Sub-section (2) of Section 185 reads as follows : (2) Where the Income-tax Officer 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...
Sub-section (3) is also in this vein. It is clear from the plain reading of the aforesaid sub-section that it is the statutory duty of the ITO to give a notice to the assessee, if ha finds that the form filed by the assessee is defective. In the present case, the ITO has pointed out the various defects in the assessee's application and has rejected the request for registration on the basis of such defects.
Before, however, he did so, it was incumbent on him to point out the defects to the assessee and give to it the statutory opportunity of one month. Inasmuch as he did not do so, his order, in our opinion, got vitiated. The departmental representative pointed out at this stage that the defect in question was not curable and, therefore, there was no point for the ITO bringing to the notice of the assessee the defects in question. We are not impressed by this reasoning, for Sub-section (2) of Section 185 does not say that such defects as are not curable in the opinion of the ITO need not be pointed out to the assessee. The Legislature has clearly and unequivocally stipulated that if there are defects, they should be pointed out. There is, in our opinion, justification for this, for whether or not a defect is curable cannot be left to the decision of the assessing authority alone. The registration is not only a privilege but even a right and as such the denial of this right, by whatsoever process, has been made the subject-matter of appeal by the Legislature and, therefore, the debate as to whether or not a defect is curable has to be kept upon for final decision by the appellate authorities in case an occasion to agitate the subject-matter before them arises. We, therefore, feel that the order of the ITO suffers from a basic deficiency and as such the matter has to be sent back to him with the direction to re-start from the stage where the irregularity committed by him intervened. The order of the Commissioner (Appeals) is, in our opinion, not sustainable and we have detailed out reasons for it above. The order of the ITO is also not sustainable for reasons just indicated. We, therefore, set aside the orders of both the authorities and restore the matter back to the ITO with the direction that he would give the statutory opportunity to the assessee as laid down in Sub-section (2) of Section 185 and would re-determine the issue in accordance with law.
15. In the result, for statistical purposes, we treat this appeal as allowed.