1. The following question has been referred to us for the assessment year 1970-71 :
'Whether, on the facts and in circumstances of the case, the Tribunal was legally correct in reversing the order of the Appellate Assistant Commissioner and in directing the Income-tax Officer to treat the firm as a registered firm for the assessment year 1970-71 ?'
2. The firm in question had four partners and an application for registration of the firm was filed in From No. 11, which was signed by only two partners. Shri Chander Singh, one of the partners, had signed on behalf of the remaining two partners. The ITO pointed out the defect as a result of which now of the partners signed the from but the fourth partner did not sign. It was claimed that there was a dispute amongst the partners and the fourth partners was not co-operating with assessed firm. An attempt was made to persuade the ITO to issue summons to produce the fourth partner but the ITO did not call him. As a result, the registration was refused.
3. There was an appeal to the AAC, who upheld the ITO's conclusion.
4. On further appeal to the Tribunal, it was held that the ITO was wrong in rejecting the request of the assessed to summon of the fourth partner, Rameshwar Parshad, under s. 131 of the I.T. Act, 1961, and a reference was also made to s. 185(3) which gives power to reject or accept the application for registration of the firm. In the result, the Tribunal held that when the authorities were satisfied with the genuineness of the firm, the question of refusing registration to the firm did not arise.
5. We have been taken through the provisions of the Act and have been referred to the judgment of the Supreme Court in Rao Bahadur Ravula Subba Rao v. CIT : 30ITR163(SC) . In that case, an attempt had been made to urge that rules 2 and 6 of the Indian I.T. Rules, 1922, which required the personal signature of a partner on a form for registration of a firm under s. 26A of the Indian I.T. Act, 1922, was ultra virus on the ground that it imposed an unnecessary restriction on a partner singing through a power of attorney holder. The Supreme Court upheld the validity of the rule. That rule has now been re-enacted in the I.T. Act 1961, as s. 184. This requires that an application for registration must be signed by all the partner personally. The rule under the old result Act has now taken a statutory form. In the present case, the application for registration was first signed by two partners and later by a third partner but not by the fourth partner. So, the application remained a defective and invalid application, not in accordance with law.
6. Under s. 185 of the Act, the ITO has power to require a defect to be removed before rejected the same and if it is not removed, to reject the application. There has been some change in the provision of the Act; so it is convenient to quote s. 185(2) and (3) of the relevant time :
'(2) 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.
(3) If the defect is not rectified within such time, the Income-tax Officer may reject the application.'
7. What the ITO has to do under this section is to give sufficient time to the party to rectify the defect but if it is not rectified, the ITO may reject the application. The Appellate Tribunal while disposing of the appeal seems to be under the impression the because the wording is : 'the Income-tax Officer may reject the application', which also means the ITO may accept the application. This is complete misreading of the section. The power is to reject the application. It has to be exercised in a quasi-judicial manner. However, in no case can the ITO accept the application when is not in accordance with law. To hold otherwise would means that s. 184(3) and other provisions of the Act would become meaningless because the ITO would be given the power the to overrule the Act. The provisions regarding registration of a firm are not very stringent and are extremely simple. The ITO is, no doubt, stated to have power in a discretionary manner. In the statement of such powers, the statute always uses the word 'may'. This 'may' has to be read in the usual way as a power to reject, if the defect continues and not to reject if the defect is removed. The provision has now been amended to remove any such misconception regarding the use of the word 'may' in s. 185(3), but, in our view, the meaning was just the same as before. We may point out that there are several decisions showing that the word 'may' has to be read equivalent to 'shall'. The leading case being Julius v. Oxford  5 AC 214. Whenever the conditions are satisfied, the power must be used. It means that when the application continues to be defective, it has necessarily to be rejected by the ITO. The Income-tax Appellate Tribunal had no special jurisdiction by which it could allow an unauthorised or irregular application being treated as a proper application, and, accordingly, the Tribunal was wrong in directing the registration of the firm.
8. The question is answered in the negative, in favor of the Department and against the assessed. The Revenue will get its costs. Counsel's fee Rs. 500.