Hardayal Hardy, C.J.
(1) This judgment will dispose of two references viz. I.T.R. No. 13 of 1968 and I.T.R. No. 21 of 1968 The assessed in either reference is a partnership frm. In Income-tax Reference No.13 of 1968, the assessed is a firm named Sant Lal Kashmiri Lal which was constituted under an instrument of partnership dated 20th December 1952 with the following partners and their respective spares :-
Kaslimiri Lal ..... - /1/6 pies Lahori Mal ...... -/1.00 anna Kanhiya Lal ...... -/1/6 pies Prahlad Rai ...... -/4.00 annas Saraswati Kumar ...... -/4.00 annas Gyani Ram ...... -/4.00 annas.
The firm as constituted was granted registration for the assessment year 1953-54 and thereafter renewal of registration up to and including the assessment year 1961-62. Kashmiri Lal one of the partners, died on 21-10-1961 within the previous year, relevant to the assessment year 1962-63. On 30-11-1962 a return of income for the firm showing the total income during the previous year ended on 8-11-1961, was filed with the,lncome-tax Officer. It was received by the Income-tax Officer or 1-12-1962.
(2) In Part lll(b) of the return of the income the names of the partners of the firm were:-Saraswati Kumar, Giani Ram, Prahlad Rai, Kashmir! Lal, Kanhiya Lal and Lahori Mal. in column 3 of the table as prescribed in Part lll(b) of the return the extent of share of the various partners were given as follows:-
12.5 months 15 days Saraswali Kumar -/4.00 25 np. Giani Ram -/4.00 25 np. Prahlad Rai -/4.00 20 np. Kashmiri Lal -/1/6 Kanhiya Lal -1/6 15 np. Lahori Mal -/1.00 15 np.
In part Vii of the return of income also the assesseds stated that the profit or loss as per profit and loss account was for the period ending 8-11-1961. Along with the return the assessed filed a declaration in Form 12 dated 16-11-1962. The note below the declaration indicated that the words 'or to the date (............19 ) of dissolution of the firm' were applicable only if the firm had been dissolved before the date of this declaration. The date as required in this form of declaration was not filled in. The declaration was signed by the remaining five partners i.e. Saraswati Kumar, Giani Ram, Prahalad Rai, Kanhiya Lal and Lahori Mal. Consequent upon the death of Kashmiri Lal on 21-10-1961 a fresh instrument of partnership was drawn on 23-10-1961, parties to which were Lahori Mal, Kanhiya Lal Prahled Rai, Saraswati Kumar, and Giani Ram. The pre-amble to this deed recited that consequent upon the death of Kashmiri Lal on 21-10-1961 the firm was dissolved and the aforesaid partners had agreed to carry on and conduct business in partnership. Para 6 of the instrument of partnership lays down that the firm shall take over and continue the old business of Sant Lal Kashmiri Lal and shall record its transactions in the books of the old firm which for the sake of convenience, had been taken over as such. It was also agreed that the accounts of the Business shall be closed as hitherto done on Diwali, For the accounts closed on Diwali Samvat 2018 corresponding to 8-11-1961, the net profit was to be ascertained and the proportionate profit calcutated on time basis up to the date of death of Kashmiri Lal i.e. 21-10-1961 was to be credited and adjusted in the respective partners accounts of the old firm in accordance with their profit sharing ratio.
(3) In Income-tax Reference No. 21 of 1968 the name of the firm was Sant Lal Kanhiya Lal which was constituted under an instrument of partnership dated 23.10.1957. Thepre-ambleto instrument of partnership stated that Lahori Mal, Kashmiri Lal and Kanhiya Lal had been carrying on the business of grain merchants and commission agents under the name and style of Sant Lal Kanhiya Lal under an instrument of partnership dated 15-12-1945 and they had expressed their desire to take Prahlad Rai as a partner in the said running business and Prahlad Rai had agreed to be partner under the terms and conditions specified in the instrument of partnership. The shares of the partners were as follows:-
'Lahori Mal 28 np. in the rupee Kashmiri Lal 19 np. in the rupee Kanhiya Lal 28 np. in the rupee Prahlad Rai 25 np. in the rupee'
According to para 9 of the instrument of partnership, the first accounts of the partnership business were to close on Diwali day, Samvat 2015 and thereafter every year on Diwali Mahurat. The final accounts of the partnership business were to be prepared and the profit or loss of the partnership was to be credited or debited respectively in the accounts of the parties. The previous year for the assessment year thus comprised the period extending from October, 1968 to 8-11-1961. The firm was registered under the Income-tax Act, 1922 for and up to the assessment year 1961-62.
(4) Kashmiri Lal one of the partners died on 21-10-1961 within the previous year. On 13-11-1962 return of the income of the firm Sant Lal Kanhiya Lal showing the total income during the previous year ending on 8-11-1961 was filed with the Income-tax Oflicer. It was received by the Income-tax Officer on 1-12-1962. As in the case of Sant Lal Kashmiri Lal, the return contained the necessary particulars and Column No. 3 of the table as prescribed in part Iii (b) of the return, the extent of share of the various partners was given as follow:
12.5 months 15 days ___________ Kanhiya Lal 28 np. 33 np. Lahori Mal 28 np. 34 np. Prahlad Rai 25 np. 33 np. Kashmiri Lal 19 np. nil.
Similar declarations were also filed in this case and were signed by Lahori Mal, Prahlad Rai and Kanhiya Lal. It was also signed by Prahlad Rai once again as acting on behalf of Kashmiri Lal. Consequent upon the death of Kashmiri Lal on 21-10-1961 a fresh instrument of partnership was drawn up on 23-10-1961, parties to which were Lahori Mal, Kanhiya Lal and Prahlad Rai. This deed also contained the same pre-amble and the statement that the firm had been dis-solved and the three partners had agreed to carry on and conduct business of partnership. Similar arrangements with regard to distribution of profits were made in this case too. So, far all purposes the two firms of Sant Lal Kashmiri Lal and Sant Lal Kanhiya Lai were re-constituted on account of the death of Kashmiri Lal on 21-10-1961 by two separate instruments of partnership drawn on 23-10-1961.
(5) What is material for the purpose of this case however is the order made by the income-tax Officer and it is a question arising out of that order that forms the subject-matter of reference in the two cases. What happend was that on 19-7-1963 the Income-tax Officer passed an order under Section 184(7) of the Income-tax Act, 1961 which will hereafter be refered to as the new Act. The Income-tax Officer noted that in the declaration it had been declared that there had been no change in the constitution of the firm or in the shares of the partners since the last day of the previous year relevant to 1961-62 assessment year up to the last day of the previous year relevant to 1962-63 assessment year. The Income-tax Officer observed that the declaration was false and incorrect inasmuch as Kashmiri Lal who was one of the partners in both the firms had died on 21-10-61. and thereafter the firm was re-constituted by the remaining partners and a fresh deed was executed on 23-10-1961 reshuffling their profit sharing ratio. The Income-tax Officer noted that although the change had taken place in the constitution of the firm no application claiming registration had been filed by the new firm as constituted at the time of assessment for the assessment year 1962-63. He also noted that since the old partnership had come to an end during the period under consideration itself and the assessed had not claimed registration on the basis of the new partnership, the firm could not be granted registration or continuation of registration. This order was made in the case of both the firms.
(6) Against the above order of the Income-tax Officer, the assessed went up in appeal before the Appellate Assistant Commissioner. One of the questions that came up before the Appellate Assistant Commissioner was whether the assessed was aggrieved by an order made by the Income-tax Officer and as such whether an appeal lay to the Appellate Assistant Commissioner. It was urged by the assessed that there was no provision under Section 184(7) of the Income-tax Act, 1961 which gave authority to the Income-tax Officer to refuse to register the firm and thereforee no provision had been made in the Act conferring any right on the assessed to file an appeal with the Appellate Assistant Commissioner against any order under Section 184(7) of the Income-tax Act, 1961. It was however contended that the contents of the order made by the Income-tax Officer bore resemblance to an order that may be passed under Section 185(l)(b) of the 1961 Act and the Income- tax Officer order should thereforee be treated as an order under Section 185(l)(b) and an appeal against that order could thereforee beentertained by the Appellate Assistant Commissioner.
(7) The Appellate Assistant Commissioner held that the order passed by the Income-tax Officer under sub-section(7) of Section 184 for which there was no warrant in law. According to him, the Income-tax Officer had either passed an order under Section 185(1)(b) allowing registration if he was satisfied that the firm was genuine or under Section 185(l)(b) refusing registration if he held that the firm was not genuine. But whether a firm had been registered or its registration had effect under sub-section (7) of Section 184 for an assessment year if the Income-tax Officer's was of the opinion that there was during the previous year no genuine firm in existance as registered, he could, after giving the firm a reasonable opportunity of being heard with the previous approval of the Inspecting Assistant Commissioner cancel the registration of the firm for that assessment year. In the present case, the firm was already registered up to the assessment year 1961-62 i.e. under Section 184(7) which order had effect for every subsequent assessment year including the assessment year 1962-63 unless the registration was cancelled under sub-section (1) of S. 186. The Income-tax Officer's order was thereforee in fact an order under sub-section(l) of Section 186 and not an order under sub-section(7) of Section 184 as noted by the Income-tax Officer himself, nor an order under S. 185(1)(b) as contended by the counsel for the assessed.
(8) The Appellate Assistant Commissioner treating the order as one under sub-section (1) of Section 186 accepted the appeal. Some other contentions were also urged before the Appellate Assistant Commissioner but we are not concerned with those in the present preceedings. As a result, the order of the Income-tax Officer was set aside by the Appellate Assistant Commissioner for de novo trial in accordance with law.
(9) Against the decision of the Appellate Assistant Commissioner, the Income-tax Officer filed an appeal before the Income-tax Appeal-late Tribunal in both the cases. The appeal was accepted and it was held that the order made by the Income-tax Officer was under Section 184(7) and that the Appellate Assistant Commissioner was clearly wrong in holding that the order was one under Section 186(1). The Tribunal also held that the Appellate Assistant Commissioner was in error in holding that it was incumbent on the Income-tax Officer to give the assessed a reasonable opportunity of being heard before he passed his order dated 19-7-1963 and since no appeal lay against an passed by the Income-tax Officer under Section 184(7), the order of the Appellate Assistant Commissioner was set aside and that of the Income-tax Officer restored.
(10) On the above facts the Tribunal at the instance of the assessed, referred the following question of law to this Court:-
''WHETHERan appeal lay to the Appellate Assistant Commissioner against the order of the Income-tax Officer dated 19-7-1963.'
In the Act of 1922 the term 'registered firm' was defined in clause (14) of Section 2. It meant a firm registered under the provisions of Section 26A. The latter section provided for procedure in registration of firms and read as follws :-
'(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 the 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.'
In the new Act the term 'registered firm' had more or less the same meaning. Clause (39) of Section 2, defined the term as meaning a firm registered under the provisions of clause (a) of sub-section (I ) of section 185 or under that provision read with sub-section(7) of Section 184. Section 184 deals with applications for registration of firms, the eligibility for registration and the manner in which those applications are to be signed and the time when such applications should be made and the documents accompanying the applications. Subsection (6) of Section 184 provides that the applications shall be made in the prescribed form and shall contain the prescribed particulars. It is however sub-section(7) of Section 184 which is material for the purposes of this case. It reads :-
'(7)Where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment 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, along with its returns of income for the assessment year concerned, a declaration to that effect, in the prescribed form and verified in the prescribed manner.'
(11) Section 185 lays down the procedure to be followed by the Income-tax Officer on receipt of an application for the registartion of a firm. We shall have to deal with that section when we come to consider the question of registration of the two firms in the present case. Section 186 is concerned with the cancellation of registration and since that is the section on which the Appellate Assisstant Commissioner relied for setting aside the order of the Income-tax Officer, we shall advert to that section in due course.
(12) It will thus be seen that instead of making a provision in the Income-tax Act itself, as has been done in the new Act, the procedure under the Act of 1922 was laid down in the rules made under the said Act. The relevant rules are to be found in rules 2 to 6B of the Income-tax Rules, 1922. Under Rule 4(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, as the case may be, a certificate in the following form, namely:-
'This instrument of partnership certified copy of an instrument of partnership has this day been registered with me, the Income-tax Officer for..... .....in the State of................ under Section 26A, of the Indian Income-tax Act, 1922, and this certificate of registration shall have effect for the assessment for the year ending on the 31st day of March 19'
(13) SUB-RULE (2) of Rule 4 lays down that if the Income-tax Officer was not so satisfied he shall pass an order in writing refusing to recognise the instrument of partnership or the certified copy thereof and furnish a copy of such order to the applicants.
(14) SUB-RULE (3) provides that the certificate referred to in sub-ruled) shall be signed by the Income-tax Officer, who shall thereupon return to the applicants the instrument of partnership or the certified copy thereof as the case may be, and shall retain the copy or the duplicate copy thereof.
(15) Rule 6 deals with the renewal of a certificate of registration for a subsequent year and the manner in which the application was to be made by all the partners of the firm whether in existence or by all persons in the case of a dissolved firm who were partners in the firm immediately before dissolution and by the legal representatives of any such person who is deceased. This application has to be made before the 30th day of June of the year for which assessment was to be made provided that the Income-tax Officer might entertain an application made after the expiry of the said date if he was satisfied that the firm was prevented by sufficient cause from making the application before that date.
(16) Rules 6A provided that on receipt of an application under rule 6 the Income-tax Officer may, if he was satisfied that the application was in order and that there is or was a firm in existence constituted as shown in the instrument of partnership grant to the assesee a certificate signed and dated by him in the following manner:-
'THEregistration of the firm of........................ granted on.......................... is renewed by me and will remain effective for the assessment for the year ending on the 31st day of March, 19 .'
(17) If the Income-tax Officer was not so satisfied he shall pass an order in writing refusing to renew the registration of the firm.
(18) Rule 6B provided that in the event of the Income-tax Officer being satisfied that the certificate granted under Rule 4 or under Rule 6A had been obtained without there being a genuine firm in existence, he might cancel the certificate so granted.
(19) The interpretation of rules 6A and 6B had given rise to some doubt but the controversy was resolved by the Supreme Court in Sir Hukumchand and Mannalal Co. v. Commissioner of Income-tax, Madhya Pradesh, Nagpur and Bhandara : 60ITR99(SC) where Subba Rao J. (as he then was) speaking for the Court observed:-that the words 'refusal to register a firm' in Section 30 of the Act are wide enough to take in the orders made under Rules 6A and 6B refusing to renew the registration and also cancelling the certificate so renewed.
(20) Section 30(1) of the 1922 Act dealt with appeals against assessment under that Act and its relevant portion so far as it related to the registriion of firms, read as follows:-
'ANYassessed............. .objecting to the cancellation by an Income-tax Officer of a firm under sub-section (4) of Section 23 or to a refusal to register a firm under sub-section (4) of Section 23 or Section 26A may appeal to the Appellate Assisttant Commissioner against the assessment or against such refusal or order.'
(21) What his Lordship thereforee held was that when S. 30 provides turn an appeal against the orders under Section 23(4) and also against orders under S. 26A it has incorporated the two forms of orders embodied in Section 23(4) and used a general word in providing an appeal against an order under Section 26A, for the nature of the order is not described but left to be prescribed under the rules. This reading of the relevant provision was considered by his Lordship as a fair reading of the relevant provisions of the Act and the rules made there under.
(22) SUB-SECTION (7) of Section 184 of the new Act on which the Income-tax Officer had relied and which the Appellate Assistant Commissioner held did not apply has already been re-produced above.
(23) On the other hand the Appellate Assistant Commissioner relied upon the provisions of Section 186(1) of the new Act which read as under:-
'(1)If, where a firm has been registered, or its registration has effect under sub-section (7) of Section 184 for an assessment year, the Income-tax Officer is of opinion that there was during the previous year no genuine firm in existence as registered, he may, after giving the firm a reasonable opportunity of being heard and with the previous approval of the Inspecting Assistant Commissioner, cancel the registration of the firm for that assessment year:- Provided that no such cancellation shall be made after the expiry of eight years from the end of the assessment year in respect of which registration has been granted or has effect.'
(24) It is apparent that Section 186(1) has no application to the facts of the case at all. It applies only where a firm had been registered or its registration has effect under sub-section (7) of Section 184 for an assessment year. It is only in that case that the Income-tax Officer, if he is of the opinion that there was during the previous year no genuine firm in existence as registered, that he has to give a reasonable opportunity of hearing to the persons applying for registration and thereafter with the previous approval of the Inspecting Assistant Commissioner the registration of the firm for that assessment year had to be cancelled. In the instant case there was no doubt that a genuine firm was in existence as registered during the previous year. It is only during the period 21-10-1961 when Kashmiri Lal died and the two firms were re-constituted on 23-10-1961 that the question arose as to whether a genuine firm was in existence during the previous year that ended on 8-11-1961. It was thus a question of 15 days that mattered; but so far as the genuineness of the firms is concerned there could be no doubt about it.
(25) Shri V. Kumaria, counsel for the Commissioner of Income-tax, however, contended that the assessed had in both cases furnished false declarations inasmuch as the name of Kashmiri Lal was shown as a partner in those declarations whereas in fact Kashmiri Lal had died on 21-10-1961. In these circumstances, the only remedy of the assessed was to invoke the provisions of Section 184(8) which provides that where any such change had taken place in the previous year the firm shall apply for fresh registration for the assessment year concerned in accordance with the provisions of Section 184. As against that the contention urged on behalf of the assessed was that the case came within the purview of Section 185(1) which reads as under:-
'(1)On receipt of an application for the registration of a firm, the Income-tax Officer 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.''
The present order, it was claimed, was made under clause(b) of Section 185(1) and it was urged that in such circumstances it was incumbent upon the Income-tax Officer to take recourse to sub-sec- tions (2) and (3) of Section 185 which read as under:-
'(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.'
(26) It was further urged on behalf of the assessed that though the order was made by the Income-tax Officer on 19-7-1963 the assesseds had sent letters dated 27-6-1963 whereby the attention of the Income-tax Officer was invited to the death of Kashmiri Lal on 21-10-1961 and it was also stated that the remaining partners formed a fresh partnership as from 23-10-1961. They also took over the assets and liabilities of the dissolved firms and vide deed of partnership of that date, for the sake of convenience, it was mutually agreed to continue the books and close the accounts on Diwali as was done earlier and apportion the profit on time basis, i.e. among the previous partners up to 21-10-1961 and amongst other partners for the rest of the period. It was further stated that there was no change in continuation up to the date of death and profit or loss up to 21-10-1961 had been ascertained and credited in the respective accounts of the partners in accordance with their shares. These letters were before the Income-tax Officer when he made the inpugned order.
(27) It was conceded by the counsel for the assessed in both cases that technically there was an error for in the declarations that had been submitted earlier this fact had not been pointed out that the firm had been dissolved before the date of declaration but the mistake was such as could be cured under sub-section (2) of Section 185 and it was the duty of the Income-tax Act to have given opportunity to the assessed to rectify the defect in th; application within a period of one month from the date of such intimation.
(28) It is obvious that this was not done. It was all the more necessary on the part of the Income-tax Officer to have given that apportunity to the assesseds when, before he made the impugned order, he had already received letters from the assesseds clarifying the position.
(29) In any event, the Income-tax Officer himself opined in the ultimate paragraph of the order: 'Since the old partnership had come to an end during the period under consideration itself and the assessed had not claimed registration on the basis of a new partnership the firm cannot be granted registration or continuation of registration.'
(30) The order of continuation of registration under sub-section (7) of Section 184 has not been expressly provided in that sub-section. It has to be gathered by implication for it has been said in the substantive portion of the section that where registration is granted to a firm for any assessment year it shall have effect for every subsequent assessment year. It is however, the procedure that is out-lined in Section 185 that deals with the registration of the firm and in principle there is no distinction between a fresh registration as well as continuation of registration. In either event, the certificate that the Income-tax Officer has to append to the instrument of partnership or on the certified copy submitted in lieu of the original instrument, has to be in the same terms.
(31) In that view of the matter, it is the procedure laid down in Section 185 that has to be taken into account and since the Income-tax Officer did not give an opportunity to the assessed to rectify the defect, the order was made by him under Section 185 of the new Act.
(32) Under Section 246(j), an order refusing to register a firm under clause (b) of sub-section (1), or under sub-section (1) of Section 185 is open to appeal before the Appellate Assistant Commissioner.
(33) We are thereforee of the view that an appeal lay to the Appellate Assistant Commissioner from the impugned order, although we are in agreement with the Tribunal that the Appellate Assistant Commissioner was in error in treating the order passed by the Income-tax Officer to be one under Section 186(1). The question is thereforee decided in favor of the assessed, but in the circumstances there will be no order as to costs.