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Patel and Company Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 161 of 1979
Judge
Reported in[1986]161ITR568(Guj)
ActsIncome Tax Act, 1961 - Sections 2(23), 2(31), 143, 143(3), 185, 185(1), 246, 246(1), 246(1), 246(1), 273 and 274
AppellantPatel and Company
RespondentCommissioner of Income-tax
Appellant Advocate J.P. Shah, Adv.
Respondent Advocate G.N. Shah, Adv.
Excerpt:
.....under sub-section (3) of section 143 of the act as well as on the question of the status of the assessee firm no matter whether the appeal under the former can lie under clause (c) and the latter under clause (j) of sub-section (1) of section 246 of the act. if in the opinion of the appellate assistant commissioner as well as the tribunal a composite appeal did not lie, the choice had to be left to the assessee to opt for one of the two reliefs and the appellate assistant commissioner could not entertain the appeal in regard to one relief of his choice and dismiss the appeal in regard to the other as incompetent. 13. it is well-settled that a right of appeal conferred by the statute has to be liberally construed and when the appeal lies to the same authority, it would be too technical..........a registered firm and not as an unregistered one is a dispute relating to the status in which the assessee-firm is liable to be assessed. it is clearly within the ambit of clause (c) of section 246 of the act.' 9. treating the effect of the income-tax officer's order refusing to condone the delay in the filing of the declaration in form no. 12 as a refusal to assess the firm as a registered firm, the court held that the order was appealable under clause (c) of sub-section (1) of section 246 as well. this view was quoted with approval in a subsequent decision of the same high court in cit v. satya narain suresh kumar : [1979]120itr840(all) . 10. in cit v. rupa traders : [1979]118itr412(cal) , the calcutta high court also had occasion to consider whether the language of section 246(1)(c).....
Judgment:

A.M. Ahmadi, J.

1. The assessee is a partnership firm. It was registered under section 185 of the Income-tax Act, 1961 (hereinafter called 'the Act'), prior to the assessment year in question. In the assessment year 1971-72, it made a declaration in Form No. 12 for renewal of registration. That declaration was received on January 21, 1972. Since it was not made within the prescribed time, the Income-tax Officer issued a notice to show cause why the firm did not make the declaration within the prescribed time. The authorised representative of the assessee by his written explanation dated March 25, 1974, stated that the declaration was submitted on June 30, 1971, but he was not in a position to produce supporting evidence in the form of an acknowledgement of having submitted the declaration on that date. The Income-tax Officer, therefore, did not accept the explanation and refused to entertain the declaration belatedly made. He, therefore, assessed the firm as an unregistered firm. He also did not allow an expenditure of Rs. 6,209 incurred for levelling of land. The assessment order was made under section 143(3) of the Act and notice was issued under section 274 read with section 273 for filing an untrue estimate of advance tax and also for late filing of the return. Demand notices were directed to be issued accordingly.

2. The assessee, feeling aggrieved by this order, preferred an appeal to the Appellate Assistant Commissioner. In appeal, the amount of Rs. 6,209 spent on levelling of the land was allowed as a business deduction. However, so far as the status of the firm is concerned, the Appellate Assistant Commissioner held that a composite appeal under section 246(1)(C) as well as section 246(1)(j) could not lie. So far as the appeal under section 246(1)(C) was concerned, he allowed the same by permitting the expenditure of Rs. 6,209 as a business deduction. In so far as the appeal concerned the rejection of renewal of registration, the Appellate Assistant Commissioner came to the conclusion that it lay under section 246(1)(J) of the Act and ought to have been separately filed. In the view that he took, he dismissed the appeal so far as refusal to renew registration of the firm was concerned.

3. The assessee, feeling aggrieved by the latter part of the Appellate Assistant Commissioner's order, preferred an appeal to the Tribunal. The Tribunal relying on a decision of the Calcutta High Court in Fuel Supply Company v. CIT : [1965]58ITR130(Cal) , upheld the view of the Appellate Assistant Commissioner that a composite appeal could not lie and that the assessee ought to have preferred a separate appeal under section 246(1)(j) of the Act in so far as it related to the order refusing to renew registration of the firm. In that view that it took, it dismissed the appeal.

4. At the instance of the assessee, the following two questions have, therefore, been referred for our opinion under section 256(1) of the Act :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in agreeing with the Appellate Assistant Commissioner that the appellant's ground regarding registration cannot be entertained by the latter

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in rejecting the contention that under section 246(1)(c), the point of registration can be agitated before the Appellate Assistant Commissioner in an appeal against section 143(3) order ?'

5. There is no dispute that an appeal lay from the decision of the Income-tax Officer against the order of assessment as well as refusal to renew registration of the firm; the difference, if at all, is on the limited question whether the appeal for refusal to renew registration could be entertained under section 246(1)(c) or 246(1)(j) of the Act. The two relevant clauses may be reproduced for ready reference :

'246. (1) Subject to the provisions of sub-section (2), any assessee aggrieved by any of the following orders of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order -......

(c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any order of assessment under sub-section (3) of section 143 or section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed,......

(j) an order under clause (b) of sub-section (1) or under sub-section (2) or sub-section (3) or sub-section (5) of section 185.'

6. On a plain reading of clause (c), it would appear that an aggrieved assessee can prefer an appeal against the Income-tax Officer's order of assessment made under sub-section (3) of section 143 of the Act well as against the order determining the status under which he is assessed. Under clause (j) of sub-section (1) of section 246, the order which can be appealed against must be one under clause (b) of sub-section (1) or under sub-section (2) or (3) or (5) of section 185 of the Act. Clause (b) of sub-section (1) of section 185 deals with a case of refusal to register a firm on the Income-tax Officer not being satisfied regarding the genuineness and the constitution of the firm. In CIT v. Dineshchandra Industries : [1975]100ITR660(Guj) , this court took the view that refusal to condone the delay for entertaining an application for renewal of registration would be appealable under section 185(1)(b) read with section 246(1)(j) of the Act. We may at once state that the court did not consider the applicability of section 246(1)(c) of the Act while deciding the said question On the strength of this decision which is binding on us, it was argued on behalf of the Revenue that the appeal against the refusal to renew registration would lie under section 246(1)(j) of the Act and not under section 246(1)(c) of the Act.

7. Under clause (c) of sub-section (1) of section 246, an assessee aggrieved by the Income-tax Officer's order as to the status under which he is assessed can appeal to the Appellate Assistant Commissioner. In the instant case, the Income-tax Officer's order shows that the assessee was assessed as a firm. The Income-tax Officer does not clarify whether the status of the assessee is that of a registered firm or an unregistered firm but from the manner in which he has approached the question, it can safely be inferred, and that is what the assessee also thought, that he had made the assessment under sub-section (3) of section 143 of the Act on the permise that the assessee was an unregistered firm. Under section 2(23) of the Act, the expression 'firm' has the same meaning assigned to it under the Indian Partnership Act, 1932. 'Person' under section 2(31) includes a firm. Explanation (2) to section 143(3) defines 'status', in relation to an assessee, to mean the classification of the assessee as an individual, a Hindu undivided family, or any other category of persons referred to in clause (31) of section 2, and where the assessee is a firm, its classification as a registered firm or an unregistered firm. It would, therefore, appear that an appeal touching on the question of the assessee's status referred to in section 246(1)(c) would cover the classification of the firm as a registered firm or an unregistered firm. Therefore, an order passed by the Income-tax Officer under section 143(3) of the Act on the premise that the firm in question was an unregistered firm would be appealable under section 246(1)(c) of the Act in view of the change in law brought about by the Taxation Laws (Amendment) Act, 1970, which became effective from April 1, 1971. As pointed out earlier, this court in the case of Dineshchandra Industries : [1975]100ITR660(Guj) , did not examine the question whether an appeal touching on the question of the assessee's status could be entertained under section 246(1)(c) of the Act.

8. In ITO v. Vinod Krishna Som Prakash : [1979]117ITR594(All) , the Division Bench of the Allahabad High Court was concerned with a similar case where the Income-tax Officer had refused renewal of the registration on the ground that it was barred by limitation. After referring to the decision of the Gujarat High Court in Dincshchandra Industries' case : [1975]100ITR660(Guj) , and approving the ratio laid down therein, the learned judges proceeded to examine whether the appeal could lie under section 246(1)(c) of the Act. After referring to the definition of 'person' contained in section 2(31) and Explanation (2) to sub-section (3) of section 143, which defines the expression 'status', the court observed as under (at p. 597) :

'It is clear that the assessment of a firm as a registered firm or as an unregistered firm is a matter of status, and a dispute that a firm was entitled to be assessed as a registered firm and not as an unregistered one is a dispute relating to the status in which the assessee-firm is liable to be assessed. It is clearly within the ambit of clause (c) of section 246 of the Act.'

9. Treating the effect of the Income-tax Officer's order refusing to condone the delay in the filing of the declaration in Form No. 12 as a refusal to assess the firm as a registered firm, the court held that the order was appealable under clause (c) of sub-section (1) of section 246 as well. This view was quoted with approval in a subsequent decision of the same High Court in CIT v. Satya Narain Suresh Kumar : [1979]120ITR840(All) .

10. In CIT v. Rupa Traders : [1979]118ITR412(Cal) , the Calcutta High Court also had occasion to consider whether the language of section 246(1)(c) was wide enough to confer a right of appeal on an assessee against the Income-tax Officer's order determining the status of the assessee. The court came to the conclusion that the question with regard to the firm having been treated as a registered firm or as an unregistered firm fell within the sweep of the term 'status' under section 246(1)(c) of the Act and, therefore, an appeal could be preferred to the Appellate Assistant Commissioner. The court also endorsed the view of the Allahabad High Court in the case of Vinod Krishna Som Prakash : [1979]117ITR594(All) .

11. We too are of the opinion that on the plain language of clause (c) of sub-section (1) of section 246, the assessee has a right to question the Income-tax Officer's order in regard to the determination of its status in an appeal to the Appellate Assistant Commissioner if he felt aggrieved thereby. The definition of the term 'status' found in Explanation (2) to section 143(3) of the Act is clarificatory in nature and places beyond the pale of doubt the fact that the word 'status' used in clause (c) of section 246(1) would cover the assessee's classification as registered or unregistered firm. We are, therefore, clearly of the view that the assessee's appeal to the Appellate Assistant Commissioner was covered by section 246(1)(c) of the Act as well.

12. Relying on the decision of the Calcutta High Court in Fuel Supply Company v. CIT : [1965]58ITR130(Cal) , the Tribunal seems to have taken the view that clause (j) of sub-section (1) of section 246 is a special provision for appeal in regard to orders which are made against the assessee under clause (b) of sub-section (1) or under sub-sections (2), (3) or (5) of section 185 which includes the refusal to renew the registration of a firm. Since we have come to the conclusion relying on the decision of this court in the case of Dineshchandra Industries : [1975]100ITR660(Guj) , that an appeal could lie under clause (j) of sub-section (1) of section 246 of the Act, we must proceed on the premise that the Tribunal was right in holding that the appeal to the Appellate Assistant Commissioner was under that clause. It is another matter that we have, on a construction of section 246(1)(c) of the Act also, come to the conclusion that an appeal would lie to the Appellate Assistant Commissioner under that clause as well. The moot question, however, is whether a composite appeal could lie both on the question of assessment of income under sub-section (3) of section 143 of the Act as well as on the question of the status of the assessee firm no matter whether the appeal under the former can lie under clause (c) and the latter under clause (j) of sub-section (1) of section 246 of the Act. It must be remembered that under both these clauses, the Income-tax Officer's order is appealable to the same authority, namely, the Appellate Assistant Commissioner. It must also be borne in mind that the Income-tax Officer made the assessment under sub-section (3) of section 143 of the Act under the same order under which he determined the status of the firm as unregistered. In other words, one regarding the assessment made under sub-section (3) of section 143 and the other touching on the status of the firm but by a single order dated March 28, 1974, he assessed the firm as an unregistered firm under sub-section (3) of section 143 of the Act. Both the orders are, therefore, interwoven and made on the same day and were liable to be appealed against under section 246 to the Appellate Assistant Commissioner. Assuming for the sake of argument that the appeal against the order refusing to renew registration could only lie under clause (j) of sub-section (1) of section 246 while the appeal against the order of assessment made under sub-section (3) of section 143 could lie under clause (c) of sub-section (1) of section 246, the question to be considered is, whether a composite appeal could be filed since the appellate authority for hearing the appeals on both the questions was the same, namely, the Appellate Assistant Commissioner. We do not find anything in the Act or the Rules to suggest that a composite appeal cannot be filed against both the orders to the Appellate Assistant Commissioner. If we turn to the memo. of appeal which is introduced as annexure 'E' to the statement of the case, we find that the prayer made in paragraph 4 of the grounds of appeal, firstly, related to the status of the assessee and, secondly, to the refusal of the Income-tax Officer to allow a deduction of Rs. 6,209 by way of levelling expenses. It must also be mentioned that the Appellate Assistant Commissioner did not grant an option to the assessee to choose one of the two reliefs even though he was of the view that a composite appeal could not lie. The Tribunal also did not adopt this procedure. If in the opinion of the Appellate Assistant Commissioner as well as the Tribunal a composite appeal did not lie, the choice had to be left to the assessee to opt for one of the two reliefs and the Appellate Assistant Commissioner could not entertain the appeal in regard to one relief of his choice and dismiss the appeal in regard to the other as incompetent. However, in the present case, we are of the opinion that a composite appeal could lie, no matter whether the appeal against the assessment order could be entertained under clause (c) and the appeal against the refusal to renew registration could be entertained under clause (j) of sub-section (1) of section 246 of the Act, since neither the Act nor the Rules prohibits a composite appeal to the same authority. In our view, both the Appellate Assistant Commissioner and the Tribunal adopted a highly technical approach in throwing out the assessee's appeal on the ground that a composite appeal did not lie.

13. It is well-settled that a right of appeal conferred by the statute has to be liberally construed and when the appeal lies to the same authority, it would be too technical an approach to adopt to partly reject the appeal on the ground that a separate appeal ought to have been filed instead of a composite one. The right of appeal is by way of a remedy provided by the statute and should not ordinarily be denied to the assessee unless the law prohibits it. The Appellate Assistant Commissioner ought to have dealt with the substance of the matter rather than throwing out the assessee's appeal in so far as it related to the status on the technical ground that a composite appeal could not be entertained. We are surprised to find that the Tribunal does not consider this approach of the Appellate Assistant Commissioner as technical. The Appellate Assistant Commissioner's approach in throwing out the appeal which undoubtedly lay to him on the sole ground that a composite appeal is not maintainable can only be described as hyper-technical and in the absence of positive indication in the Act or the Rules prohibiting a composite appeal, we think the Tribunal ought to have corrected the technical approach of the Appellate Assistant Commissioner rather than piling unreason upon technicality, a phrase which we borrow from the decision of the Judicial Committee of the Privy Council. In this view that we take, we are also supported by authority.

14. In CIT v. Rupa Traders : [1979]118ITR412(Cal) , the High Court of Calcutta, while describing a similar objection raised by the Revenue as hypertechnical, held that a single appeal could lie even in cases where the assessee challenged both a best judgment assessment as well as an order refusing registration. The court also held that its earlier decision in Fuel Supply Company's case : [1965]58ITR130(Cal) was of no assistance to the Revenue inasmuch as both the law and the procedure were since altered on the enactment of the Income-tax Act, 1961.

15. The Bombay High Court in CIT v. Hansa Agencies : [1980]121ITR147(Bom) also took the view that merely because appealable orders are separately indicated in separate clauses of sub-section (1) of section 246 of the Act, it would not follow that separate appeals have to be filed from each order. The facts of that case can be said to be very akin to the facts of the present case. In that case, the Income-tax Officer made two orders on the same day, one declining to grant continuation of registration of the assessee-firm and the other an order of assessment computing the total income of the said firm as an unregistered firm as in the present case. Both these orders were closely interconnected and were appealable. The High Court pointed out that in the absence of any provision in the Act or in the Rules or in the forms to suggest that two separate appeals are required to be filed from the orders of the Income-tax Officer, a composite appeal would lie.

16. In Madhur Jalpan v. CIT : [1983]143ITR351(Patna) , the Patna High Court also felt that the Tribunal's approach that as the appeal in so far as it related to the refusal to renew registration was covered by clause (j) of sub-section (1) of section 246, it could not be the subject-matter of an appeal preferred under clause (c) of that sub-section, was not correct.

17. We are, therefore, of the opinion that both the Appellate Assistant Commissioner and the Tribunal were clearly in error in taking the view that a single composite appeal could not lie because different clauses of sub-section (1) of section 246 were attracted, namely, clause (c) in so far as the appeal was against the order of the assessment made under sub-section (3) of section 143 and clause (j) in so far as it related to the Income-tax Officer's order refusing renewal of registration. Since neither the Act nor the Rules prohibit a single composite appeal, we think that the view taken by the Tribunal cannot be sustained. For reasons which we have indicated above, we answer both the questions in the negative, that is, against the Revenue. Reference disposed of accordingly with no order as to costs.


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