SRINIVASAN J. - The question that has been referred to this court by the Income-tax Appellate Tribunal is :
'Whether there were materials for the Tribunal to hold that registration of the firm could not be renewed for 1952-53 ?'
The assessee is a partnership firm dealing in jewellery and diamonds. The previous year relating to the assessment year 1952-53 ended with October 30, 1951. On August 1, 1952, a notice was served on the assessee under section 22(2) and section 38 of the Act to submit a return of income. Notwithstanding the grant of further time, no return was submitted. A further notice under section 22(4) directed the assessee to produce his books of account on August 17, 1953. On this date, a return of income was filed on which the income was provisionally shown as Rs. 75,000. With regard to the submission of accounts, the assessee claimed that the accounts were still incomplete and that it would take another two months for the books to be completed and the return to be filed. Thereupon, the Income-tax Officer proceeded to finalise the assessment under section 23(4) of the Act.
It would appear that on February 20, 1953, the assessee had submitted an application under section 26A for the renewal of the registration of the firm for the assessment year in question. It may be mentioned that the registration of the firm for the previous assessment year, that is, 1951-52, was granted only on June 11, 1953. We have been informed that for the year of assessment 1953-54, renewal of registration has been granted. But for the reasons which would would be set out presently, renewal of registration for the assessment year 1952-53 was refused, and it is only the grounds of such refusal that we are concerned in this reference.
The Income-tax Officer, in dealing with the application for the renewal of registration for the assessment year 1952-53 took the view that the books of account had not been closed and the profits or loss of the firm for the previous year relating to the assessment had not been determined. He also thought that is order that there should be a valid application for renewal or registration, the profits or loss, if any, of the previous year should have been ascertained and divided or credited and specified in that manner in the declaration accompanying the application. Since that had not been done, to took the view that the declaration given by the firm in their application dated February 20, 1953, was false. He accordingly declined to grant renewal. The Appellate Assistant Commissioner agreed with the Income-tax Officer and rejected the appeal that was filed before him. A further appeal to the Appellate Tribunal also failed. It may, however, be noted that the Tribunal Proceeded to dismiss the appeal on the ground, that the application was an incomplete one, for the reason that it failed to comply with the requirement of the rules, and the assessee firm had failed to furnish all the particulars required to be filled in, which justifiably led the Income-tax Officer to conclude that the continued existence of the firm was not established and that the certificate attached to the application was not correct. The Tribunal held that in view of a change in the rules, which came into effect on November 20, 1952, the firm should have submitted its application before a specified date, that is, June 30, 1952, failing that, the firm should have submitted the application at least before November 20, 1952, when the changed rule came into operation. The Tribunal accordingly held that the application was barred by time.
We may at the outset deal with the last of the grounds upon which the Appellate Tribunal relied in dismissing the appeal before it. The relevant rule was changed on November 20, 1952. Under the rules as they stood prior to this date, an application could be made for the initial registration of a partnership firm before the income of the firm was assessed for any year under section 23 of the Act. We are leaving out the other parts of the rule which are not relevant. Under rule 6 as it stood, an application for renewal of a firm for a subsequent year could also be made within the time and subject to the conditions specified in rule 2. The rule as it was amended on November 20, 1952, required that an initial application for registration 'shall for any year of assessment up to an including the assessment for the year ending on March 31, 1953, be made before February 28, 1953'. The other sub-clauses of this rule do not require to be referred to. Sub-clause (c) of rule 2 stated : 'Where the application is for renewal of registration under rule 6 for any year, before the June 30, of that year.' Rule 6 as amended provided : 'The application should be made before the day of June 30 of the year for which entertain an application made after the expiry of the said date, if he is satisfied that the firm was prevented by sufficient cause from making the application before that date.' It is clear from this amended rule that in so far as the assessment year 1952-53 is concerned, the application for renewal had to be made before the day of June 30 of that year, that is to say, before the day of June 30, 1952. Obviously this requirement was incapable of being fulfilled when the rule itself was altered only on November 20, 1952. It is stated by Mr. Viswanatha Aiyar, learned counsel for the assessee, that the income-tax authorities clarified the position and said that even applications for reveal could be made before February 28, 1953. This position is not controverted by Sri Rama Rao Sahib, learned counsel for the respondent. The Appellate Tribunal overlooked these sailed features and preceeded to express its view, that according to the amended rule 'the application should have been made before June 30, 1952, or at the latest before November 20, 1952, when it was altered.' We are wholly at a loss to see how any assessee could have anticipated the amendment to the rule. Prior to the date of the amendment to this rule, the assessee was at liberty to apply for renewal of registration at any time before assessment was completed under section 23. It was not, therefore, possible for the assessee to have filed the return before November 20, 1952. The application having been filed is this case on February 20, 1953, that is, before the last date specified in the amended rule, February 28, 1953, must be held to have been in time.
The next question we have to consider is, whether the application was defective in any manner or incorrect and incomplete, as stated by the Appellate Tribunal. According to the Tribunal, paragraph 2 of the form of the certificate, which required the applicant to furnish the date of the registration of the instrument of partnership for the previous assessment year, had not been filled in. It is conceded on behalf of the department that the order of registration of the firm for the assessment years 1951-52 was in fact only made on June 11, 1953. We can hardly see how the applicant could have furnished this date in an application which he made on February 20, 1953. It is true that the applicant could have stated therein that the application for the registration of the firm for the previous assessment year was already pending before the Income-tax Officer and orders thereon had not yet been passed. But it is not correct to say that the mere failure of the applicant to fill in paragraph 2, under the circumstances, rendered it incomplete or incorrect. Considering that the earlier application was ordered in favour of the assessee on June 11, 1953, it should follow that the assessment year must have been finalised only on the basis of the registration of the partnership. In dealing with the assessment for the assessment year 1952-53, the Income-tax Officer could not have failed to look into the earlier assessment records, and the fact that the firm had applied for registration for the assessment year 1951-52, and that the matter was still pending finalisation could not have escaped his notice. In these circumstances the failure to complete paragraph 2 of the form did not justify the conclusion, that the form was incorrect or incomplete.
The more substantial question that has been argued is, whether the application was so defective as to render it invalid by reason of the failure to comply with the requirements of paragraph 3. In fact, the Income-tax Officer took the view, that the relevant declaration was false, a view that was concurred in by the Appellate Assistant Commissioner. Paragraph 3 of the form relating to initial application for registration before the amendment of the rule ran thus :
'We do hereby further certify that the profits (or loss, if any) of the previous year were period up to the date of discussion were/will be divided or credited as shown below.............'
The corresponding part of the form relating to the renewal of registration was precisely similar. The view taken by the department and the Appellate Tribunal was that the clear and specific requirement in this connection demanded that profits or loss, if any, of the previous year in the case of a continuing firm shall have been actually divided or credited in the accounts as specified in the application. It will be noticed that his rule deals both with the case of a continuing firm and a firm that had been dissolved prior to the date of the application. Splitting up this rule, we arrive at the following positions :
'(1) We do hereby certify that the profits (or loss if any) of the previous year were divided or credited as shown below.'
That would apply to a continuing partnership.
'(2) We do hereby further certify that the profits (or loss, if any) of the period up to the date of the dissolution were/will be divided or credited as shown below.'
This would clearly apply to the case of a firm which had been dissolved sometime during the previous year relating to the assessment. In the amended rule which came into force on November 20, 1952, this form of the certificate was printed somewhat differently, the entire alternative running in one continuous line in this manner :
'We do hereby further certify that the profits (or loss, if any) of the previous year were/period up to the date of dissolution were/will be divided or credited as shown below.'
The question upon which lengthy arguments were addressed before us was whether the alternative of 'were/will be' was available both to a continuing firm and to a dissolved firm. Though this certificate after the amendment is not printed in the same manner as before amendment, the exact copy of which certificate we have reproduced earlier, it seems clear to us that the alternative 'were/will be' was never available before the amendment to the rule and has not been made available subsequent to the amendment in the case of a continuing firm. The rule specifically required that the actual division of the profits or loss, if any, in respect of a continuing firm should have been made by the date on which the application for renewal was made. That this would be the correct view is established by another circumstance to which we shall presently refer.
The amendment was brought into force by Notification No. S.R.O. 1953 dated November 20,1952. The rules extant hitherto were not accepted in toto and substituted by a fresh set of rules. Only certain amendments in rules 2, 3 and 6 were carried out in the existing rules. With particular reference to paragraph 3, of the form which relates to the certificate of division of the profits or loss, the amendment was carried out only in Form I which relates to the application for initial registration. While previously the alternative of 'were/will be' was not available in the case of initial registration of the firm, this form was amended to confer the benefit of that alternative for initial registration both in the case of continuing firms and in the case of dissolved firms. In sharp contrast with it, paragraph 3 of the form relevant to a renewal application was not amended to extend the alternative 'will be' to the case of a continuing firm. This should, therefore, make it clear that in so far as the renewal of registration was concerned, the applicant was required to divide the profits or losses of the firm during the previous year relevant to the assessment year, before he could made a valid application for such renewal. It is conceded that that was not done in this case, and it should, therefore, follow that there was not a strict compliance with the rules.
We may observe in this connection that registration of a firm under section 26-A of the Act confers a statutory privilege upon the firms and enables them to get the benefit of lower rates of assessment than those which would be applicable if the whole income of the firm is brought to tax as in the case of an unregistered firm. It should, therefore, follow that if the firm seeks this privilege, it must conform strictly to the requirements prescribed by the rules. One of those requirements is clear, that in the case of a continuing firm, the profits or loss should have been actually divided or credited to the account of the partners before the application for registration is made. That requirement has not been complied with in this case. Since, in our view, the alternative referred to is not available to a continuing firm, it follows that the application was incomplete in very material particulars. The Tribunal was right in holding it to be so.
Learned counsel for the assessee represented that the denial of the alternative, to a continuing partnership to show in its application that the profits of the year of account will be distributed in future, might lead to anomalous results. We shall illustrate the point the hypothetical cases. Even if the year of account ended on the March 31 every year the year of assessment would be one commencing from April 1. In such a case, whether it is a dissolved firm or a continuing firm which seeks renewal of registration the position under the new rules would be that the application would have to be made before the of June 30. If a firm had been dissolved in the year of account say at the end of the first month, such a dissolved firm would have the alternative of not completing the division of profits but postponing it to a future date even on the date it submits its application for renewal of registration for the period during which it was undissolved while a firm which continued right through the accounting period would have to complete its actual division within two months, that is before June 30. The difficulties visualised by learned counsel are no doubt there. But difficulties and individual hardships in working out the rule cannot justify reading into that rules more than that they contain. We have to interpret the rules and the requirement of the forms as they stand. It is for the rule making authority to amend the rules. We quite agree with the learned counsel for the assessee that prescribing a date for application either counsel for the assessee that prescribing a date for application, either for registration for renewal of registration makes a lot of difference and there is everything to be said in offering the alternatives both to continuing firms and to dissolved firms. That however as we have pointed out is a matter for the rule making authority to rectify and not for the court to rectify by a process of interpretation.
On our reading of the rules and the forms which have to be read with the rules we answer the question in the affirmative and against the assessee. The assessee will pay the costs of this reference. Counsels fee Rs. 250.
Question answered in the affirmative.