Skip to content


Commissioner of Income-tax Vs. Ganga Jamuna - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 315 of 1977
Judge
Reported in[1986]157ITR225(Cal)
ActsIncome Tax Act, 1961 - Sections 143, 184, 184(7), 185 and 246
AppellantCommissioner of Income-tax
RespondentGanga Jamuna
Excerpt:
- .....was justified in confirming the order of the appellate assistant commissioner directing the income-tax officer to grant registration to the firm in an appeal, against the status of the assessee ?'2. the facts briefly stated are as follows :in the proceeding for assessment to tax, the assessee claimed continuation of registration on the basis of declaration filed in form no. 12 under section 184(7) of the act. the income-tax officer without assigning any reason as to why the status of the assessee should be taken as association of persons, completed the assessment in the status of an association ofpersons. when the assessee went up in appeal before the appellate assistant commissioner, he directed the income-tax officer to allow registration to the firm.3. the revenue, in appeal.....
Judgment:

Ajit K. Sengupta, J.

1. In this reference under Section 256(1) of the Income-tax Act, 1961, the following question of law has been referred to this court :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the order of the Appellate Assistant Commissioner directing the Income-tax Officer to grant registration to the firm in an appeal, against the status of the assessee ?'

2. The facts briefly stated are as follows :

In the proceeding for assessment to tax, the assessee claimed continuation of registration on the basis of declaration filed in Form No. 12 under Section 184(7) of the Act. The Income-tax Officer without assigning any reason as to why the status of the assessee should be taken as association of persons, completed the assessment in the status of an association ofpersons. When the assessee went up in appeal before the Appellate Assistant Commissioner, he directed the Income-tax Officer to allow registration to the firm.

3. The Revenue, in appeal before the Tribunal, contended that the case should have been sent back to the Income-tax Officer for considering the matter relating to registration. It was contended on behalf of the assessee that the failure on the part of the Income-tax Officer to pass an order under Section 185 should not prejudice the assessee. After considering the relevant provisions of the Act, the Tribunal directed the Income-tax Officer to grant continuation of registration to the assessee and upheld the view taken by the Appellate Assistant Commissioner.

4. The question with which we are concerned in this reference is, whether in an appeal preferred by the assessee against the status determined in the assessment, the assessee can agitate the ground regarding the registration or continuance of the registration of the firm. The answer to this question depends on the interpretation of the relevant provisions of the Income-tax Act, 1961. Section 246 deals with appeals before the Appellate Assistant Commissioner. It, inter alia, provides as follows :

'246. Appealable orders.--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 Subsection (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.'

5. Thus under Section 246(c), the assessee may prefer an appeal against the amount of tax determined or the status under which the assessee is assessed. Section 246(j) provides that an appeal will lie against the order refusing to register the firm or refusing to continue the registration of a firm. Thus, two separate appeals are provided for two different contingencies. In a case where the Income-tax Officer passes an order under Section 185 either refusing to register the firm or refusing to continue the registration, an aggrieved assessee may prefer an appeal and the propriety of such refusal will be gone into by the Appellate Assistant Commissioner in the appeal preferred against an order under Section 185. An assessee may not be aggrieved against the assessment at all, but it may be aggrieved if status is wrongly determined. The difficulty, however, arises where the Income-tax Officer without passing an order under Section 185 determinesthe status contrary to what has been shown by the assessee in the return. In such a situation, the question assumes importance whether in an appeal against the assessment where the assessee objects to the status under which it is assessed, the Appellate Assistant Commissioner can determine the correct status of the assessee as has been done in the instant case.

6. Section 4 imposes a tax upon a person in respect of his total income of the previous year. The persons on whom such tax can be imposed are specified in Section 2(31), namely, individual, Hindu undivided family, firm, association of persons, local authority, etc. A firm is a unit of assessment under the Act. Section 2(23) provides that a firm, partner and partnership will have the meanings respectively assigned to them in the Partnership Act, 1932. Section 2(39) provides that a registered firm would mean a firm registered under the provisions of Section 185(1)(a) or under :that provision read with Section 184(7).

7. The Income-tax Officer in making an assessment has to determine the status of an assessee. A firm under the Income-tax Act may be an unregistered firm or a registered firm. Therefore, mere determination of the status as 'firm' will not satisfy the requirements of the Act. ' Where an application for registration has been made or where continuation of registration is sought for, the Income-tax Officer is duty bound to determine further whether such firm should be classified as a registered firm or an unregistered firm. This is apparent from Explanation (2) of section 143 which is in the following terms :

''Status', in relation to an assessee, means 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 registered firm or an unregistered firm.

8. The Explanation appended to Section 246, is as follows :

' ' Status' means the category under which the assessee is assessed as 'individual', 'Hindu undivided family' and so on.'

9. The assessment of a firm, therefore, is not complete unless the classification of the firm as registered or unregistered is determined by the Income-tax Officer. The Income-tax Officer has to compute the taxable income and to determine the tax payable. After the computation of the income and determination of the tax payable, there will be a demand for the tax found due on such determination. Whether a firm is registered or not does not make any difference in the process of computation of the taxable income. A registered firm or an unregistered firm is a unit of assessment and income of the firm is computed in its hands as that of an entity irrespective of whether the firm is registered or unregistered, but ifa firm is registered, then there would be a substantial difference in respect of determination of the tax payable and demand for the tax found due. An unregistered firm has to pay tax as an individual. A registered firm stands on a different footing. That is why special provisions have been made, inter alia, for assessment and registration of the firm under sections 182 to 189. The Income-tax Officer, therefore, cannot determine-the correct status of a firm without considering the applicability of the provisions of sections 184 and 185 of the Act. If an assessee files an application for registration, the Income-tax Officer in determining the status has to determine whether the registration is to be granted to this particular firm or not. Similarly, when an application is made under Section 184(7) for continuation of registration, the Income-tax Officer has to consider whether the provisions governing the continuation of registration have been complied with or not. In either case, the Income-tax Officer has to pass an appropriate order. He cannot determine the status of the assessee as a firm without determining whether it is a registered firm or an unregistered firm. The Act enjoins on the Income-tax Officer to pass in the case of a firm not only an order of assessment but also an appropriate order under section 185 of the Act. The order under Section 185 either allowing or refusing registration or allowing or refusing continuation of registration although independent of the assessment order, is intimately connected with the order of assessment. Where the Income-tax Officer completes the assessment and determines the status of the assessee complying with the provisions of the Act, there will be no difficulty inasmuch as the aggrieved assessee would be entitled to prefer, an appeal under Section 246(c) as well as under Section 246(j). The problem arises when the Income-tax Officer determines the status of the assessee in the assessment as an association of persons or unregistered firm ignoring or without dealing or disposing of an application for registration or the application for continuation of registration. In other words, the In-come-tax Officer does not pass or fails to pass an order under Section 185 but none the less determines the status of the assessee to its prejudice in the light of the relevant provisions of the Act. , In such a case, if it is held that because of the provisions of the Section 246(j), the assessee is without a remedy, in that event, the failure of the Income-tax Officer in performing the mandatory duties under the Act would be given legal sanction. The Income-tax Officer is bound to carry out the provisions. of the Act and he must make the assessment in compliance with all the relevant provisions. The failure on the part of the Incomer-tax Officer or his inaction, deliberately or otherwise, in not passing an appropriate order under Section 185 should not prejudice the assessee. An appeal in such a case should not be held to be not maintainable on the ground that theIncome-tax Officer did not pass an order under Section 185. The assessee cannot be deprived of a remedy against a wrong done by the Income-tax Officer. In a case like this, the assessee will be entitled to prefer an appeal under Section 246(c) objecting to the determination of the status as the controversy as to whether a firm should be treated as registered or unregistered one pertains to its status. Broadly speaking, the assessee who objects to the determination of status can urge the ground whether it should have been allowed registration or continuation of registration in an appeal preferred under Section 246(c). The assessee may in such a case also contend that it objects to the amount of tax determined. As indicated earlier, an unregistered firm has to pay tax as an individual. There are special provisions for payment of tax by a registered firm. There is substantial difference in the quantum of tax payable by an unregistered firm and a registered firm and the partners thereof. Where no order is passed by the Income-tax Officer either granting or refusing registration to the firm or allowing or refusing continuation of registration, it must be deemed that the application for registration or continuation of registration has been rejected by the Income-tax Officer. In that event, an appeal will lie under Section 246(j) of the Act. Alternatively, where no order is passed under Section 185, but none the less status is determined contrary to the claim made by the assessee, the assessee may prefer an appeal under Section 246(c) objecting to the status under which it is assessed or the amount of tax determined on such assessment. We are, therefore, of the view that the Tribunal was right in holding that the Appellate Assistant Commissioner was right in deciding the question of registration in the appeal preferred against the determination of status.

10. The other contention of the Revenue is that the Appellate Assistant Commissioner instead of determining the status as a registered firm should have sent the matter back to the Income-tax Officer for fresh determination. On the facts of the case, we are unable to accept this contention. Firstly, the scope of the powers of the Appellate Assistant Commissioner is coterminous with that of the Income-tax Officer. The Appellate Assistant Commissioner has plenary powers in disposing of an appeal. He can do what the Income-tax Officer can do and can also direct him to do what he has failed to do. (See CIT v. Kanpur Coal Syndicate : [1964]53ITR225(SC) ). Secondly, the Appellate Assistant Commissioner took note of the fact that for the earlier years the registration was allowed and as such the registration should be continued. In that view of the matter, the Appellate Assistant Commissioner was right in not sending the matter back to the Income-tax Officer for fresh determination and the Tribunal, in our opinion, was right in confirming the direction of the Appellate Assistant Commissioner.

11. In the premises, we answer the question in this reference in the affirmative and in favour of the assessee. There will be no order as to costs.

Dipak Kumar Sen, J.

12. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //