1. The facts found and/or admitted in these proceedings are rather unusual. Messrs. Harnandrai Badridas, the assessee, was assessed to income-tax for the assessment year 1949-50, the relevant previous year being Diwali 2004-2005. As the assessee did not file its return of income or produce its books of account at the assessment, the ITO made the assessment under Section 23(4) of the Indian I.T. Act, 1922, in the status of an unregistered firm. It was recorded in the order of assessment as follows :
' The question of renewal of registration does not arise since there is no application for the same.'
2. The assessee preferred an appeal against the said order of the ITO refusing to grant registration and contended in the appeal that an application for renewal of registration had been duly filed. The AAC found that the assessee's application for renewal of registration had been received by the revenue authorities on the 27th February, 1953. He, therefore, directed the ITO to dispose of the application for renewal of registration according to law and allowed the assessee's appeal. He construed the order of the ITO to be a consolidated order under Section 23(4) and Section 26A of the said Act.
3. Being aggrieved by the order of the AAC, the revenue went up in appeal before the Income-tax Appellate Tribunal. The Tribunal found that the ITO had not considered the question of the registration at all inasmuch as he was under the belief that no application for the renewal of registration had been made by the assessee.
4. The Tribunal found further that as no order refusing registration had been passed either under Section 26A or under Section 23(4) no appeal lay before the AAC and hence no further appeal could lie before the Tribunal. The Tribunal, accordingly, dismissed the appeal of the revenue observing that it had no power to interfere with an administrative matter, as it became, by reason of the order of the AAC.
5. In compliance with the order of the AAC, the ITO took up the application of the assessee under Section 26A of the Act for consideration. He issued a notice on the, 19th July, 1963, to the assessee to show cause why registration should not be refused. The assessee submitted in reply that its account books were adjusted and that the profit and loss statement as also the partners' capital account had been prepared and, therefore, the registration should be renewed. The assessee, however, did not file any return of income. The ITO held that the assessment had become final and he refused to renew the registration of the assessee by exercising his discretion under Section 23(4) of the Act.
6. Being aggrieved by the said order the assessee preferred an appeal and produced before the AAC the account books of the relevant period which showed that the profit of the relevant year had been distributed in accordance with the respective shares of the partners and credited to their accounts. The AAC found that the only ground on which the ITO had rejected the claim for renewal of registration was satisfied by the assessee. Accordingly, he allowed the appeal and directed the ITO to grant registration.
7. The revenue preferred an appeal to the Income-tax Appellate Tribunal against the order of the AAC. It was contended in the appeal that the ITO had rightly refused registration to the assessee by exercising powers conferred under Section 23(4) of the Act for non-production of the books of account and non-filing of return. On behalf of the assessee, it was contended that the only basis on which the ITO refused renewal of registration was non-production of the books of account. Such infirmity having been remedied at the appellate stage it was open to the AAC to determine the issue of registration on merits, which he did determine.
8. The Tribunal held that it was open to the ITO to refuse registration of the firm either under Section 23(4) or under Section 26A. If the ITO intended to refuse registration under Section 23(4) it was necessary for him to exercise his discretion at the time or before the completion of the assessment under Section 23 and the ITO had to record his decision refusing registration under the said section at the latest when the assessment order was passed. The ITO could no doubt refuse registration under Section 26A, but in that case his powers would be confined to the said section and the rules made thereunder. The Tribunal found that when the original assessment was made under Section 23(4) the ITO had not exercised his discretion under the said section but refused registration on the only ground that there was no application for registration, i.e., under Section 26A. But by reason of the direction of the AAC, the ITO had to dispose of the assessee's application under Section 26A de novo, The Tribunal held that the ITO had to exercise his discretion under Section 23(4) at the time of making the assessment. In the instant case, having failed to exercise such discretion when the order of assessment was passed the ITO could not again exercise his power under the said Section 23(4). The assessee's application under Section 26A was found to be in compliance with the requirements of the said section and the rules thereunder. The Tribunal held that the AAC was justified in allowing the said application and directing the ITO to renew registration and allowed the assessee's appeal.
9. On the application of the Commissioner of Income-tax, West Bengal V, Calcutta, under Section 256(1) of the I.T. Act, 1961, the Tribunal has drawn up a statement of case and has referred the following questions for the opinion of this court as questions of law arising from its order :
' 1. Whether, on the facts and in the circumstances of the case, the Tribunal's finding that at the time of making the assessment the Income-tax Officer had not exercised his discretion under Section 23(4) to refuse registration is correct ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the Income-tax Officer was not competent to exercise the discretion vested in him under Section 23(4) of the Indian Income-tax Act, 1922, while refusing the renewal of registration to the assessee-firm long after the assessment is completed ?
3. Whether the Tribunal, on the facts and circumstances of the case, was justified in law in refusing to go into the question of delay in the filing of the application for renewal of registration for the assessment year 1949-50?'
10. Question No. 1 appears to us to be a question of fact. The finding of the Tribunal is that the ITO had not exercised his discretion under Section 23(4) of the Act in refusing registration to the assessee. This finding has not been challenged as perverse or being based on no evidence or irrelevant material. As such, we decline to answer question No. 1.
11. Question No. 3, in our view, does not arise from the order of the Tribunal. Further, we find that the revenue did not ask the Tribunal to refer this question for the opinion of this court. Accordingly, we also decline to answer question No. 3.
12. Mr. Suhas Sen, learned counsel for the revenue, submitted on question No. 2, inter alia, that the ITO was competent to exercise his discretion under Section 23(4) of the Act whenever the question of renewal of registration came up before him. It is not the case of the assessee that the ITO had exercised the discretion in favour of the assessee when the assessment was made under Section 23(4). The order shows that the assessee was treated as an unregistered firm. The ITO found that there was no application of the assessee for renewal of registration and, therefore, he did not consider the question of registration. It is also not the case of the assessee that the ITO exercised his discretion under Section 23(4) and refused the renewal of registration. He submitted that an order granting or refusing registration to an assessee was an order independent and separate from the order of assessment and because an order of assessment had been made under Section 23(4) it did not follow that an order granting or refusing registration must be deemed to have been made.
13. Mr. Sen submitted further that the powers of the ITO respectively under Sections 26A and 23(4) were distinct and independent and they could be exercised simultaneously or separately. In the instant case, when the ITO was considering the application of the assessee under Section 26A of the Act, he could also exercise his discretion under Section 23(4) as the same had not been exercised till that time. It was within his discretion to refuse registration of the firm under Section 23(4).
14. In support of his contentions, Mr. Sen cited a decision of the Supreme Court in CIT v. Amritlal Bhogilal & Co. : 34ITR130(SC) for the following observations in the judgment of Gajendragadkar J. (at page 137 of the report):
' It is important to bear in mind that the order granting registration to an assessee-firm is an independent and separate order and it merely affects or governs the procedure to be adopted in collecting or recovering the tax found due. It is not disputed that the registration granted by the Income-tax Officer to an assessee-firm can be cancelled by him either under Section 23(4) or under Rule 6B. It is also clear that the Income-tax Officer's order granting registration can be cancelled by the Commissioner under Section 33B(1).'
15. Mr. Sen also cited a decision of the Gujarat High Court in CIT v. Jekisondas Bhukandas : 66ITR515(Guj) . This decision was cited for the following observations of Bhagwati J. (at page 519 of the report):
' The Income-tax Officer has thus two powers to refuse registration of a firm I one under Section 26A, and the other, under Section 23(4). The two powers are distinct and independent; the scope of the two powers is different and different conditions govern the exercise of the two powers. But that does not mean that the Income-tax Officer cannot exercise both the powers simultaneously and make an order refusing registration under both the sections. The Income-tax Officer can refuse registration under Section 26A or in the exercise of his discretion under Section 23(4) or simultaneously under Section 26A and in the exercise of his discretion under Section 23(4).'
16. Mr. Pranab Pal, learned counsel for the assessee, contended on the other hand that Section 23(4) of the Act contemplated only one order. Section 30 of the Act provided for appeals, inter alia, against an order of refusal to register a firm under Section 23(4) and this appeal had to be presented within 30 days of the receipt of the notice of demand following the assessment. Unless the order of assessment and the order refusing to renew registration was passed at one and the same time the assessee would be prejudiced inasmuch as his appeal from the order refusing renewal of registration under the said section would become time-barred.
17. Mr. Pal submitted further that it was not open to the ITO to split up Section 23(4) of the Act and pass different orders thereunder at different times. An order under Section 23 was primarily an order of assessment and under Section 34(3) no order of assessment could be passed after the expiry of a specified period. If the contentions of the revenue were accepted then it would result in an order of assessment being made after the statutory period.
18. In support of his contentions Mr. Pal cited, firstly, a decision of the Andhra Pradesh High Court in CIT v. J. Govinda Rao & Sons : 41ITR186(AP) . This decision was cited for the following observations of Chandra Reddy C.J. on Section 23 of the Indian I.T. Act, 1922 (at page 189 of the report):
' The section contemplates that after making the assessment to the best of his judgment the Income-tax Officer could also refuse to register the firm or cancel its registration if it is already registered. This is the effect of the use of the word ' and' after the expression ' on the basis of such assessment' and before the words ' in the case of a firm, etc.' Having regard to the terms of the section, it is beyond controversy that the proper officer may as part of the order making the assessment to the best of his judgment also either cancel the registration, if the firm was already registered, or refuse to register it.'
19. Mr. Pal also cited a decision of the Jammu & Kashmir High Court in S. Mubarik Shah Naqshbandi v. CIT , where Section 144 of the I.T. Act, 1961, which correspond to Section 23(4) of the Indian I.T. Act, 1922, was construed. It was held by the High Court that it was mandatory on the ITO under the said section to determine the amount of tax as otherwise the assessee would be deprived of his right to appeal under Section 246(c) of the 1961 Act.
20. On the strength of the above authorities Mr. Pal submitted that, in the instant case, the ITO must be construed to have exercised his powers under Section 23(4) at the time when he made the order of assessment and, therefore, it was not open to him to exercise such powers over again.
21. To appreciate the controversy in the instant case it is necessary to refer to the sections involved. The material part of Section 23 of the Indian I.T. Act, 1922, reads as follows:
' (4) If any person fails to make the return required by any notice given under Sub-section (2) of Section 22 and has not made a return or a revised return under Sub-section (3) of the same section or fails to comply with all the terms of a notice issued under Sub-section (4) of the same section or, having made a return, fails to comply with all the terms of a notice issued under Sub-section (2) of this section, the Income-tax Officer shall make the assessment to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment and, in the case of a firm, may refuse to register it or may cancel its registration if it is already registered:
Provided that the registration of a firm shall not be cancelled until fourteen days have elapsed from the issue of a notice by the Income-tax Officer to the firm intimating his intention to cancel its registration. (5) Notwithstanding anything contained in the foregoing sub-sections, when the assessee is a firm and the total income of the firm has been assessed under Sub-section (1), Sub-section (3) or Sub-section (4), as the case may be,--
(a) in the case of a registered firm,--
(i) the income-tax payable by the firm itself shall be determined; and
(ii) the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined :...'
22. Section 26A reads as follows :
' Procedure in registration of firms.--(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 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 J and it shall be dealt with by the Income-tax Officer in such manner as may be prescribed.'
23. The material part of Section 30 of the Act of 1922 is as follows :
' Appeal against assessment under this Act.--(1) Any assessee......objecting to the cancellation by an Income-tax Officer of the registration 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 Assistant Commissioner against......such refusal or order i......
(2) The appeal shall ordinarily be presented within thirty days of the payment of the tax deducted under Sub-section (3A), (3B) or (3C) of Section 18 or of receipt of the notice of demand relating to the assessment of penalty objected to or of the order in writing notifying the amount of total income on which the determination under Sub-section (5) of Section 23 was based and the apportionment thereof between the several partners or of the loss computed under Section 24...... or to register a firm under Section 26A......but the Appellate Assistant Commissioner may admit an appeal after the expiration of the period if he is satisfied that the appellant had sufficient cause for not presenting it within that period. '
24. The material provisions of Section 34 of the Act of 1922 are as follows :
' 34. (3) No order of assessment or reassessment, other than an order of assessment under Section 23 to which Clause (c) of Sub-section (1) of Section 28 applies or an order or assessment or reassessment in cases falling within Clause (a) of Sub-section (1) or Sub-section (1A) of this section shall be made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable :......'
25. Rules 6A and 6B of the Indian I.T. Rules, 1922, read as follows :
' 6A. On receipt of an application under Rule 6 the Income-tax Officer may, if he is satisfied that the application is in order and that there is or was a firm in existence constituted as shown in the instrument of partnership, grant to the assessee a certificate signed and dated by him......
' If the Income-tax Officer is not so satisfied, he shall pass an order in writing refusing to renew the registration of the firm.'
' 6B. In the event of the Income-tax Officer being satisfied that the certificate granted under Rule 4, or under Rule 6A, has been obtained without there being a genuine firm in existence, he may cancel the certificate so granted.'
26. Construing the said sections and the relevant rules it appears to us that in determining whether the registration of a firm would be renewed or not the ITO has to keep in view the provisions of both Section 26A and Section 23(4). If the application of the assessee for registration is not in conformity with Section 26A or the provisions of Rule 6B, further registration will be refused by the exercise of powers under Section 26A alone. But if the assessment has been made under Section 23(4) of the Act, the ITO is also empowered to exercise further discretion in respect of renewal of registration of the firm on grounds which ex facie do not appear in Section 26A. When an assessment is made under Section 23(4) the ITO is charged with a duty to exercise such discretion. In appropriate cases an application of the assessee under Section 26A may be rejected on the ground that the application is not in conformity with Section 26A. At the same time, if the assessment has been made under Section 23(4), the ITO may exercise his discretion and refuse registration on grounds as provided in Section 23(4).
27. We are unable to accept the contention of the assesses, that when the ITO makes an assessment of the income of a firm under Section 23(4), he must simultaneously exercise his discretion and consider the question of renewal or cancellation of the firm's registration. An appeal has ordinarily to be preferred by the assessee against an order passed under Section 23(4) refusing registration within the time specified in Section 30. But the AAC has ample power to admit an appeal preferred after the expiry of the said period when the assessee has sufficient cause for not presenting its appeal within time. The expression ' order of assessment' in Section 34(3), in our view, does not include an order refusing registration under Section 23(4).
28. In the instant case, it appears, the ITO, when he made the assessment, did not exercise his discretion under Section 23(4) of the Act. This is also the finding of the Tribunal. When the ITO was thereafter directed by the AAC to consider the assessee's application under Section 26A de novo, in our view, it was open to the ITO also to exercise his discretion under Section 23(4). An order refusing renewal of registration under Section 23(4) is, in our opinion, separate from the assessment made thereunder and also separate from an order passed under Section 26A and such orders can be passed simultaneously or separately.
29. For the above reasons, we answer question No. 2 in the negative and in favour of the revenue. There will be no order as to costs.
Bimal Chandra Basak, J.