TMI Blog1967 (6) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... partners. On 29th June, 1961, a notice under section 22(2) calling for a return of income for the assessment year 1961-62 was served on the assessee but the assessee neither filed a return of its income nor applied for extension of time to file its return. The Income-tax Officer, therefore, proceeded to make a best judgment assessment on the assessee under section 23(4) and by an assessment order dated 23rd December, 1961, he assessed the assessee on an estimated income of Rs. 45,000. The assessee thereafter made an application for cancellation of the best judgment assessment under section 27 but the application was rejected by the Income-tax Officer, and on appeal the order rejecting the application was confirmed by the Appellate Assistant Commissioner and the Tribunal. The result was that the best judgment assessment made under section 23(4) remained undisturbed against the assessee. The assessee had also made two applications for registration under section 26A : one being an application for registration dated 26th May, 1960, and the other being an application for renewal of registration dated 26th June, 1961. Both the applications related to the same assessment year, namely, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was correct in holding that the Income-tax Officer had failed to exercise the discretion vested in him under section 23(4), before refusing registration and/or renewal of registration of the assessee-firm and in granting registration to the assessee-firm for the assessment year 1961-62 ? " Hence, the present reference to us at the instance of the Commissioner. In order to arrive at a proper determination of the question, it is necessary to notice the relevant provisions of the Act. There are two sections under which the Income-tax Officer has power to refuse registration of a firm : one is section 26A and the other is section 23(4). Section 26A provides: " 26A. (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 and it shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceding part of the section shows that section 23(4) does not prescribe automatic refusal of registration in the event of the fulfilment of the conditions set out in the section but confers a discretionary power on the Income-tax Officer to refuse registration in such a case. The Income-tax Officer can, therefore, in the exercise of his descretion under section 23(4) refuse registration in a case falling under that section even though the conditions laid down in rule 4 are complied with and he could not have refused registration under section 26A. The Income-tax Officer has thus two powers to refuse registration of a firm ; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under that section was exercised by the Income-tax Officer. But this argument is plainly contrary to the clear and specific words used by the Income-tax Officer in the order and fails to give due effect to them. The argument in effect comes to this ; that though the Income-tax Officer has in terms stated that he is refusing to renew registration in exercise of the discretion vested in him under section 23(4), still he must be held not to have exercised the discretion under that section. We cannot accept such an argument : the argument carries its own refutation. It is undoubtedly true that, before referring to section 23(4), the Income-tax Officer also pointed out the difficulty of verifying the correctness of the statements made in the application owing to the failure of the assessee to file a return and the partners' accounts and this statement, read with the title of the order, might suggest that the Income-tax Officer was also acting under section 26A. But that does not exclude the conclusion which follows clearly from the succeeding words quoted above, that the Income-tax Officer was also exercising his discretion under section 23(4) in making the order. The order was an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carry the matter any further. It does not lay down any principle different from what we have stated. In that case the application for registration of a firm under section 26A was rejected on the ground that the partnership was illegal since a minor was made a full-fledged partner liable to share the losses also but at the end of the order there was an observation to the following effect : " I am unable to register the firm now, inasmuch as the assessment of the firm is made under section 23(4) of the Act. " On appeal it was found that the partnership deed did not make the minor liable for losses and the partnership was, therefore, not invalid and on this view the order refusing registration was not sustainable under section 26A. But the order was sought to be supported, on the basis of the aforesaid observation, as one made under section 23(4). Dealing with this contention, Subba Rao C. J. (as he then was) said : " A perusal of the entire order clearly shows that the Income-tax Officer refused registration as, in his view, the provisions of rule 4 of the Income-tax Rules were not complied with. He did not exercise his discretion under section 23(4), but made only a casual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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