9911796707
TMI Blog1964 (1) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... two annas share. The firm was registered under section 26A for the assessment years 1942-43 to 1947-48. For the assessment year 1948-49 the partners applied for renewal of registration which was refused. A firm if it is registered under the Act has certain advantages in the matter of assessment to income-tax and section 26A lays down the procedure to be followed by a firm in order to get registered. It is as follows: "(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 ... (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 dealt with by the Income-tax Officer in such manner as may be prescribed." Rules 2 to 6B of the Income-tax Rules deal with registration of firms. Rule 2 lays down that a firm is entitled to registration if it is constituted under an instrument of partnership specifying the individual shares and makes an application signed by all the partners personally and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of June of the assessment year. There is a form of application given in the rule which has three clauses, clause 2 being the statement that the instrument of partnership was registered on such and such date and the certificate that the constitution of the firm and the individual shares of the partners as specified in it remain unaltered and clause 3 being a certificate that "the profits of the previous year were divided or credited as shown below", followed by a statement showing particulars of the apportionment of the income, profits or gains. The statement has several columns including column 1 and column 6 as in the Schedule of the prescribed form for an application under section 4. 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" in a certain form and "if the Income-tax Officer is not so satisfied, he shall pass an order in writing refusing to renew the registration"; this is rule 6A. Rule 6B empowers an Income-tax Officer on being satisfied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Tribunal on the ground that the entire profits had not been distributed among the partners. Then at the assessee's instance the Tribunal stated the case. The question formulated by the Tribunal is not proper; it suggests that a firm which has distributed all its profits including undisclosed profits is entitled to registration regardless of other facts, which is not correct. In order to be entitled to registration it must make an application in the prescribed form and within the prescribed time; until it does so it cannot be said to be entitled to registration. In this case registration was refused on the ground that the Income-tax Officer had discretion to refuse it even if the application was in time and in order and not on the ground that the application for registration was withdrawn by partners of the second group. There was an application by partners of the second group withdrawing their signatures on the application for renewal and the Income-tax Officer had taken it into consideration for refusing a renewal of registration, but the Tribunal maintained its order only on the ground that the undisclosed profits had not been distributed among the partners and not on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he application and not with its form and the Government could not have intended that all that an applicant had to do was to adopt the form and that he would be granted renewal regardless of the lies told by him in the application. That the statements made or the certificate given in the application is incorrect would be a ground for refusing renewal. There is thus sufficient justification for the Government's deliberately using the word "may" in the rule and the rule must mean that if the satisfaction is not there the registration cannot be renewed at all and that if it is there, it may be renewed provided there do not exist circumstances justifying refusal. In other words, non-existence of the satisfaction is a sufficient ground for refusal to renew while existence of the satisfaction permits, but does not confer a right to, renewal and "in order" means correct in form. The interpretation that "in order" means correct in form is consistent with the interpretation that the first paragraph of rule 6A confers discretion upon the Income-tax Officer. If the application is in order as so interpreted but is incorrect in substance the Income-tax Officer m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the name of each partner entered in column 1 his share in a rupee of profit or loss is entered in column 6 entries in these two columns are in order. There is nothing to suggest that in column 6 not the fractional share but the amount of the share in the profits or loss of the particular year should be mentioned. What is meant by "share" in the heading of the column is made clear by the words "annas and pies in the rupee"; only the share in a rupee of profits or loss is to be stated and not the actual amount of the share in the profits or loss of the year. Nothing is to be gained by the actual amount being mentioned instead of the fractional share in a rupee. Undoubtedly, there is a difference between stating the amount of the share in the actual amount of the profits or loss and stating the share in a rupee of profits or loss; if the amount is stated it means that nothing more has been distributed to the partner and that if the correct amount of the profits during the year is more no share in the excess of the profits has been paid to the partner. On the other hand, if only the fractional share in a rupee of profits or loss is entered in the column it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits cannot be stated in the application unless the correct amount of the profits was known. Profits of a partnership business as worked out by the partners may not be identical with the profits worked out by an Income-tax Officer for assessment purposes. Interest and commission paid to partners can be deducted when they calculate the profits for distribution among themselves, but an Income-tax Officer will not deduct them for assessment purposes. The forms of the applications do not show which profits, profits for purposes of distribution or profits for purposes of assessment, are to be distributed among the partners. Fractional shares of the partners in a rupee of profits can be stated in the applications even though the correct amount of the profits is not known but the actual amount received by each partner cannot be stated. Then there may be bona fide doubts whether certain receipts are income or capital receipts and whether the partnership is entitled to deduct certain expenses or not; the correct amount of the profits for assessment purposes cannot be determined unless these doubts are resolved. Finally the accounts maintained by a partnership may be rejected by an Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an incorrect or incomplete certificate was as good as not giving a certificate. If no certificate was given at all the application can be said to be not in order. If a certificate was given it cannot be said to be not in order but if it is found that the certificate was incorrect or incomplete it would certainly be a relevant matter to be taken into consideration by the Income-tax Officer when he has to exercise his discretion in the matter of granting or refusing registration or renewal. When the Government made a right to registration or renewal dependent upon the partners giving a true certificate the incorrectness or incompleteness of their certificate would be a just ground for refusal to register or renew. It has been found by the Tribunal that the actual or real profits had not been divided in accordance with the partnership deed. The President of the Tribunal, to whom the case was referred on a difference of opinion between the two Members of the Tribunal, relied upon the "finding of fact ... that Sewak Ram and Jagrani Devi had not received their entire share of the black market profits" and held that the certificate given by the partners was "a wrong certif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of partnership exists ... If he is satisfied that the firm exists, he is bound to register the firm . . . The question what are the true profits of the firm is not at this stage before him and he has yet to decide it under the general provisions of the Income-tax Act . . . The falsity of the return and of the certificate in the application for registration ... is irrelevant to the issue, which the Income-tax Officer has to decide under rule 4, whether or not a firm exists as stated in the instrument . . ." These observations partly support, and partly conflict with, the view that we take. The learned Chief Justice dealt with rule 4 and not with rule 6A and the law laid down by him in regard to rule 4 which uses the word "shall" may not be said to be applicable to rule 6A which uses the word "may". Even as regards rule 4 we respectfully consider it preferable to hold that when the satisfaction exists it confers discretion, instead of imposing an obligation, to register. Further what was found in that case was that some profits were concealed and not that they were not distributed in accordance with the certificate; we have emphasised the distinction between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the profits disclosed is less but the whole has been distributed. There whatever were the profits ascertained by the partnership were distributed and this fact at once distinguishes it from the instant case. The learned judges did not go into the question whether an Income-tax Officer has discretion under rule 4 or not; they only decided that the mere fact that in calculating the profits the firm failed to credit interest on the capital investment was not a ground for refusing to register. What was decided by Ansari C.J. and Govinda Menon J., in St. Joseph's Provisions Stores v. Commissioner of Income-tax [1962] 45 ITR 380 was that "the absence of entries in the separate accounts of each partner is not fatal, and the requirement of rule 6 is met where the profit is taken into the reserve fund by showing the partners' shares therein and indicating what is the contribution of each partner to the reserve fund". They treated the crediting to the reserve account of the profits after specifying the share of each partner in them as crediting them; in the instant case there is a specific finding of fact that a portion of the profits was not distributed among the partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation for registration irrespective of considerations pointed out in section 26A . . . and the relevant rules", was relied upon; this statement does not run counter to saying that when the satisfaction referred to in rule 4 or 6A exists he has the discretion to grant or refuse registration and that he has no discretion and must refuse registration or renewal if the satisfaction does not exist. We respectfully agree with their observation: "If the application does not conform to the procedure indicated in the rules, the Income-tax Officer should surely reject the application. But he cannot capriciously and without proper basis decline to register the partnership." This does not show that the existence of the satisfaction leaves him without discretion. No question of mala fides in calculating and distributing the profits arose in that case. The question that came up for decision before Chagla C.J. and Tendolkar J. in Atmaram Bhogilal v. Commissioner of Income-tax [1952] 22 ITR 305 , was whether a partnership entered into between Jaswant Lal and his father after their alleged separation was a genuine partnership or not and the answer depended upon whether there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement made therein support the view that we take. It must be noted, however, that rule 6A considered by them was differently worded and the only satisfaction required was about the application being in order. Since there could not arise any question of renewal if the partnership did not exist at all it could be argued that even if the application was correct in form the Income-tax Officer had discretion to refuse renewal on finding that no genuine partnership existed and it may be said that now with the added requirement that the Income-tax Officer must be satisfied about the existence of a genuine partnership, there is no longer any scope for the argument. Our reply would be that the requirement was added in order to remove the matter from the discretion if no genuine partnership existed. That a partnership comes into existence by a verbal agreement confirmed by an instrument of partnership drawn up after the expiry of the relevant previous year is entitled to registration was the ratio decidendi of R.C. Mitter & Sons v. Commissioner of Income-tax [1959] 36 ITR 194 ; [1959] Supp. 2 SCR 641 decided by the Supreme Court. Sinha J. (as he then was) laid down the essential condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came before the Appellate Tribunal it could not properly make an order under section 33(4) and if there was no order under section 33(4) there could be no reference under section 66". The whole foundation on which the preliminary objection rested is wrong. As we said earlier the Income-tax Act makes no distinction between registration and renewal of registration; what is renewal of registration is nothing but registration for a subsequent year. Refusal to renew is refusal to register; see Commissioner of Income-tax v. Arokiaswami Chetti & Co. [1948] 16 ITR 404, R.C. Mitter & Sons v. Commissioner of Income-tax [1959] 36 ITR 194; [1959] Supp. 2 SCR 641 at page 198 (vide the observation " the application for registration has to be made every year, which in fact means an application for renewal of the registration"), Hajie Saeed & Sons v. Commissioner of Income-tax [1947] 15 ITR 51 at page 60, and Raghunandan Prasad v. Commissioner of Income-tax AIR 1957 All. 75. There was, therefore, no merit in the preliminary objection. Further, the Tribunal purported to pass the order under section 33 and that is enough to give it jurisdiction to refer to this court a question of la ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
