TMI Blog1986 (1) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, died on December 16, 1975-15 days prior to the end of the accounting year of the assessee ending on December 31, 1975. After the death of Bhupendra, it was agreed between the continuing partners and the heirs of Bhupendra that Jitendra Joshi, a son of Bhupendra, would be admitted as a partner in the firm. A new deed of partnership was drawn up and executed on January 7, 1976. It was recorded in the new deed that the continuing partners had been carrying on the said partnership business along with the new partner, Jitendra, with effect from December 17, 1975. In the meantime, the assessee applied for fresh registration under section 184(8) of the Income-tax Act, 1961, both in Form No. 11 and Form No. 11A on December 24, 1975. A letter was filed stating that the deed of the new partnership would be submitted at the earliest. It is not in dispute that the deed which was executed on January 7, 1976, was filed on January 14, 1976. It is also not in dispute that prior to the death of Bhupendra, the assessee had been assessed as a registered firm up to the assessment year 1975-76. In assessing the assessee to income-tax for the assessment year 1976-77, the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, 1973. The assessee was entitled to renewal of registration till that date. The Tribunal held that in the facts there was a change in the constitution of the assessee within the meaning of section 187(2) of the Act as on the death of one of its partners, his legal heir had been admitted as new partner and the three original partners continued. The Tribunal held further that in view of the said change in the constitution, the assessee had to apply for fresh registration in accordance with the provisions of the Act. In order to apply for fresh registration, the application for registration had to be evidenced by an instrument of partnership. There was no instrument to evidence this partnership during the accounting year and the instrument relied on by the assessee came into existence after the accounting period came to an end. Therefore, there was no instrument evidencing the partnership for the registration of which the application had been made by the assessee. It was also held that by reason of the change in the constitution of the partnership, the assessee was not entitled to an automatic renewal of registration on the basis of its previous registration. The Tribunal also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Income-tax Act, 1922 (hereinafter in these rules referred to as the Act), register with the Income-tax Officer, the particulars contained in the said instrument on application made in this behalf. Rule 4.-(1) If, on receipt of the application referred to in rule 3, the Income-tax Officer is satisfied that there is or was a firm in existence constituted as shown in the instrument of partnership and that the application has been properly made, he shall enter in writing at the foot of the instrument or certified copy, as the case may be, a certificate in the following form, namely:-... Rule 5.-The certificate of registration granted under rule 4 shall have effect only for the assessment to be made for the year mentioned therein. Rule 6.-Any firm to whom a certificate of registration has been granted under rule 4 may apply to the Income-tax Officer to have the certificate of registration renewed for a subsequent year. Such application shall be signed personally by all the partners (not being minors) of the firm, or, where the application is made after dissolution of the firm, by all persons (not being minors), who were partners in the firm immediately before dissolution and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the firm, the Income-tax Officer shall inquire into the genuineness of the firm and its constitution as specified in the instrument of partnership, and (a) if he is satisfied that there is or was during the previous year in existence a genuine firm with the constitution so specified, he shall pass an order in writing registering the firm for the assessment year; (b) if he is not so satisfied, he shall pass an order in writing refusing to register the firm... (2) Where the Income-tax Officer considers that the application for registration is not in order, he shall intimate the defect to the firm and give it an opportunity to rectify the defect in the application within period of one month from the date of such intimation; and if the defect is not rectified within that period, the Income-tax Officer shall, by order in writing, reject the application. (3) Where the Income-tax Officer considers that the declaration furnished by a firm in pursuance of sub-section (7) of section 184 is not in order, he shall intimate the defect to the firm and give it an opportunity to rectify the defect in the declaration within a period of one month from the date of such intimation; and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtified copy of the instrument together with a duplicate copy thereof may be attached to the application if, for sufficient reason, the original instrument cannot be produced ; (ii) and where any change or changes in the constitution of the firm or the shares of the partners have taken place during the previous year before the date of the application (a) the application shall be made in Form No. 11A; and (b) it shall be accompanied by the original instrument or instruments evidencing the partnership as in existence from time to time during the previous year up to the date of the application together with copies thereof. A certified copy of the instrument or instruments together with a duplicate copy thereof may be attached to the application if, for sufficient reason, the original instrument or instruments cannot be produced. (3) Where after the date of making an application under sub-rule (2), any change or changes in the constitution of the firm or the shares of the partners have taken place during the previous year, a fresh application shall be made after each such change takes place in accordance with the provisions of sub-clauses (a) and (b) of clause (ii) of sub-rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the firm made in accordance with the sub-rules (2) to (4) of rule 22." Construing the aforesaid statutory provisions, the learned advocate for the assessee submitted that unlike the earlier Act where the instrument itself had to be certified and registered by the Income-tax Officer in the subsequent statute, the Income-tax Officer was only called upon to enquire into the genuineness of the firm and its constitution as evidenced by the instrument. The sections of the Act of 1961 and the rules framed thereunder as noted earlier clearly provided as follows: (a) Any defect in the application had to be brought to the notice of the partnership firm so that the defect could be cured within a month. (b) The failure to enclose a copy of the instrument of partnership was a curable defect as aforesaid. (c) It was possible to apply for registration even after the end of the accounting year. (d) All changes in the constitution and of the successive instruments up to and even after the date of the application had to be intimated for the consideration of the Income-tax Officer. The learned advocate submitted that it was not mandatory nor was it laid down by the statute tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 12 had been filed by the assessee before the, Income-tax Officer on the basis of which it could claim continuation of registration. The learned advocate submitted that it has been laid down by the Supreme Court that the provisions for registration of a firm were benefits conferred on assessees by the Income-tax Act. Such provisions had to be construed strictly and the assessee had to come within the four corners of the statute and the rules framed thereunder before it could claim the benefit of registration. In support of the respective contentions, the following cases were cited at the Bar which may be considered hereafter: (a) CIT v. A. Abdul Rahim and Co. [1965] 55 ITR 651 (SC). This decision under the Indian Income-tax Act, 1922, was cited for the proposition laid down by the Supreme Court that if a partnership was a genuine and valid one, the Income-tax Officer has no power to reject its registration if the provisions of section 26A of the said Act and the rules made thereunder were complied with. On the facts of this case, the Supreme Court held that the Income-tax Officer was not entitled to refuse registration on the ground that one of the partners was the benam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly. A declaration in Form No. 12 was signed by the surviving partners but the date of the dissolution was not filled in. Without giving any opportunity to the firm to rectify the defect, the Income-tax Officer held that the declaration was not correct as there was a change in the constitution of the firm and held that the firm could not be granted registration or continuation of registration in the assessment. On these facts, the Division Bench of the Delhi High Court held that as the genuineness of the assessee was not in doubt and the changes were brought to the notice of the Income-tax Officer, the Income-tax Officer should have given an opportunity to the assessee to rectify any defect in its application. (d) Sandersons and Morgans v. ITO [1977] 108 ITR 954 (Cal). In this case, one of the partners of the assessee died during the assessment year concerned. The deed provided that the death of a partner would not dissolve the partnership as to the other partners. The other partners continued the business and during the relevant assessment year contended that by virtue of the firm's earlier registration, the firm was entitled to continuation of the registration thereof. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee concerned would be entitled to claim registration. It was not necessary to declare in Form No. 11 or 11 A that the profits of the previous year had been divided between the partners and registration could not be refused on the ground that the profits of the firm had not, in fact, been so divided. It was held that sections 184 and 185 had no connection with section 139. There were provisions in the Act under which action could be taken against the assessee for non-compliance with section 139 but registration could not be refused on that ground. (h) Brij Rattan Lal Bhoop Kishore v. CIT [1982] 136 ITR 722 (All). In this case, the Income-tax Officer had assessed the assessee-firm as registered firm though, during the assessment, one of the partners informed the Income-tax Officer that he had not personally signed Form No. 12 for the relevant assessment year. The letter was not taken into account at the time of completion of the assessment. The Commissioner of Income-tax in exercise of his powers under section 263 of the Act cancelled the registration on notice to the assessee. On appeal, the Income-tax Appellate Tribunal upheld the view of the Commissioner. On a reference, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irm was dissolved, the partners did not close the accounts, but closed them at the end of the accounting year. No transactions were effected subsequent to the death of the partner, but the business was wound up and accounts were taken for dissolution as on the date of the death. The surviving partners and the legal representatives of the deceased partner filed a declaration in Form No. 12 for continuation of registration of the assessee for the said assessment year. The Income-tax Officer refused to grant registration on the ground that the continuation had been asked for the entire accounting year, though one of the partners had died during the year. The refusal of the Income-tax Officer to grant registration was upheld by the Appellate Assistant Commissioner. But, on further appeal, the Tribunal held that the registration of the firm should have been granted till the date of the death. On a reference, it was held by the Madras High Court that there was no change in the constitution of the partnership till the death of the partner and the assessee was entitled to registration under section 184(7) of the Act till such date. The only defect in the application was that the registrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tually, it does not appear that the assessee firm was dissolved. Under clause (21) of the partnership deed, one of the heirs of the deceased partner was inducted as a partner in the firm in respect and to the extent of the share and interest of the deceased partner. The new deed dated January 7, 1976, records the same. We are unable to read the proviso to section 187(2) of the Income-tax Act, 1961, to mean that in every case where one of the partners dies, the firm is and must be held to be dissolved for the purpose of registration under the Income-tax Act. The language of the proviso is clear and it says that nothing in clause (a) of section 187(2) of the Act shall apply to a case where a firm is dissolved on the death of any of its partners. The proviso does not provide for automatic dissolution. With respect, we are unable to accept the view taken by the Madhya Pradesh High Court in Jasumal Devandas [1985] 156 ITR 551. In that view of the matter, it has to be held on the facts of the case that on the date of death, there has been a change in the constitution of the assessee-firm. Next to be examined is whether the assessee is entitled to fresh registration for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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