TMI Blog1980 (11) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... egistration could not be cancelled by the Commissioner of Income-tax by invoking the provisions of section 263, Income-tax Act, on the ground; that there is difference in the profit-sharing ratio shown in Form No. 11A and those mentioned in the partnership deed, the shares in fact having been divided on the basis of the deed in the account books in the assessment year 1967-68, when registration was duly granted and the same was renewed year after year ? " The statement of the case submitted by the Tribunal reveals that the assessee-firm was allowed registration under s. 185 of the I.T. Act for the assessment year 1967-68, and that thereafter it continued to be treated as a registered firm right up to the assessment year 1973-74. On perusal of assessment records the Commissioner found that when on November 3, l966, the assessee submitted its application for registration for the year 1967-68, in Form No. 11A there was a discrepancy regarding the shares of different partners as mentioned in the partnership deed and the shares of partners as shown in the application for registration made in Form No. 11A. In each of the years relevant to the assessment years 1967-68 to 1973-74, the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Tribunal. Before the Tribunal the assessee contended that the Commissoner erred in holding that during the relevant years the assessee had divided the profits amongst its partners in a manner different from that shown in the partnership deed on the basis of which the firm had been registered for the assessment year 1967-68, and that the initial order passed by the ITO registering the firm and his treating the said registration as continuing to be effective for the years 1972-73 and 1973-74 were vitiated. The assessee also contended that for the assessment years 1972-73 and 1973-74, for which the registration of the firm had automatically been continued under s. 184(7) of the Act, there existed no such order by the ITO which could be revised by the Commissioner in exercise of his powers under s. 263 of the Act. The order, passed by the Commissioner was, therefore, liable to be set aside. Relying on the decision of a Division Bench of this court in the case of Ashwani Kumar Maksudan Lal v. Addl. CIT [1972] 83 ITR 854 (All ) the Income-tax Appellate Tribunal held that according to s. 184(7) the registration of the firm was to remain effective for the years subsequent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which the registration was granted, and (ii) the firm furnishes, before the expiry of the time allowed under sub-s. (1) or sub-s. (2) of s. 139 (whether fixed originally or on extension) for furnishing the return of income for such subsequent years, declaration to that effect, in the prescribed form and verified in the prescribed manner. Prima facie neither of the two conditions in which the registration once granted continue to be effective in the subsequent years, viz., whether there has in fact been a change in the constitution of the firm for the year for which the continuance of registration is to be effective or whether the requisite declaration has been filed by the assessee within the time specified and in the manner prescribed, contemplate passing of an order by the ITO. Sub-section (8) of s. 184 lays down that where any such change in the constitution of the firm has taken place in the previous year, the firm shall apply for fresh registration for that year. Section 185 of the Act is entitled " Procedure on receipt of applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a certificate on the instrument of partnership or on the certified copy submitted in lieu of the original instrument, as the case may be, that the firm stands registered in the following two circumstances: (1) where an order has been passed under s. 185(1)(a) directing registration of the firm for a particular assessment year ; and (2) where a declaration contemplated by sub-s. (7) of s. 184 has been furnished by the firm for the relevant subsequent assessment year. Sub-section (4) clearly distinguishes between the making of an order under s. 185(1)(a) registering the firm for a particular assessment year and the furnishing of a declaration under sub-s. (7) of s. 184 for the subsequent years. It indicates that the Legislature did not equate the furnishing of a declaration under subs. (7) of s. 184 with an application for registration which is made under s. 185(1) of the Act. Whereas in the case of registration of the firm the ITO is required to append on the partnership deed the requisite certificate after making an order for its registration under s. 185(1)(a) of the Act, the certificate regarding continuance of registration for subsequent assessment years is to be appende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaration made under s. 184(7) the endorsement cannot be equated with an order passed by the ITO and it likewise merely goes to indicate that the necessary declaration for the purpose had been made by the assessee. As explained above, the ITO under s. 185(4) is, required to append certificate on the document in question that the firm stands registered for subsequent assessment year the moment the assessee gives a declaration in a proper form that there has been no change in the constitution of the firm or in the shares of the partners as evidenced by the instrument of partnership on the basis of which the firm had been registered in the earlier year. This section, like sub-s. (1) of s. 185, does not contemplate any inquiry being made about the existence of a genuine firm or on the question whether there has in fact been a change in the constitution of the firm, before the ITO complies with the mandate contained in sub-s. (4) of s. 185 for appending the certificate that the firm is registered for the subsequent assessment year as well. There is nothing in sub-s. (4) of s. 185 to indicate that the certificate given by the ITO, merely on the basis of a declaration made by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6): " When regard is so had to section 185(1)(b), it is clear that the order contemplated by that provision is an order on the application for registration of a firm. The Income-tax Officer is called upon to consider whether during the previous year there was a genuine firm in existence and whether the firm had the constitution specified in the instrument of partner ship. Under section 184(7), on the other hand, all that the law requires is a declaration that there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership. The considerations under section 185(1) are not identical with those under section 184(7). The first relate to a situation where the firm is being registered for the first time for an assessment year and the latter to situation where the effect of registration already granted is sought to be continued for a subsequent assessment year. Then, it is plain that when registration is granted for the first time, the law requires an express order granting registration. But when the effect of such registration is sought for a subsequent assessment year, no such order is contemplated. Section 184(7), by its v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, that the firm stands registered for the subsequent year involved the passing of an order which could be made the subject-matter of revision under s. 263 of the Act, did not a rise for consideration. In the case of Sant Lal Kashmiri Lal v. CIT [1972] 86 ITR 76 (Delhi), a declaration made in Form No. 12 with a view to make the registration of a firm effective in a subsequent year was found to be defective. The ITO, without affording an opportunity to the firm to rectify the defect, made an order that as the declaration was incorrect the firm could not be treated as registered for the subsequent years. The question that arose before the Delhi High Court was whether such an order made by the ITO was appealable under s. 246(g) of the Act. It was an order of the nature similar to that involved in Ashwani Kumar Maksudan Lal's case [1972] 83 ITR 854 (All) before the Allahabad High Court. Such an order obviously fell within the purview of s. 185(3) of the Act. The question whether automatic continuance of registration as a result of a declaration made by an assessee that there has been no change in the constitution of the firm or in the shares of the partners as evidenced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re being no change in the constitution of the firm or the shares of the partners as evidenced in the instrument of partnership on the basis of which the registration was granted involves the passing of an order which could be revised under s. 263 of the Act. We, however, find that while dealing with the scheme underlying s. 184(7) and s. 185(4) the Andhra Pradesh High Court at page 319 made the following observation: " A close reading of section 184(7), proviso (ii), in conjunction with section 185(4) would show that notwithstanding the condonation of delay by the Income-tax Officer when he is satisfied that the firm was prevented by sufficient cause from filing the declaration within the time allowed, nevertheless, he would have to pass an order under section 185(4) to the effect that the firm has been registered under the Act for that assessment year." We are, however, for the reasons already stated, unable to accept that ascribing of the certificate under s. 185(4) of the Act that the firm stands registered for the subsequent years, results in an order. Learned counsel for the revenue strongly relied upon a decision of this court in Badri Narain Kashi Prasad v. Addl. CIT [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the taxable income. The two are independent and separate orders determining entirely different subject-matters. The appeal against the assessment order does not take within its purview the order granting registration. Accordingly, that part of the order of the ITO by which he allowed the continuation of registration to the assessee-firm for the assessment years in question did not merge in the order of the AAC passed in the appeal filed by the assessee against the order of assessment and that if an error is committed by the ITO it would result in a diminution in the quantum of tax payable by the assessee. It would clearly be a case of an order being prejudicial to the interests of the revenue. In the result the court answered both the questions referred to it in favour of the department and against the assessee. According to Sri Gulati, learned counsel appearing for the revenue, this decision postulates that the continuation of the registration of a firm in subsequent years as contemplated by s. 184(7) of the Act involves the making of an order for such continuation. In the circumstances, it cannot be said that there being no order, the Commissioner cannot act under s. 2.63 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong with the return of income is not of the substance or the essence. It is a procedural requirement. The legislative intent appears to be that while dealing with the assessment of a firm the ITO should have clear-cut evidence that the essential fact that there has been no change in the constitution of the firm or in the shares of the partners has been proved satisfactorily in the required manner. The procedural requirements hence are to be treated as directory. If there is some defect in the declaration form, the assessee is to be given an opportunity for rectifying it (see s. 185(2)). It cannot be ignored or rejected straightaway. Similarly, the requirement that the declaration should be filed along with the return of income is directory, because the ITO is enabled to assess the firm provided the return is filed up to the time he makes the assessment." These observations made by the learned judges appear to us to be in consonance with the view which we are taking, viz., that continuation of registration for subsequent years on the basis of a declaration that the firm in question has not undergone any change in its constitution or in the shares of the partners as evidenced by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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