Citation Codes

Equivalent Citations

citation codes

Case Number

Income-Tax Miscellaneous Case No. 265 of 1963

Judges

V.G Oak, C.J
T.P Mukerjee, J.

Acts

Indian Income-Tax Act, 1922. But section 185(2) of the new Act
SECTION 185 INCOME TAX ACT 1961
section 185(2) of the Income-Tax Act, 1961,
INCOME TAX ACT
Indian Income-Tax Act, 1922,
rule 3. Rule 4 ran thus:(1)
partnership.5. Rule 6
1952. Rule 2

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Smart Summary

Structured Summary of the Opinion (V.G. Oak, C.J.)

Factual and Procedural Background

Messrs. Kanhaiya Lal Moti Lal, Banaras, was assessed as a Hindu undivided family for the assessment year 1946–47. The assessee claimed that a complete partition of the Hindu undivided family took effect from 26 September 1944 and that the business thereafter continued as a partnership carried on by members of the erstwhile family. An application for registration of the firm, accompanied by a deed of partnership dated 26 September 1944, was filed under section 26A for the assessment year 1946–47.

The original application for registration (1946–47) remained pending for several years and was ultimately dismissed on 15 March 1951. In the interim the firm filed two applications described as applications for renewal of registration for the assessment years 1947–48 and 1948–49 (filed on 9 December 1947 and 12 July 1948 respectively). The Income-Tax Officer dismissed both renewal applications on various grounds. That decision was upheld on appeal by the Appellate Assistant Commissioner and by the Income-Tax Appellate Tribunal. The Tribunal based its decision on the short ground that renewal applications were not maintainable because the firm had never been registered.

The assessee contended that the Tribunal was not justified in dismissing the application(s) on that short ground. As directed by this Court, the Income-Tax Appellate Tribunal, Allahabad, referred the following question to this Court (quoted in the opinion):

“Whether, on the facts and in the circumstances of the case, when no orders were passed on the application of the assessee filed under section 26A of the Income-Tax Act in the assessment year 1946–47, an application other than for renewal of registration could be filed in law and whether the Tribunal was justified in dismissing the appeal of the applicant on that ground?”

Legal Issues Presented

Whether, when no order had been passed on an original application for registration under section 26A (for the assessment year 1946–47), an application other than one described as an application for renewal of registration could be filed in law.
Whether the Income-Tax Appellate Tribunal was justified in dismissing the appeal on the short ground that the two applications were applications for renewal of registration when no certificate of registration had been granted.

Arguments of the Parties

Assessee's (Applicant's) Arguments

The assessee had originally applied for registration for 1946–47 and had filed the deed of partnership with that original application; the original application remained pending for several years.
The assessee contended that the Tribunal was not justified in dismissing the application(s) or the appeal on the short ground that the firm had never been registered.
Implicit in the Court's recounting: because the original application for registration was pending and the deed had been filed, the assessee may be excused if it described subsequent filings as applications for renewal rather than fresh registration.

Department's (Respondent's) Arguments

Mr. Shanti Bhushan for the department pointed out that the renewal applications were not accompanied by the original instrument of partnership or certified copies, as required by the form prescribed for an original application under rule 3.
The department argued (and the Court records) that it was not proper for the assessee to move applications for renewal when there existed no prior order or certificate of registration in favour of the firm.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Bela Singh Daulat Singh v. Commissioner of Income-Tax, U.P. [1966] 62 I.T.R 250	Held that so long as no certificate of registration has been granted to a firm, it cannot apply for renewal even if a prior application for registration is pending before the Income-Tax Officer.	The Court relied on this authority to note that, at the time of the 1947 and 1948 filings, no registration order existed and therefore renewal applications were not strictly maintainable under the earlier practice.
Rao Bahadur Ravulu Subba Rao v. Commissioner of Income-Tax [1956] 30 I.T.R 163, [1956] S.C.R 577	Established that a firm obtains benefits only if registered under section 26A in accordance with the conditions and rules; where rules require personal signature of partners, signature by an agent is invalid.	The Court cited this case to emphasize that statutory and rule-based conditions for registration are to be respected and that registration must comply with prescribed requirements (for example, signatures by partners).
R.C. Mitter and Sons v. Commissioner of Income-Tax [1959] 36 I.T.R 194, [1959] Supp. 2 S.C.R 641	The Supreme Court enumerated conditions for entitlement to registration, including that an application be made on behalf of, and signed by, all the partners and contain the particulars required by the rules.	The Court referred to Condition No. 2 from this case to underline that the rules prescribe specific formal requirements for an application to be valid.

Court's Reasoning and Analysis

The Court began by identifying the statutory framework applicable to the case: section 26A of the Indian Income-Tax Act, 1922 (registration of firms), and the relevant pre-1952 rules (notably Rules 2, 3, 4 and 6) then in force which governed the form and disposition of registration applications and renewal applications.

Key elements of the statutory/rule scheme as drawn from the opinion:

Section 26A governed registration of firms (no separate statutory mention of "renewal" — both initial registration and renewal were to be governed by the section and rules).
Rule 3 prescribed the form for an original application and required attachment of the original instrument of partnership or a certified copy.
Rule 6 provided for renewal of registration where a certificate had already been granted; the renewal form permitted reference to the prior order and certification that the constitution of the firm remained unaltered.

The Court acknowledged authority (Bela Singh) that where no certificate of registration has been granted, an attempt to apply for renewal is not formally maintainable. It accepted that when the assessee filed applications in 1947 and 1948 there was no order for registration in its favour, and that strictly speaking it was improper to file applications described as renewals at that stage.

However, the Court went on to consider whether the defect identified by the Tribunal was fatal to the assessee's case. The Court observed the following points in its analysis:

There was little practical difference between an application described as one for registration and one described as renewal of registration: in either case the authority is being asked to recognise the firm and its constitution so that the firm may obtain statutory benefits.
The original registration application for 1946–47 remained pending for several years and the deed of partnership had been filed with that original application; accordingly the later filings could be excused as a defect of form rather than of substance.
The Court drew support from the principle embodied in section 185(2) of the Income-Tax Act, 1961 (which, though not formally applicable to the 1922 Act, expresses the broad administrative principle that defects in application form should not lead to outright rejection without giving opportunity to rectify). The Court treated that broad principle as applicable in spirit to cases governed by the old Act.
The Appellate Assistant Commissioner had observed (in the annexed order) that pointing out irregularities in applications was often done but not mandatory — indicating administrative practice of not attaching excessive weight to formal defects.
The Tribunal had given three reasons for rejecting the renewal applications but selected only one — that the applications were irregular because they were renewals while no registration had ever been granted. Whether an irregularity is curable depends on its nature; the Court found the irregularity in this case to be one of form (description as renewal rather than registration) rather than of substance.

On these grounds the Court concluded that the Tribunal was not justified in dismissing the appeal merely on the ground that the filings were described as renewals: the defect could be excused in the circumstances.

Holding and Implications

Holding: The Court answered the referred question by holding that an application other than an application for renewal of registration could be filed in law under the circumstances described, and that the Income-Tax Appellate Tribunal was not justified in dismissing the applicant's appeal on the short ground that the two applications were for renewal of registration.

Immediate consequences and court direction:

The Tribunal's dismissal of the appeal on the sole ground that the applications were renewals (when no registration certificate had been granted) was not justified.
The parties were directed to bear their own costs in this reference.

No broader legal consequences or the setting of a new, sweeping precedent are articulated in the opinion beyond the Court's application of established principles to the facts: the decision focuses on the direct effect for the parties before the Court (excusing the formal defect and finding the Tribunal's short ground insufficient). The opinion does not state that it establishes a new general rule beyond this application.

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Kanhaiya Lal Moti Lal v. Commissioner Of Income-Tax, U.P

V.G Oak, C.J:— Messrs. Kanhaiya Lal Moti Lal, Banaras, was a Hindu undivided family. In connection with the assessment for 1946–47 it was claimed that there was a complete partition of the Hindu undivided family with effect from September 26, 1944. It was further claimed that the business was thereafter continued as partnership business by members of the erstwhile family. An application for registration of the firm was filed along with the deed of partnership dated September 26, 1944. The application for registration in the year 1946–47 remained pending for several years. The application was ultimately dismissed on March 15, 1951. In the meanwhile, the firm filed two applications for renewal of registration for the assessment years 1947–48 and 1948-49. The two applications for renewal of registration were filed on December 9, 1947, and July 12, 1948, respectively. Both the applications for renewal of registration were dismissed by the Income-Tax Officer on various grounds. The decision of the Income-Tax Officer was upheld in appeal by the Appellate Assistant Commissioner and the Income-Tax Appellate Tribunal. The Tribunal based its decision on the short ground that applications for renewal were not maintainable in view of the fact that the firm had never been registered. The assessee raised the contention that the Tribunal was not justified in dismissing the application for registration on the short ground that the firm had never been registered. As directed by this court, the Income-Tax Appellate Tribunal, Allahabad, has referred the following question to this court:

“Whether, on the facts and in the circumstances of the case, when no orders were passed on the application of the assessee filed under section 26A of the Income-Tax Act in the assessment year 1946–47, an application other than for renewal of registration could be filed in law and whether they Tribunal was justified in dismissing the appeal of the applicant on that ground?”

2. For answering this question, it is necessary to peruse the relevant provisions in the statute and the rules. The present case is governed by the Indian Income-Tax Act, 1922 (hereafter referred to as the Act). Section 26A of the Act laid down the procedure for registration of firms. Section 26A stated:

(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 dealt with by the Income-Tax Officer in such manner, as may be prescribed.”

3. It has to be noted that section 26A refers to registration of firms. There is no separate mention of renewal of registration. Presumably, registration in the first instance and renewal of registration are both governed by section 26A.

4. Rules framed under the Act were amended in 1952. We are concerned with the rules before the amendment of 1952. Rule 2 dealt with applications for registration. Rule 3 laid down that the application referred to in rule 2 shall be made in the form annexed to rule 3. A form was prescribed in rule 3. Rule 4 ran thus:

“(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…. a certificate…. and this certificate of registration shall have effect for the assessment for the year….

(2) If the Income-Tax Officer is not so satisfied, he shall pass an order in writing refusing to recognise the instrument of partnership….”

5. Rule 6 ran thus:

“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….”

6. Another form for application for renewal of registration was prescribed in rule 6.

7. On comparing the two forms given in rules 3 and 6, we find much similarity. There was one important difference. Under the form given in rule 3, it was obligatory to attach the original instrument of partnership or a certified copy of it to the application for registration. In the form under rule 6 it was sufficient to refer to the previous order for registration. The applicant had to certify that the constitution of the firm remained unaltered.

8. Mr. Shanti Bhushan, appearing for the department, points out that in the present case the applications by the assessee were not accompanied by the original instrument of partnership or certified copies of the instrument as required by the form given in rule 3. But we may point out that all the time the original application for registration was pending before the Income-Tax Officer; and the deed of partnership had been filed by the assessee with the application for registration.

9. It is to be noted that the original application in the instant case remained undisposed of till the year 1951. When the firm applied for registration in the years 1947 and 1948, there was no order for registration in its favour. The question arises whether, under these circumstances, the application for renewal was competent.

10. In Bela Singh Daulat Singh v. Commissioner Of Income-Tax, U.P [1966] 62 I.T.R 250. it was held by this court that, so long as no certificate of registration has been granted to a firm, it cannot apply for renewal even if a prior application for a certificate of registration is pending before the Income-Tax Officer.

11. The situation in the instant case was similar. When the assessee applied for renewal of registration in the years 1947 and 1948, there existed no order for registration in favour of the firm. Mr. Shanti Bhushsan is right in his contention that it was not proper for the assessee to move an application for renewal at that stage.

12. The next question for consideration is whether the defect noticed by the Tribunal was fatal. In Rao Bahadur Ravulu Subba Rao v. Commissioner of Income-Tax [1956] 30 I.T.R 163, [1956] S.C.R 577. it was held by the Supreme Court that the intention of the Indian Income-Tax Act, 1922, is that a firm should be given the benefit of section 23(5)(a) only if it is registered under section 26A in accordance with the conditions laid down in that section and the rules framed thereunder. As those rules require the application to be signed by the partner in person, the signature by an agent on his behalf is invalid.

13. In R.C Mitter and Sons v. Commissioner of Income-Tax [1959] 36 I.T.R 194, [1959] Supp. 2 S.C.R 641. the Supreme Court laid down on page 198 certain conditions that have to be fulfilled in order that a firm may be held entitled to registration. Condition No. 2 mentioned there is that an application on behalf of, and signed by, all the partners, containing all the particulars as set out in the Rules, has been made.

14. Section 185 of the Income-Tax Act, 1961, lays down the procedure for the disposal of an application for registration. Sub-section (2) of section 185 of the Income-Tax Act, 1961, states:

“The Income-Tax Officer shall not reject an application for registration merely on the ground that the application is not in order, but shall intimate the defect to the firm and give it an opportunity to rectify the defect in the application within a period of one month from the date of such intimation.”

15. It is true that section 185(2) of the Income-Tax Act, 1961, does not, in terms, apply to cases governed by the Indian Income-Tax Act, 1922. But section 185(2) of the new Act recognises the broad principle that the Income-Tax Officer has to consider the substance of the application, and must not attach undue importance to the form of the application. That broad principle is applicable to cases governed by the old Act also.

16. Annexure E to the statement of the case is a copy of the order of the Appellate Assistant Commissioner. He observed:

“Though it is often done, it is not mandatory on the part of the Income-Tax Officer to point out the irregularities in the application.”

17. That observation indicates that, in practice, the Income-Tax Officers do not attach much weight to such defects in form. In the present case, the defect in the application was this: The assessee applied for renewal of registration, whereas the proper thing to do was to apply for registration. On examining the scheme of the Act and the rules, there is not much difference between registration and renewal of registration. In each case the authorities recognise that the firm is genuine, has a recognised constitution, and is entitled to certain benefits under the Act. It, therefore, makes little difference whether an application is described as an application for registration or as an application for renewal of registration. In the present case, the assessee had applied for registration for the assessment year 1946-47. That application remained pending for several years. Under these circumstances, the assessee may well be excused if it applied for renewal of registration instead of registration as such. This defect in form should not have been treated by the Tribunal as fatal. The Income-Tax Officer gave three different reasons for rejecting the assessee's applications for renewal of registration. Out of those three reasons, the Tribunal selected one reason only. The reason was that the application for renewal was irregular. Whether an irregularity is curable or not depends upon the nature of the irregularity. As explained above, the irregularity committed by the assessee in the instant case was one of form, and not of substance. Under these circumstances, the Tribunal was not justified in dismissing the appeal merely because the assessee applied for renewal of registration.

18. Our answer to the question referred to this court is this: An application other than an application for renewal of registration could be filed in law. The Tribunal was not justified in dismissing the appeal of the applicant on the short ground that the two applications were for renewal of registration. Parties shall bear their own costs in this reference.

Kanhaiya Lal Moti Lal v. Commissioner Of Income-Tax, U.P

Structured Summary of the Opinion (V.G. Oak, C.J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's (Applicant's) Arguments

Department's (Respondent's) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Kanhaiya Lal Moti Lal v. Commissioner Of Income-Tax, U.P

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