Citation Codes

Equivalent Citations

citation codes

Case Number

Income-tax Reference No. 298 of 1970

Judges

Satish Chandra
N.D Ojha, JJ.

Acts

provision of a statute.15. Section 26A of the Indian Income-tax Act, 1922,
partnership.6. Sub-section (7) of section 184 provides:(7)
sub-section (1) or sub-section (2) of section 139
section 184(7) of the Income-tax Act, 1961,
sections 187, 188 and 189.5. Section 184
SECTION 185 INCOME TAX ACT 1961
section 183(b) entitles the Income-tax
year.9. Sub-section (5) of section 185
Taxation Laws (Amendment) Act, 1970.
sub-section (2), the Income-tax
section 186(2), the Income-tax
sub-section (7) of section 184,
sub-section (2) of section 139.
section 185(5), the Income-tax
provisions of section 184(7)
registration.8. Section 185
section 144, the Income-tax
clause (ii) of section 184(7)
manner.7. Sub-section (8)

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Smart Summary

Structured Summary of the Court Opinion

Factual and Procedural Background

M/s. Nand Singh Taneja and Sons, Kanpur (the assessee), a partnership firm, had been registered under section 185 of the Income-tax Act, 1961 up to assessment year 1964-65. For assessment year 1965-66 the firm, on 24 June 1965, filed the declaration required by section 184(7) in the prescribed Form 12, stating that there was no change in constitution or partner shares as evidenced by the instrument of partnership on the basis of which registration was granted. The firm, however, did not file its return of income by the due date (the last date appearing to be 5 August 1965) and in fact filed no return at all.

On 25 February 1966 the Income-tax Officer passed an assessment order under section 144 in default, estimating business income at Rs. 50,000 and treating the firm as unregistered. The firm applied under section 146 for cancellation of that assessment order and fresh orders; this application was rejected. The assessee filed two appeals: one against the original quantum assessment order and one against the rejection under section 146. The Appellate Assistant Commissioner dismissed the appeal against the rejection but allowed the quantum appeal on the ground that registration could not be cancelled under section 186(2) without giving a reasonable opportunity of hearing, and directed revision treating the firm as registered. Both parties appealed to the Tribunal. The Tribunal dismissed the assessee's appeal and allowed the revenue's appeal, holding that because the firm had not filed a return, the conditions of section 184(7) were not satisfied and the registration did not have effect for assessment year 1965-66. The Tribunal therefore restored the Income-tax Officer's assessment order. The Tribunal then referred the following question of law to the court:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the registration granted to the assessee in the earlier years could not have effect for the assessment year 1965-66?”

Legal Issues Presented

Whether the registration of a firm already granted under section 184 has effect for a subsequent assessment year (here 1965-66) when the firm has furnished the declaration under section 184(7) but has not filed the return of income for that assessment year.

Arguments of the Parties

Assessee's Arguments (as presented in the opinion)

The assessee relied on legislative history and established principles of statutory interpretation, submitting that subsequent legislation may be looked to in interpreting an earlier ambiguous provision. To this effect counsel relied on precedents including Attorney-General v. Clarkson and Ormond Investment Co. Ltd. v. Betts, and the approach of Indian courts following that dicta.
The assessee argued that the phrase in section 184(7) that the declaration be furnished “along with its return of income for the assessment year concerned” was intended only to fix a time limit up to which the declaration should be furnished, and was not meant to make filing the return a condition precedent to the effectiveness of the declaration and, therefore, the continuity of registration.
It was pointed out that first registration under section 184 and registration consequent on a change in constitution are not required to be made along with the return, and there is no reason to treat the continuation declaration as subject to a stricter formal condition. The assessee therefore contended the Income-tax Officer was under a duty to treat the registration as having effect for the assessment year.

Revenue's Arguments (as presented in the opinion)

The department relied on the view that filing the return with the declaration was a necessary condition for the continued effectiveness of registration under section 184(7). The department drew attention to the authority of Madivalappa & Sons v. Commissioner of Income-tax, where the position had been accepted that filing the return with the declaration was necessary.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Attorney-General v. Clarkson [1900] 1 Q.B. 156	Principle that subsequent legislation on the same subject can be looked at to aid construction of an earlier ambiguous Act.	The court accepted this principle as a legitimate aid in interpreting section 184(7) and its legislative history.
Ormond Investment Co. Ltd. v. Betts [1923] A.C. 143	Same principle as above: use of subsequent legislation to interpret earlier ambiguous provisions.	The court applied the principle in conjunction with Indian authority to justify examining later amendments (notably the 1970 amendment) in construing the 184(7) wording applicable to 1965-66.
Sher Khan v. State A.I.R. 1958 All. 733 (Full Bench)	Authority endorsing the use of later legislation as an interpretative aid to earlier ambiguous provisions.	The court cited this decision as domestic precedent for the same interpretative approach.
State of Bihar v. S.K. Roy A.I.R. 1966 S.C. 1895	Affirmation by the Supreme Court of the utility of subsequent legislative history in interpreting ambiguous statutory provisions.	The court relied on this as supporting authority for consulting later legislative changes to clarify the meaning of section 184(7).
J.N. Naskar v. Commissioner of Income-tax [1969] 74 I.T.R. 33, 44	Further authority confirming the approach of looking to legislative history where provisions are vague.	The court cited it to reinforce the interpretative method applied to section 184(7).
Madivalappa & Sons v. Commissioner of Income-tax [1970] 77 I.T.R. 235	Used by the department to support the proposition that filing the return with the declaration is a necessary condition for continuation of registration.	The court observed there was no discussion of the point in that case and stated respectfully that it could not agree with the decision to the extent it accepted necessity of filing the return with the declaration as a condition precedent.

Court's Reasoning and Analysis

The court's analysis proceeded by close textual reading of the statutory scheme and by reference to legislative history. The key statutory provision examined was section 184(7) of the Income-tax Act, 1961 (which provides that registration granted to any firm for any assessment year shall have effect for every subsequent assessment year provided (i) there is no change in the constitution or shares as evidenced by the instrument on the basis of which registration was granted, and (ii) the firm furnishes, along with its return of income for the assessment year concerned, a declaration to that effect in the prescribed form and manner).

The court analyzed other related provisions:

Section 185 (procedure for registration) and its subsection (5), which permits refusal to register where there is a failure on the part of the firm as mentioned in section 144 (for example, failure to file a return), and subsection (4) which contemplates recording on the instrument of partnership the registration and, where a declaration under section 184(7) has been furnished, its application to subsequent years.
Section 186(2), which allows cancellation of registration where the firm has been registered or its registration has effect under section 184(7), in cases of failures mentioned in section 144, but only after a reasonable opportunity of hearing and by a specific cancellation order.
Section 183(b), which permits the Income-tax Officer to treat an unregistered firm as a registered firm and assess it as such if conditions are satisfied, showing that non-filing of a return does not necessarily mean the firm must be assessed as unregistered in all cases.

From these provisions the court drew several legal inferences:

The powers in section 185(5) (refusal to register) and section 186(2) (cancellation) are enacted as positive orders requiring an explicit act by the Income-tax Officer (a refusal or a cancellation) and are appealable under section 246. This indicates that failure to file a return does not automatically nullify a declaration under section 184(7) without such a positive order.
The phrase “along with its return of income for the assessment year” in clause (ii) of section 184(7) was interpreted not as creating a mandatory condition precedent but as fixing a time limit (a datum line) up to which the requisite declaration may be furnished; a declaration made earlier could not be invalidated as premature.
There is no coherent reason to treat the continuation declaration as mandatorily tied to the filing of the return when initial registration and fresh registrations after change in constitution are not so tied; all registration categories aim to confer the same benefits and should be construed consistently.
The court also relied on the legislative history: section 184(7) was later amended by the Taxation Laws (Amendment) Act, 1970 to change the phrase “along with the return” to a clearer time-limit formulation (requiring the declaration before expiry of time allowed under section 139(1) or (2)). That amendment confirmed that the legislature intended only to prescribe a time limit rather than to make filing the return a condition precedent. The court treated this subsequent amendment as illuminating the meaning of the earlier provision.
Given these textual, structural and historical considerations, the court concluded that for assessment year 1965-66 the non-filing of the return did not render the earlier registration ineffective; the Income-tax Officer was not authorised to ignore the declaration in the absence of an explicit refusal or cancellation order under the relevant provisions.

The court expressly noted the department's reliance on Madivalappa & Sons, but observed that the case contained no discussion on the point and the assessee did not appear to have disputed the position in that decision; the court stated it could not agree with that decision on the question under consideration.

Holding and Implications

HOLDING: The court answered the referred question in the negative, ruling in favour of the assessee and against the department. It held that the registration previously granted to the assessee could have effect for the assessment year 1965-66 despite the firm's failure to file the return of income for that year, because clause (ii) of section 184(7) should not be read as making filing the return a condition precedent to the validity of the declaration; the phrase “along with its return” was interpreted as fixing a time limit for furnishing the declaration.

Direct Consequences and Costs: The assessee was entitled to its costs of the reference, assessed at Rs. 200. The fee of the learned counsel for the department was also assessed at Rs. 200.

Implications: The immediate effect is that, on the facts before the court, the Income-tax Officer was under a duty to treat the firm's registration as having effect for assessment year 1965-66. The opinion explains and applies principles of statutory construction and legislative history to reach this interpretation. The court expressly disagreed with the view attributed to Madivalappa & Sons to the extent it held filing the return to be a mandatory condition; beyond the case parties, the opinion sets out the court’s interpretative approach but does not purport to announce a broader rule beyond the statutory construction applied to the provisions cited.

End of summary. This summary is drawn exclusively from the text of the provided opinion and does not add facts or inferences beyond that text.

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Nand Singh Taneja And Sons v. Commissioner Of Income-Tax, Kanpur.

Satish Chandra, J.:— M/s. Nand Singh Taneja and Sons, Kanpur, the assessee, was a partnership-firm which had been accorded registration under section 185 of the Income-tax Act, 1961, up to and including the assessment year 1964-65. For the assessment year 1965-66, the assessee-firm, on 24th June, 1965, filed before the Income-tax Officer, a declaration, as required by section 184(7) of the Income-tax Act, 1961, in the prescribed Form 12, stating that there was 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 registration was granted. The last date for filing the return of income for the assessment year 1965-66, on the basis of service of notice under section 139(2), appears to have been August 5, 1965. The assessee-firm, however, did not file the return at all. On 25th February, 1966, the Income-tax Officer passed an assessment order under section 144 in default, estimating the business income of the assessee at Rs. 50,000 and treating the assessee as an unregistered firm. Coming to know of this order, the assessee made an application under section 146 for the cancellation of the assessment order and for passing orders afresh, but this application was rejected.

2. The assessee filed two appeals. One was directed against the original quantum assessment order, and the other against the order rejecting the application under section 146 of the Act. The latter appeal was dismissed by the Appellate Assistant Commissioner. The quantum appeal succeeded. The Appellate Assistant Commissioner held that the firm had been registered. Its registration could be cancelled under section 186(2). of the Act, but only after affording the assessee a reasonable opportunity of being heard. No such opportunity having been given, the assessee-firm could be assessed only in the status of a registered firm. The assessment order was set aside, and the Income-tax Officer was directed to revise the assessment by adopting the status of the assessee to be that of a registered firm. The assessee as well as the revenue felt aggrieved, and carried the matter in appeal to the Tribunal. The Tribunal dismissed the appeal filed by the assessee. In the appeal of the revenue, the Tribunal held that the question of cancellation of registration under section 186(2) arises only if the registration of a firm has effect for the particular assessment year under section 184(7) of the Act. Before registration could have effect under section 184(7), two conditions had to be fulfilled by the assessee. One was the furnishing of the requisite declaration, the other being the filing of the return. Since the firm had not filed any return, the provisions of section 184(7) were not satisfied, with the result that the registration of the firm did not have effect for the assessment year 1965-66. In that view, it could not be said that the Income-tax Officer had cancelled the registration. The order of the Appellate Assistant Commissioner was set aside and that of the Income-tax Officer restored.

3. At the instance of the assessee, the Tribunal has submitted this statement of the case for the opinion of this court on the following question of law:

4. The provision requiring consideration is section 184(7) of the Act. It occurs in Chapter 16. Sub-chapter A thereof relates to assessment of firms. It consists of sections 182 and 183. Sub-chapter B deals with registration of firms. It consists of sections 184 to 186. Sub-chapter C provides for changes in constitution, succession and dissolution of firms, consisting of sections 187, 188 and 189.

5. Section 184 deals with the first registration of a firm under the Act of 1961. It requires an application for registration. [Vide sub-section (4)]. The application is to be made before the end of the previous year for the assessment year in respect of which registration is sought. The Income-tax Officer, however, can entertain the application after expiry of this period for sufficient cause. Under sub-section (5), the application is to be accompanied by the original instrument evidencing the partnership.

6. sub-section (7) of section 184 provides:

“(7) Where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment year:

Provided that—

(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, along with its return of income for the assessment year concerned, a declaration to that effect, in the prescribed form and verified in the prescribed manner.”

7. Sub-section (8) requires that where any such change has taken place, the firm shall apply for fresh registration.

8. Section 185 gives the procedure for deciding the application for registration. The Income-tax Officer is to enquire into the genuineness of the firm and its constitution, and if he is so satisfied, he is to pass an order in writing registering the firm for the assessment year. Under sub-section (2), the Income-tax Officer is not to reject an application merely on the ground that it is not in order, but he is to give the firm an opportunity to rectify the defects. Sub-section (4) provides that where a firm is registered for any assessment year, the Income-tax Officer shall record a certificate on the instrument of partnership to the effect that the firm has been registered under this Act for that assessment year and where a declaration under subsection (7) of section 184 has been furnished by the firm, for the relevant subsequent assessment year.

9. Sub-section (5) of section 185 provides that if there is on the part of the firm any such failure as is mentioned in section 144, the Income-tax Officer may refuse to register the firm for the assessment year. Under section 186, the registration can be cancelled if the Income-tax Officer is of opinion that there was during the previous year no genuine firm in existence as registered. Cancellation can be effected after giving the firm a reasonable opportunity of being heard. Under section 186(2), the Income-tax Officer can cancel the registration of a firm where the firm has been registered or its registration has effect under sub-section (7) of section 184, if there is any such failure on the part of the firm as is mentioned in section 144.

10. One of the failures mentioned in section 144 is failure to make the return required by any notice given under sub-section (2) of section 139. It may at this place be noticed that the assessment order shows that the notice under section 139(2) was duly served on the assessee on July 6, 1965. Under section 185(5), the Income-tax Officer can refuse to register the firm for such failure, namely, for failure to file a return. Under section 186(2), the Income-tax Officer could cancel registration, where the firm has been registered or its registration has effect under section 184(7). In the present case, the firm did not file any return. The Income-tax Officer could have under section 186(2) cancelled the registration or refused registration under section 185(5) in cases of an application for registration made for the first time. Both these actions require a specific order of refusal or cancellation. An order of refusal under section 185(5) or cancellation under section 186(3) is appealable under section 246. These provisions suggest that for failure to file return, the Income-tax Officer has to pass a positive order of refusal or cancellation. He has not been authorised to ignore the declaration furnished by the firm under section 184(7), on the ground that the firm had not furnished the return of the income. This suggests that the requirement of clause (ii) of section 184(7) that the firm is to furnish the requisite declaration along with its return of income for the assessment year is not mandatory. The legislative intent appears to be that the phrase “along with its return of income for the assessment year” provides the time limit up to which the requisite declaration is to be be furnished. If the declaration is made earlier, it could not be rejected as premature or invalid.

11. It will be seen that the first registration of a firm under section 184 is initiated by an application for that purpose. That application is not required to be made along with the return of income, but before the end of the previous year for the assessment year in respect of which registration is sought. The same provisions apply for a subsequent application for registration where the constitution of the firm has changed. There seems no specific reason why the furnishing of the return of income should be made a condition precedent to the validity of the declaration for the continuation of the registration, when the filing of the return is unnecessary for the first registration as well as subsequent registrations consequent on a change in the constitution of the firm. The purpose of registration in all the three categories of cases is the same, namely, to obtain the benefits conferred by the Act upon registered firms.

12. The principal requirement of sub-section (7) of section 184 is that there should be 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 that the firm furnishes in the prescribed form and verified in the prescribed manner a declaration to that effect. The further requirement that the declaration should be furnished along with the return of income for the assessment year seems to have no purpose other than to provide the datum line for furnishing the declaration.

13. If the furnishing of the return along with the declaration was a mandatory requirement, the result would be that if the return was not filed, the firm could not be treated as registered and had to be assessed as an unregistered firm. But we find that section 183(b) entitles the Income-tax Officer to treat an unregistered firm as a registered firm and assess it as such if the conditions of that clause are satisfied. This also shows that the non-filing of the return does not have the effect that the firm would be assessed as an unregistered firm in all cases.

14. Mr. R.K Gulati, appearing for the assessee, invited our attention to the past as well as the future legislative history in relation to the continuation of the registration of firms. Relying upon Attorney-General v. Clarkson [1900] 1 Q.B 156., the House of Lords in Ormond Investment Co. Ltd. v. Betts [1923] A.C 143. held that subsequent legislation on the same subject could be looked to in order to see the proper construction to be put upon an earlier Act where that earlier Act is ambiguous. This dicta was followed by a Full Bench of our court in Sher Khan v. State A.I.R 1958 All. 733 [F.B].. It was also affirmed by the Supreme Court in State Of Bihar v. S.K Roy. A.I.R 1966 S.C 1895. and in J.N Naskar v. Commissioner of Income-tax [1969] 74 I.T.R 33, 44.. It is equally well settled that past legislative history furnishes a useful guide in interpreting a vague provision of a statute.

15. Section 26A of the Indian Income-tax Act, 1922, provided the procedure for registration of firms. Under it, the application was to be made by such time and with such particulars as may be prescribed. Rule 22 provided that the application should be made before the end of the relevant previous year. Under the Act of 1922, there was no requirement that the application for registration ought to be made along with the return of income.

16. The subsequent legislative history of section 184(7) leads to the same conclusion. Section 184(7) was repealed and re-enacted by the Taxation Laws (Amendment) Act, 1970. The result was that in place of the phrase “along with the return” the requirement was that the firm furnishes the declaration before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139 (whether fixed originally or by extension) for furnishing the return of income. Now the position was made clear beyond any doubt that the intention was to fix a time limit up to which the requisite declaration was to be filed. In our opinion section 184(7) as it was in the assessment year 1965-66 did not require the filing of a return as a condition precedent to the validity of the declaration. The Income-tax Officer was under a duty to treat the registration of the firm as having effect for this assessment year. For the department, our attention was invited to Madivalappa & Sons v. Commissioner of Income-tax [1970] 77 I.T.R 235.. There is no discussion of the point in this case. The assessee does not appear to have disputed the position that the filing of the return with the declaration was a necessary condition. With respect, we are unable to agree with this decision.

17. We would answer the question referred to us in the negative, in favour of the assessee and against the department. The assessee will be entitled to its costs which are assessed at Rs. 200. The fee of the learned counsel for the department is also assessed at the same figure.

18. Question answered in the negative.

Nand Singh Taneja And Sons v. Commissioner Of Income-Tax, Kanpur.

Structured Summary of the Court Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments (as presented in the opinion)

Revenue's Arguments (as presented in the opinion)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Nand Singh Taneja And Sons v. Commissioner Of Income-Tax, Kanpur.

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