Satish Chandra, C.J:— The assessee is a partnership firm. For the assessment year 1965-66, it, on 3rd August, 1965, filed a return showing, an income of Rs. 28,918. On 5th February, 1970, the ITO noticed that the said return was not accompanied by the declaration under s. 184(7) of the I.T Act, 1961, and that there has been no change in the constitution of the firm or the shares of its partners. He issued a notice to the assessee calling upon it to show cause why the firm may not be assessed as an association of persons. In reply, the firm filed a fresh return showing the same amount as income, and with the said return it filed a declaration in Form No. 12 under s. 184(7) of the Act.
2. The ITO refused renewal of registration on the ground that the firm had not been granted continuation of registration in the last two preceding years, and the declaration in Form No. 12 ought to have been filed along with the return. He assessed the firm in the status of an association of persons. On appeal, the A AC held that the return which was filed on 6th March, 1970, was not a valid one. It could not be treated as a revised return, because it had not been filed due to discovery of any omission or wrong statement in the original return. The declaration in Form No. 12 ought to have been filed along with the return filed on 3rd August, 1965, as is expressly required by s. 184(7). The assessment in the status of an association of persons was upheld.
3. The assessee took up the matter to the Tribunal. The Tribunal observed that the assessee-firm had been granted registration if or the two previous years. Since the declaration in Form No. 12 was filed before the assessment order was passed, it was in order, and the assessee was entitled to continuation of registration. The Tribunal, therefore, sent the case back to the ITO for doing the needful, after the assessee had, within a month, complied with the terms of s. 185(2) of the Act.
4. At the instance of the CIT, the i Tribunal has referred the following questions of law for our opinion
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in directing the Income-tax Office to allow continuation of registration after asking the assessee to comply with the terms of section 185(2) of the Income-tax Act, 1961?
(2) Whether, on the facts and circumstances of the case, the assessee is entitled to the benefit of continuation of registration under section 184(7) of the Income-tax Act, 1961?”
5. Section 184 of the Act deals with registration as also with the regis tration having effect for subsequent years. Sub-section (7) of si. 184 says that where registration is granted to any firm for any assessment year, it shall have effect for every subsequent year, and the proviso thereto states 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 registration was granted;
(ii) the firm furnishes, along with its return of incomp for the assessment year concerned, a declaration to that effect in the prescribed form and verified in the prescribed manner.
6. Sub-section (8) of s. 184 requires that where any such change has taken place, the firm shall apply for fresh regfetration.
7. Under sub-s. (2) of s. 185, the ITO cannot reject an application merely on the ground that there are some defects in it. He is to give the firm an opportunity to rectify the defects.
8. The question is whether the phrase “the firm furnishes, aldng with its return of income………a declaration to that effect” occurring in icl. (ii) of the proviso to s. 184(7) of the Act is mandatory in nature, so that if there is even a single day's difference in the filing of the two things, the ITO is bound to refuse registration.
9. Section 186(2) authorises the ITO to cancel the registration of a firm where renewal of registration has been granted under s. 184(7) “if there is any such failure on the part of the firm as is mentioned in s. 144”. One of the failures is failure to file the return. So, acting under s. 186(2), the ITO has the discretion to cancel renewal of registration in a case where the firm did not file any return of income. These actions require a specific order of cancellation. Such an order of cancellation is appealable under s. 246.
10. The point is that the ITO has not been authorised to ignore the declaration furnished by the firm under s. 184(7) merely because the firm had not furnished the return of income. In Nand Singh Taneja and Sons v. CIT, [1973] 91 ITR 202 (All), a Bench of this court held that a declaration in Form No. 12 filed prior to the filing of the return of income could not be rejected as premature or invalid. It did not agree with the contrary opinion expressed by the Mysore High Court in Madivalappa & Sons v. CIT, [1970] 77 ITR 235 and observed that there was no discussion on the point in that case. The assessee did not dispute the position that the filing of the return with the declaration was a necessary condition. The view taken by the Mysore High Court in the aforesaid case was reiterated in Shanti Trading Co. v. CIT, [1973] 87 ITR 38 (Mys). In this case, the Mysore High Court looked at the language of the proviso without considering the effect of the allied provisions.
11. The essence of s. 184(7) is that once registration has-been granted to a firm, it is to have effect for every subsequent year, in case there has been no change in the constitution of the firm or in the shares of its partners. The other requirements are merely to evidence this fact. The requirement that the firm shall furnish a declaration in Form No. 12 is merely to prove the facts in a particular way. The requirement that the declaration shall be filed along with the return of income is not of the substance or the essence. It is a procedural requirement.
12. 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 sec. 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.
13. The problem may be looked at from a slightly different view-point. The firm could have filed a return within the time prescribed by sub-s. (1) or sub-s. (2) of s. 139. It could also file a return within four years from the end of the assessment year under s. 139(4). It could file a revised return under s. 139(5). If the firm had four years to file a return under s. 139(4) or a revised return under s. 139(5), and yet it could validly file the declaration in Form No. 12 along with such returns and it was entitled to continuation of the registration, it does not then stand to reason that an assessee who is prompt and files a return before the time prescribed under sub-s. (1) or sub-s. (2) of s. 139 should suffer merely because the declaration was not filed physically along with it. This is a pure technicality.
14. The Taxation Laws (Amendment) Act, 1970, which came into force on 1st April, 1971, repealed and re-enacted s. 184(7). Now, the equirement that the declaration should accompany the return has been givlen up. The declaration has to be filed before the expiry of the time allowed under sub-s. (1) or sub-s. (2) of s. 139 for furnishing the return of income, in addition, the ITO has been authorised to condone the delay and to allow the firm to furnish that declaration at any time before the assessment is rhade; This made the position, which was a little ambiguous previously, clear. After amendment a definite time limit was fixed, and so the officer was empower ed to condone the delay. This would suggest that previously when no specific time limit was fixed, there was no need to provide for condonation of delay. It was thought enough that the declaration could be filed up to the time of the assessment. In CIT v. Sitaram Bhagwandas, [1976] 102 ITR 560, the Patna High Court took the view that the requirement that the declaration should accompany the return was directory. There are in respectful agreement with it.
15. Such procedural requirements, that a particular document should be accompanied by another, have been treated as directory. The Supreme Court in Lakshmiratan Engineering Works Ltd. v. Assistant Commissioner (Judicial), [1968] 21 STC 155, held that the requirement of the Sales Tax
16. Rules that “the memorandum of appeal shall be accompanied by……a challan showing deposit in the Treasury of the tax admitted by the appellant to be due……” was directory, and that the challan could be filed up to the time the appeal was taken up for consideration. A Bench of this court in Chatarbhuj Chogalal v. CIT, [1956] 30 ITR 22 (All) held that the requirement of s. 66(1) of the Indian I.T Act that the application shall be accompanied by a fee of Rs. 100 did not mean a literal stitching up of the fee with the application for reference. The provision was held to be directory.
17. In our opinion, the Tribunal was justified in taking the view that the assessee was entitled to continuation of registration because it had filed the requisite declaration before the assessment was made. Neither the statement nor the Tribunal's order indicates the nature of the defects in the declaration. Section 185(2) enables the assessee tp rectify formal defects, if any. We presume that there may have been some such defects and hence the Tribunal was justified in directing the assessee to rectify the defects within the meaning of s. 185(2).
18. We, therefore, answer both the questions referred to us in the affirmative, in favour of the assessee and against the department. The assessee will be entitled to costs which are assessed at Rs. 200.
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