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M.L Srinivasa Setty And Sons v. State Of Karnataka.
Judicial Opinion Summary — Karnataka Agricultural Income-tax Act, 1957 (M.P. Chandrakantaraj Urs., J.)
Factual and Procedural Background
These civil revision petitions under the Karnataka Agricultural Income-tax Act, 1957 ("the Act") were filed jointly against a composite order dated August 19, 1987, of the Commissioner of Agricultural Income-tax, Karnataka, Bangalore.
By four assessment orders dated December 30, 1978 (three orders) and December 31, 1978 (one order) the assessing authority completed assessments of Messrs. M.L. Srinivasa Setty and Sons, Coffee and Rubber Planters, for the accounting years relevant to assessment years 1971-72, 1972-73, 1973-74 and 1974-75. The firm was assessed as a registered partnership under the Partnership Act and under section 29 of the Act.
The Commissioner of Commercial Taxes (respondent) invoked his revisional power under section 35 and issued a show-cause notice dated December 20, 1978, alleging (a) that for assessment year 1971-72 the income of a minor partner, Sri M.S. Jayaprakash, admitted to the benefits of the firm, should be clubbed with the income of his father M.L. Srinivasa Setty under clause (b) of sub-section (2) of section 11, on the ground that separate assessment was prejudicial to the Revenue; and (b) that for assessment years 1972-73, 1973-74 and 1974-75 the firm ought to have been assessed as an unregistered firm because the application for renewal of registration had not been signed by all partners.
The assessee-firm replied by a letter dated March 29, 1981, arguing (inter alia) that the father was the karta of a former Hindu undivided family and relied on precedent construing similar statutory language; and, in relation to renewal defects, sought to rely on rule 13(c) (permission of Deputy Commissioner hearing an appeal) and asked that registration be treated as valid. The Commissioner rejected the explanations and ordered (1) clubbing of the minor's income with the father for 1971-72 and recomputation of tax liabilities; and (2) set aside renewals of registration for 1972-73, 1973-74 and 1974-75 and directed reassessment of the assessee as an "unregistered firm" for those years.
The assessee filed these revision petitions challenging that composite order. Additional background facts in the opinion: the family was originally a Hindu undivided family which renounced joint status by declaration from March 28, 1968, partition of properties occurred by registered deed on March 27, 1970, and the partnership deed registering the firm is dated August 22, 1970. The firm obtained registration under section 29 for assessment year 1971-72. The firm's return for 1971-72 showed a taxable income of Rs. 2,36,385.31 apportioned equally among partners, each credited with Rs. 23,638.53.
Legal Issues Presented
- Whether, for assessment year 1971-72, the income of the minor partner (admitted to the benefits of the partnership) must be clubbed with the income of his father under section 11(2)(b) of the Act because separate assessment was prejudicial to the Revenue.
- Whether the firm ought to have been assessed as an "unregistered firm" for assessment years 1972-73 to 1974-75 on the ground that renewal applications were defective (not signed by all partners), and whether the Commissioner had jurisdiction under section 35 to set aside registration granted by the Agricultural Income-tax Officer on that basis.
Arguments of the Parties
Petitioner (Assessee-Firm) — Principal Arguments
- The father (M.L. Srinivasa Setty) should not have his minor son's income clubbed with his own because the father was the karta of a former Hindu undivided family and therefore the Full Bench decision in C. Arunachalam v. Commissioner of Income Tax (Full Bench, [1985] 151 ITR 172) supports the contention that the word "individual" does not include a person assessed in a representative capacity.
- As to the alleged defect in renewal applications, reliance was placed on rule 13(c) (permission of the Deputy Commissioner) and the contention that the Deputy Commissioner (Appeals) could accept forms when an appeal was preferred before him; accordingly, the registration should be treated as valid and the Commissioner should direct the Agricultural Income-tax Officer to exercise his powers and validate the registration.
- Implicitly, the petitioner argued that the Commissioner lacked jurisdiction to set aside registration already granted by the assessing officer on the basis of a defective renewal application.
Respondent (Commissioner of Agricultural Income-tax)
- Exercising revisional power under section 35, the Commissioner issued a show-cause notice and contended that (a) the minor partner's income was required to be clubbed with his father's under section 11(2)(b) because separate assessment was prejudicial to the Revenue; and (b) the firm had been wrongly assessed as a registered firm for the years 1972-73 to 1974-75 because renewal applications lacked required signatures, and therefore registration for those years should be set aside and the firm reassessed as unregistered.
- The Commissioner therefore ordered (i) clubbing and recomputation of tax for the minor and father for 1971-72; and (ii) set aside renewal registrations and reassess the firm as an unregistered firm for 1972-75.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| C. Arunachalam … v. Commissioner of Income Tax (Full Bench) [1985] 151 ITR 172 (Kar) | Construction of the expression "any individual" / "such individual" in section 64(1) of the Income-tax Act — held that it did not include a person assessed in a representative capacity (e.g., a karta) and should be confined to the person assessed in his individual capacity. | The court distinguished the Full Bench decision on facts: in that case the person was assessed as an individual but acted as karta; here the firm was assessed as a registered firm and partners were assessed in their individual capacities under the partnership apportionment, so the Full Bench decision was not helpful to the petitioner. |
| State of Uttar Pradesh v. Babu Ram Upadhya, AIR 1961 SC 751 | Tests to determine whether a statutory provision (use of "shall") is mandatory or directory; courts should examine legislative intent, consequences of construction, presence or absence of penal consequences, and related considerations. | The court applied the tests from this decision to hold that the signature requirements in rules 13–17 (for registration/renewal) were directory rather than mandatory, because no penal consequences flowed from non-compliance and substantial compliance principles applied. |
| Hari Vishnu Kamath v. Ahmad Ishaque, AIR 1955 SC 233 | Cited as authority relevant to determining the mandatory/directory nature of statutory provisions (relied on in the headnote of Babu Ram Upadhya). | Relied upon (as part of the authorities cited in the headnote of State of U.P. v. Babu Ram Upadhya) to support the approach to determine whether a statutory requirement is mandatory or directory; used indirectly to support holding that registration signature rules were directory. |
| State of U.P. v. Manbodhan Lal Srivastava, AIR 1957 SC 912 | Cited as authority relevant to the mandatory/directory analysis (relied on in the Babu Ram Upadhya headnote). | Relied upon as part of the judicial authorities that inform the directory/mandatory analysis; applied by the court in concluding that signature requirements were directory. |
| Montreal Street Railway v. Normandin, AIR 1917 PC 142 | Cited as an authority in the headnote of Babu Ram Upadhya on the general principle of interpreting "shall" and whether provisions are mandatory or directory. | Relied upon in the line of authority used to justify characterizing the signature requirements in the registration rules as directory rather than mandatory. |
Court's Reasoning and Analysis
The court's analysis proceeds in two distinct strands corresponding to the two heads of the show-cause notice: (A) the clubbing of the minor partner's income with his father's for 1971-72, and (B) the validity of registration/renewal and the competence of the Commissioner to set aside registration and treat the firm as unregistered for 1972-75.
A. Clubbing of Minor's Income (1971-72)
- The court observed that the firm had been assessed as a registered firm under the Act and that in the scheme of the Act registration of a firm means a single return is filed but tax is realised on income apportioned to each partner in accordance with the partnership terms.
- The firm had returned total taxable income of Rs. 2,36,385.31 for 1971-72 apportioned equally; each partner was credited with Rs. 23,638.53. Thus, the income of M.L. Srinivasa Setty was not being assessed as income of an individual in a representative capacity for the HUF, but as an individual partner from whom agricultural income arose.
- The court relied on the text of section 11(2)(b) (quoted in the opinion) which requires that in computing the total agricultural income of any individual there shall be included agricultural income which arises to a minor child from admission to benefits of partnership in a firm in which such individual is a partner.
- Applying that provision, the court concluded that the Commissioner was correct in concluding that the father and minor son, both being partners in the same firm in their individual capacities (apportionment admitted in the partnership deed), caused prejudice to the Revenue by avoiding a higher rate of tax that would apply if the incomes were clubbed (specifically by allowing avoidance when income exceeded Rs. 40,000).
- The court distinguished the Full Bench decision relied on by the petitioner (C. Arunachalam) on factual grounds and held that that decision did not assist the petitioner here because in that case the person sought to be charged was being assessed in a representative capacity, whereas in the present case partners were assessed in their individual capacities under the partnership apportionment.
- Conclusion on this point: the Commissioner had jurisdiction under section 35 to club the minor's income with his father's under section 11(2)(b) and the finding of prejudice to the Revenue was sustainable on the facts presented.
B. Validity of Registration/Renewal and Power to Reassess as Unregistered (1972-75)
- The court examined section 29 (procedure for registration of firms) and the Rules (particularly rules 13, 14 and 17) which prescribe signature requirements: an application under section 29 shall be signed by all partners (not being minors), Form requirements, and renewal application (Form 8) must be signed by all partners not being minors.
- The show-cause notice did not specify which partner's signature was missing in the renewal application. Given that a minor partner was admitted to the benefits, the court noted it could be that the missing signature was that of a minor (and rule 17 expressly exempts minors from signing).
- The court addressed whether the requirement that applications "shall be signed by all the partners" is mandatory or directory. It noted that none of the rules state that absence of signatures renders the application or registration void.
- Relying on the Supreme Court's tests in State of U.P. v. Babu Ram Upadhya (and other authorities cited therein), the court considered the legislative intent, the consequences of construing the provision as mandatory, and whether non-compliance attracted penal consequences. In the absence of penal consequences and given the purpose of the rules, the court held that the signature requirements in rules 13–17 were directory rather than mandatory.
- The court invoked the rule of substantial compliance (illustrated with the example of plaints and verification under the Code of Civil Procedure) and stressed that, absent a complaint by a partner that the firm was registered without his consent or knowledge, the Commissioner could not go behind the grant of registration by the Agricultural Income-tax Officer and declare the firm should have been assessed as unregistered.
- The court further observed that learned government counsel could not point to any provision in the Act empowering the Commissioner to set aside a grant of registration made by the officer, even on account of a defective application, by the exercise of his revisional powers under section 35. In the absence of such power, the Commissioner had erred in setting aside registrations.
- Conclusion on this point: the part of the impugned order setting aside renewals and directing reassessment as an unregistered firm was unsustainable and was set aside by the court.
Holding and Implications
Core Ruling: The court upheld the Commissioner's order insofar as it directed clubbing of the minor partner's income with that of his father for assessment year 1971-72 under section 11(2)(b); and the court set aside the Commissioner's direction to set aside renewal registrations and to reassess the firm as an "unregistered firm" for assessment years 1972-73 to 1974-75.
Implications and immediate consequences:
- The Commissioner was correct in exercising his power to require the clubbing for 1971-72; the Agricultural Income-tax Officer is to recompute the tax liabilities of the father and the minor partner and levy/demand tax accordingly in accordance with the Commissioner's direction (as set out in the impugned order and upheld by the court).
- The portion of the impugned order that set aside the renewals of registration for assessment years 1972-73, 1973-74 and 1974-75 and directed reassessment of the assessee as an "unregistered firm" is set aside; the registrations granted by the Agricultural Income-tax Officer (subject to the officer's original grant) may not be annulled by the Commissioner on the basis relied upon in the impugned order.
- The court characterized rules 13–17 (signature requirements for registration/renewal) as directory and invoked substantial compliance principles; it held that absent specific statutory authority or penal consequences, the Commissioner could not invalidate registration on the ground of a missing signature in the renewal process.
- No broader or novel precedent beyond the application of existing principles was created: the decision applies established tests (from State of U.P. v. Babu Ram Upadhya and related authority) to conclude that the registration signature rules are directory, and distinguishes the Full Bench decision relied on by the petitioner on the facts.
- Costs: "There will be no order as to costs." (as stated in the opinion)
This summary is prepared strictly from the content of the provided opinion. No information has been added or inferred beyond what appears in the judgment text.
M.P Chandrakantaraj Urs., J.:— These civil revision petitions under the Karnataka Agricultural Income-tax Act, 1957 (in short the “the Act”), filed as a common petition were directed against a composite order dated August 19, 1987 of the Commissioner of Agricultural Income-tax, Karnataka, Bangalore.
2. The facts leading to the petitions may be stated briefly and they are as follows: By four assessment orders as at annexures ‘A’ to ‘D’, dated December 30, 1978, December 30, 1978, December 31, 1978, and December 30, 1978, respectively, relating to the accounting years relevant to the assessment years 1971-72, 1972-73, 1973-74 and 1974-75, the relevant assessing authority concluded the assessment, under the Act, of Messrs. M.L Srinivasa Setty and Sons, Coffee and Rubber Planters, assessed in its capacity as a registered partnership firm under the Partnership Act as well as under the provisions of the Act (section 29). The Commissioner of Commercial Taxes, respondent herein, in exercise of his power under section 35 of the Act, issued a show-cause notice dated December 20, 1978, as at annexure-E calling upon the assessee-firm to show cause as to why : (1) for the assessment year 1971-72, the income of Sri M.S Jayaprakash, a minor partner, admitted to the benefits of the firm should not be clubbed with the income of his father, M.L Srinivasa Setty, and assessed in terms of clause (b) of sub-section (2) of section 11 of the Act in the view that separate assessment to tax of their income was prejudicial to the Revenue; (2) that, with reference to the assessment year 1972-73, the firm ought to have been assessed as an unregistered firm inasmuch as the application for renewal of registration under the Act had not been signed by all the partners. Similarly, the assessments for the assessment years 1973-74 and 1974-75 were also found fault with for the same reason. This power came to be exercised by the Commissioner even under the second head mentioned by us on the ground that the assessment of the firm as a registered firm was prejudicial to the Revenue. The assessee-firm, by its reply dated March 29, 1981, submitted through its chartered accountant, inter alia, contended that there was no need to club the income of the minor partner with that of the father for the relevant assessment year 1971-72 inasmuch as the father was the karta of the Hindu undivided family consisting of himself and his wife and as such the income should not be treated as income when the income of the minor son arose out of his having been admitted to the benefits of the firm of which he was a partner. Reliance was placed on a number of decided cases by the representative of the assessee-firm which in effect, meant no more than that the father is not an individual member of the firm but a member as karta of the joint family consisting of himself and his wife. In so far as it related to the second charge that the firm ought to have been assessed as an unregistered firm on account of the defect in the application filed for renewal of registration under the Act, it pleaded, that under rule 13(c), the Deputy Commissioner (Appeals) was empowered to accept forms when the appeal was preferred before him and, therefore, the Commissioner should direct the Agricultural Income-tax Officer to exercise the powers of the Officer by himself and treat the registration granted as valid. By the impugned order as at annexure-H, the explanations or causes shown were rejected and the respondent-Commissioner proceeded to pass the order, the operative portion of which reads as follows:
“6. I, therefore, make the following
(i) The income of the minor partner, Sri M.S Jayaprakash, for the assessment year 1971-72, shall be clubbed with the income of his father, Sri M.L Srinivasa Setty, for that year, under section 11(2)(a)(ii) of the Act and the Agricultural Income-tax Officer shall accordingly recompute the tax liabilities of these two partners and levy and demand tax accordingly.
(ii) The orders of the Agricultural Income-tax Officer granting renewal of registration for the assessment years 1972-73, 1973-74 and 1974-75 are set aside and he is directed to reassess the assessee as an ‘unregistered firm’ for the said years and levy tax accordingly.”
3. Aggrieved by the impugned order, the present revision petitions have been filed. Other undisputed facts which may be stated are as follows: Originally, the family, owning coffee and other plantations, was a Hindu undivided family consisting of M.L Srinivasa Setty, the father and the karta of the undivided family, and his nine sons. By a declaration made by the parties as from March 28, 1968, the status of Hindu undivided family was renounced and they came to hold the properties owned by them as tenants-in-common and, thereafter, on March 27, 1970, by a registered deed of partition, the properties held by the family were divided among the coparceners. It was in those circumstances that, for the assessment year 1971-72, registration was sought under the Act after having registered themselves as a firm under the Partnership Act by a deed of partnership dated August 22, 1970, and obtained registration as such under the Act in terms of section 29 of the Act for the relevant assessment year, namely, 1971-72. Mr. G. Sarangan, learned counsel appearing for the petitioner-firm, contended before us that having regard to the decision of the Full Bench of this court in the case of C. Arunachalam…* v. Commissioner Of Income Tax…., [1985] 151 ITR 172, this court should have no hesitation to set aside the order of the respondent-Commissioner in view of the fact that the Full Bench had held that the words “any individual” and “such individual” occurring in section 64(1) of the Income-tax Act, 1961 (which is more or less in pari materia with section 11 of the Act and serves the same purpose which section 64 of the Income-tax Act is intended to serve), did not include an individual who may be a karta of the Hindu undivided family or any other person in his representative capacity but must be confined to the person who was being assessed in his individual capacity and none other. Undoubtedly, the Full Bench has ruled so, but in that case, the facts were different. In both the cases which fell for consideration by the Full Bench in I.T.R Cs. Nos. 89 and 90 of 1976 and I.T.R.C No. 85 of 1978 [1985] 151 ITR 172 (Kar), the income of the spouse was sought to be clubbed or added to the income of the husband who was assessed as an individual but was a member of the firms involved in his capacity as the karta of the Hindu undivided family and was in fact a partner in the relevant firm. It was in that circumstance that the expression “individual” was construed by the Full Bench and held as stated by us earlier. On the other hand, here, the admitted facts are as such that the firm was, admittedly, on its own volition assessed as a registered firm or association of persons permissible under the provisions of the Act and not in the capacity of an individual or as a Hindu undivided family. Therefore, the firm was assessed for the purposes of the Act as a registered firm under the Act. In the scheme of the Act, we may state that the advantage of being assessed as a registered firm is no more than that a single return is required to be filed under section 18 of the Act but tax is realisable not on the income of the firm as a whole but on the income apportioned to each of the persons in accordance with the terms of the partnership under which the firm is constituted and tax is collected as such from the individual partners. So far as we are concerned in this case for the assessment year 1971-72, the firm returned a taxable income of Rs. 2,36,385.31 apportioned to each of the partners in equal sums crediting each partner with an income of Rs. 23,638.53. It was in that circumstance that the income of M.L Srinivasa Setty, the father, was not the income separately assessed between himself and his wife as Hindu undivided family but as an individual member of the firm from which he derived the agricultural income. Therefore, having regard to the mandate of section 11(2)(b) which reads as follows:
“11(2). In computing the total agricultural income of any individual, there shall be included all such agricultural income as arises directly or indirectly, —…
(b) to a minor child (not being a married daughter) of such individual,—
(i) from the admission of the minor to the benefits of partnership in a firm in which such individual is a partner;
(ii) from assets transferred directly or indirectly to the minor child by such individual otherwise than for adequate consideration;”
the Commissioner was correct in coming to the conclusion that the father and the minor son, both being partners of the same firm in their individual capacity, regard being had to the factum of apportionment admitted by them in the deed of partnership itself, there was prejudice caused to the Revenue inasmuch as a higher rate of tax under the amount of income exceed Rs. 40,000 was avoided or allowed to escape by the assessee by not clubbing the income of the minor son with that of the father. Therefore, we do not think that either the Full Bench decision of this court is of any assistance to the petitioner-assessee-firm or that the Commissioner lacked jurisdiction to exercise his power conferred on him under section 35 of the Act.
4. In so far as the impugned order refers to the second aspect of the case, we must set aside the order without any hesitation, with reference to the allegation that there was prejudice to the Revenue by assessing the firm as a registered firm which ought to have been assessed as an unregistered firm. We are unable to see any support in the provisions of the Act or the Rules made thereunder at the relevant time for such a conclusion.
5. Section 29 reads as follows:
“29. Procedure for registration of firms.— (1) Application may be made to the Agricultural 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.
(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 Agricultural Income-tax Officer in such manner as may be prescribed.”
6. We see from the express provision made in sub-section (2) that it has left certain things to be done by prescription by the Rules. The relevant rules in regard to the grant or refusal to grant are rules 13 to 17 For the above purposes, it suffices for us to extract the relevant portions of rules 13, 14 and 17.
“13. Procedure for registration of firms under section 29.—An application under section 29 shall be signed by all the partners (not being minors) personally, and shall be made—
(a) before the agricultural income of the firm is assessed for any year under section 19, or
(b) if no part of such income of the firm has been assessed for any year under section 19, before such income of the firm is assessed under section 36, or
(c) with the permission of the Deputy Commissioner hearing an appeal under section 32, before the assessment is confirmed, reduced, enhanced or annulled, or
(d) if the Deputy Commissioner sets aside the assessment and directs the Agricultural Income-tax Officer to make a fresh assessment before such fresh assessment is made, or
(e) before or after the dissolution of the firm, in respect of the assessment or assessments to be made on its agricultural income up to the date of dissolution:
Provided that, where an application is made under clause (e) after the dissolution of the firm, it shall be signed by all the persons who were partners in the firm immediately before the dissolution and by the legal representative of any such person who is deceased.”
“14. Form of application for registration of firms under section 29. —The application referred to in rule 13 shall be made in Form 7 and shall be accompanied by the original instrument of partnership under which the firm is constituted, together with a copy thereof, provided that, if the Agricultural Income-tax Officer is satisfied that, for some sufficient reason, the original instrument cannot be conveniently produced, he may accept a copy of it, certified in writing by all the partners (not being minors) or where the application is made after dissolution of the firm, by all the persons referred to in the proviso to the said rule, to be a correct copy, and in such a case, the application shall be accompanied by a duplicate copy.”
“17. Application for renewal of registration of firm.— Any firm to which a certificate of registration has been granted under rule 15 may apply to the Agricultural Income-tax Officer to have the certificate of registration renewed for a subsequent year in Form 8. Such application shall be signed personally by all the partners (not being minors) of the firm or when the application is made after dissolution of the firm by all the persons (not being minors) who were partners in the firm immediately before dissolution and by the legal representatives of any such person who is deceased. The application shall be made within the time and subject to the conditions, if any, which are specified in rule 13.”
7. We see that the opening sentence of rule 13 requires that all the partners must sign the application for registration in the prescribed form and submit the same to the proper officer who is required to grant or refuse the registration after being satisfied that there has been strict compliance with the requirements of law. That rule 14 has been complied with is not in dispute except in regard to the signature of one of the partners having been omitted in the renewal application made for the assessment years 1972-73, 1973-74 and 1974-75. A reading of rule 17 clearly shows that the application shall be signed by all the partners, not being minors, and if there is a minor partner, is not required to sign the application. The show-cause notice, as we have seen, a true copy of which is produced at annexure E, does not specify which one of the partners has not signed the form. In other words, the assessee-firm was not made aware of the exact defect which the relevant application for the relevant year suffered from. In that circumstance, this court would be free to assume, having regard to the fact that a partner was admitted to the benefits of the firm and admitted to be a minor, that it could be that the missing signature was that of the minor.
8. Even otherwise, assuming it was some other partner or partners who had not signed, we do not find that the mere absence of a signature becomes fatal to the application because, in none of the rules, i.e, rules 13, 14, 15, 16 and 17 of the Rules, is there any statement to the effect that, in the absence of all the signatures, the application is either void or registration granted therein is void. In other words, this court has to examine whether the requirement of the rules that application in the prescribed form must be signed by all the partners is mandatory or directory.
9. The Supreme Court, in the case of State of Uttar Pradesh v. Babu Ram Upadhya, AIR 1961 SC 751, had occasion to consider the directory or mandatory nature of a statutory provision by applying certain tests. K. Subba Rao J. (as he then was), speaking for the majority, held as follows (headnote):
“When a statute uses the word ‘shall, prima facie, it is mandatory, but the court may ascertain the real intention of the Legislature by carefully attending to the whole scope of the statute. For ascertaining the real intention of the Legislature, the court may consider, inter alia, the nature and the design of the statute, and the consequences which could flow from construing it one way or the other, the impact of other provisions whereby the necessity of complying with the provisions in question is avoided, the circumstances that the statute provides for a contingency of the non-compliance with the provisions, the fact that the non-compliance with the provisions is or is not visited by some penalty, the serious or trivial consequences that flow therefrom, and, above all, whether the object of the legislation will be defeated or furthered. Rule 1 of para 486 of the U.P Police Regulations is conceived not only to enable the Superintendent of Police to gather information but also to protect the interests of subordinate officers against whom departmental trial is sought to be held. As the rule says that a departmental trial can be held only after a police investigation, it is not permissible to hold that it can be held without such investigation. Paragraph 486 is mandatory and if the investigation has not been held under Chapter XIV of the Criminal Procedure Code, the subsequent inquiry and the order of dismissal are illegal. Hari Vishnu Kamath v. Ahmad lshaque, AIR 1955 SC 233 and State Of U.P v. Manbodhan Lal Srivastava, AIR 1957 SC 912 and Montreal Street Railway v. Norman-din, AIR 1917 PC 142 relied on.”
10. In other words, one of the crucial tests to determine whether a particular statutory requirement is mandatory or directory is that the court has to see whether any penal consequences will follow by the non-compliance with a particular statutory requirement. If no penal consequences are indicated, then it would be safe to infer that the statutory requirement was directory and not obligatory or compulsory.
11. A Division Bench of this court, construing section 4(2) of the Karnataka Local Authorities Prohibition of Defection Act, 1987, which provides for completing the enquiry by the competent authority within seven days from the date of receipt of complaint, held the word “shall” to be not mandatory as no penal consequences were indicated in the statute in the event of non-compliance with the requirement of completing the enquiry within 7 days. Applying the ratio decidendi of the cases cited by us, we should have no hesitation to hold that rules 13, 14, 15, 16 and 17 requiring the signatures, if any, of all the partners was directory in character and not mandatory. It is not uncommon that courts generally apply what is known as the rule of substantial compliance. For instance, a plaint is required to be in the form prescribed under the Code of Civil Procedure. But it causes inconvenience when the plaint presented in court does not properly conform to the form prescribed. Many a time, courts find that verification is not done in the manner prescribed by the Code. Nevertheless, courts accept the plaint or written statement presented to them because there has been substantial compliance with the requirement of law. In the absence of a complaint by a member of the firm that the firm was registered without his consent or knowledge, it will not be open to the Commissioner to go behind the grant of registration by the officer concerned and then record a finding that the firm should have been assessed as an unregistered firm. No such provision is made that the assessee-firm or association of persons may be assessed as an unregistered firm under the provisions of the Act. The firm was not made aware in the show-cause notice as to how it was prejudicial to the interests of the Revenue to assume jurisdiction under section 35 of the Act by the Commissioner. We see that the only provision which throws some light on the facts of this case in regard to registration is rule 23 of the Rules and that is as follows:
“23. Appeal under section 32 to the Deputy Commissioner.— An appeal under section 32 shall,—
(a) in the case of an appeal against the order of the Agricultural Income-tax Officer under section 19, be in Form 13;
(b) in the case of an appeal against the order of the Agricultural Income-tax Officer under sub-section (2) of section 26, be in Form 14;
(c) in the case of an appeal under section 32, be in Form 15;
(d) in the case of an appeal under section 30, be in Form 16;
(e) in the case of an appeal under section 22, be in Form 17; and
(f) in the case of an order under section 9, be in Form 28-A.”
12. It is seen from the provisions made that the assessee firm which is required to be specified as in the case of the firm or association of persons who claim to be assessed in that capacity and not for the Commissioner on the facts of this case because the authority competent to grant registration had granted and assessed the firm as an unregistered firm (sic). Despite our drawing attention to the specific provision, learned Government Pleader, Sri Dattu, was unable to point to any of the provisions of the Act which empowered the Commissioner to set aside the grant of registration made by an officer even on a defective application in the exercise of his revisional power. If that power is wanting not only under section 35 but also under other provisions of the Act, then the Commissioner cannot assume jurisdiction in the manner he has done, directly or indirectly, suggesting that it should have been assessed as an association of persons.
13. We, therefore, set aside that part of the impugned order which relates to the prejudicial aspect of the firm having been assessed as a registered firm for the relevant assessment years which was the subject-matter of the show-cause notice. Accordingly, the impugned order is set aside to the extent indicated above. In other respects, the order remains undisturbed.
14. There will be no order as to costs.
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