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Jupiter Foundry And Machines (Knives) v. Commissioner Of Income-Tax, Amritsar-Ii.

Punjab & Haryana High Court

Jan 31, 1977

Judgment

Subsequent
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Structured Summary of the Opinion

Factual and Procedural Background

The assessee was the firm Messrs. Jupiter Foundry and Machines (Knives), Amritsar, constituted by a partnership deed dated September 29, 1964, with four partners: Shri Surinder Singh, Shri Joginder Singh, Shri Gurbachan Singh and Shri Manmohan Singh. Shri Surinder Singh retired on December 27, 1966, and the firm was dissolved. A dissolution deed dated December 28, 1966, recorded that accounts were settled and the remaining partners took over the business, including assets and liabilities, and continued to carry on the same business in the same name and style under a new partnership deed dated December 28, 1966.

On September 30, 1967 the reconstituted firm filed a consolidated return showing income for two periods: April 1, 1966 to December 27, 1966, and December 28, 1966 to March 31, 1967. The firm also filed a declaration in Form No. 12 for continuance of registration under section 184(7) of the Income-tax Act, 1961, for the assessment year 1967–68 (accounting period ending March 31, 1967), signed by the three partners and accompanied by a note indicating that, "Although with the change in the constitution, an application for registration has been filed, yet out of abundant precaution, declaration in Form No. 12 is also filed."

The Income-tax Officer found that no application for registration in Form No. 11 had been filed before the expiry of the relevant accounting period ending March 31, 1967. The assessee later (on December 1, 1970) filed Form No. 11 with the partnership deed and a letter explaining that confusion caused by the prolonged illness and death of its income-tax adviser, Shri A.C. Kher, prevented earlier filing.

In assessment proceedings the assessee advanced four contentions (summarised below). The Income-tax Officer rejected all four contentions, held that section 187 applied (so one assessment to be framed), refused renewal of registration for the earlier part-period, refused to condone the delay in filing Form No. 11, and framed a single assessment against the firm. The Appellate Assistant Commissioner and the second appellate authority upheld the Income-tax Officer's order. At the assessee's instance the Income-tax Appellate Tribunal, Amritsar, framed four questions of law under section 256(1) for the High Court's opinion.

Legal Issues Presented

Whether the facts constitute a "change in the constitution" of the firm within section 187(2) of the Income-tax Act, 1961, or amount to a "succession" of one firm by another under section 188?
Whether renewal of registration could be granted under law for part of the accounting period (specifically for April 1, 1966 to December 27, 1966)?
Whether the assessee was prevented by sufficient cause from filing the application for registration before March 31, 1967 (i.e., whether the delay in filing Form No. 11 should be condoned)?
Whether the assessee-firm was entitled to registration under the Income-tax Act because one of its partners (Shri Manmohan Singh) had already been assessed in respect of his share of income from the firm?

Arguments of the Parties

Assessee's Arguments

The dissolution dated December 28, 1966 was a case of succession (one firm succeeding another) rather than merely a change in constitution; therefore two assessments under section 188 should be framed instead of a single assessment under section 187.
Renewal of registration under section 184(7) should be granted for the period April 1, 1966 to December 27, 1966.
There was sufficient cause for condonation of the delay in filing the application for registration (Form No. 11), because the income-tax adviser Shri A.C. Kher had been ill and died, causing confusion and misunderstanding; consequently registration should be granted for the period December 28, 1966 to March 31, 1967.
Registration could not be refused because one partner (Shri Manmohan Singh) had already been assessed; reliance was placed on Commissioner of Income-tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory [1966] 60 ITR 95 (SC).

Revenue / Income-tax Officer's Position (as set out in the opinion)

The matter fell within section 187 (reconstitution/change in constitution) and not section 188 (succession), so a single assessment was appropriate.
Renewal of registration could not be granted for a part of the accounting period.
No application in Form No. 11 was filed before the expiry of the relevant accounting period; the Form No. 11 filed on December 1, 1970 involved an inordinate delay, and there was no reasonable cause shown to condone a delay of about three years.
Even if a partner had already been assessed, that fact did not prevent assessment of the firm as a unit; registration could be refused notwithstanding the partner's assessment.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner of Income-tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory, [1966] 60 ITR 95 (SC)	Relied upon by the assessee to argue that registration could not be refused where a partner had already been assessed.	Not adopted by this Court as determinative; the assessee invoked it but the Court answered the related question against the assessee based on subsequent authority (see Rodamal Lal Chand).
Dharam Pal Sat Dev v. Commissioner of Income-tax, [1974] 97 ITR 302 (Punjab)	Holds that provisions of the Indian Partnership Act should be referred to only if a situation is not covered by the Income-tax Act; if two partners of a newly constituted firm remain the same after departure of one old partner the situation falls within section 187(2).	Followed and treated as binding: applied to conclude the present case was a reconstitution under section 187(2) and not succession under section 188.
Dahi Laxmi Dal Factory v. Income-tax Officer, [1976] 103 ITR 517 (All) [FB]	Adopts the same view as to application of section 187(2) where partners continue.	Noted as taking the same view; used to support the conclusion that the firm was reconstituted under section 187(2).
Commissioner of Income-tax v. T. Veeraraghavulu Chetty and Sons Co., [1975] 100 ITR 723 (AP)	Takes the same approach on interpretation of reconstitution under Income-tax law.	Noted as supporting the Court's interpretation that section 187(2) applied.
Kaithari Lungi Stores v. Commissioner of Income-tax, [1976] 104 ITR 160 (Mad)	Same view on reconstitution/change in constitution under Income-tax Act.	Recorded as an authority consistent with applying section 187(2) to such factual situations.
Rodamal Lal Chand v. Commissioner of Income-tax [ITR No. 8 of 1974 (decided Nov 3, 1976)] [1977] 109 ITR 7 (Punjab)	Holds that even if the assessment of a partner of the firm has been finalised for a particular year, it remains open to the Income-tax Officer to assess the partnership firm as a unit for that year.	Followed and applied to answer Question No. 4 against the assessee, i.e., the fact that one partner had been assessed did not entitle the firm to registration or prevent assessment of the firm.

Court's Reasoning and Analysis

The Court addressed each of the four questions posed by the Tribunal in turn and applied statutory provisions and precedents as follows.

Question No. 1 — Reconstitution (section 187) v. Succession (section 188)

The Court examined section 187(2) of the Income-tax Act, which provides that where one or more partners cease to be partners or one or more new partners are admitted, in circumstances where one or more persons who were partners before the change continue as partners after the change, or where all partners continue with changes in respective shares, the firm is deemed reconstituted. On that statutory wording the Court concluded that the present case was a reconstitution under section 187(2) and not a succession under section 188, because the remaining partners continued the business in the same name and style after the retirement of one partner.

The Court further relied on the Division Bench decision in Dharam Pal Sat Dev v. Commissioner of Income-tax that the Indian Partnership Act may be referred to only if the Income-tax Act does not cover the situation, and that where two partners remain after the departure of a partner the facts fall squarely within section 187(2). The Court recorded similar supportive authority (Dahi Laxmi Dal Factory; T. Veeraraghavulu Chetty; Kaithari Lungi Stores) and concluded that those decisions bind it to hold that the case was one of reconstitution under section 187(2).

Questions Nos. 2 and 3 — Registration for part-year and Condonation of Delay

The Income-tax Officer had found as a fact that no Form No. 11 application for registration had been filed before the end of the previous year relevant to AY 1967–68, and that the Form No. 11 filed on December 1, 1970 sought condonation of delay. The assessee's explanation for the delay was the death of its income-tax adviser, Shri A.C. Kher, after prolonged illness. The Tribunal, as the final fact-finding authority, concluded that Shri Kher had died in 1965, and therefore his death could not have caused confusion leading to delay in filings up to 1967.

The Court emphasised that where the Tribunal, as the final court of fact, finds on good grounds that there is no sufficient cause to condone delay, no question of law arises for the High Court. Once the Tribunal's factual conclusion is accepted — that the assessee was not prevented by sufficient cause from making the application before the end of the previous year — it follows that there was no proper application for registration before the Income-tax Officer and therefore the question of registration does not arise.

The Court additionally referred to sections 184(4) and 185(1) of the Act to note that registration can be sought for the whole assessment year and not for part of the year, which supported answering Questions Nos. 2 and 3 in favour of the revenue.

Question No. 4 — Effect of Prior Assessment of a Partner

The Court treated this issue as resolved by the Division Bench decision in Rodamal Lal Chand v. Commissioner of Income-tax, which held that even if assessment of a partner had been finalised, the Income-tax Officer could still assess the partnership firm as a unit for that year. Applying that decision, the Court concluded that the fact of an assessed partner (Shri Manmohan Singh) did not entitle the firm to registration or prevent assessment of the firm; Question No. 4 was therefore answered against the assessee.

Holding and Implications

Holding: The Court answered all four questions in favour of the revenue and against the assessee:

The firm was reconstituted and fell within section 187(2) (change in constitution), not a case of succession under section 188.
Renewal of registration could not be granted for part of the accounting period; registration must be sought for the whole assessment year.
The Tribunal's factual finding that there was no sufficient cause to condone the delay in filing Form No. 11 was accepted; consequently there was no valid application for registration before the Income-tax Officer.
The prior finalisation of assessment of one partner did not prevent the Income-tax Officer from assessing the firm as a unit; this did not entitle the firm to registration in the circumstances.

Implications: As a direct result of these conclusions, the assessee's contentions were rejected, registration was not available for the firm for the relevant period (and could not be granted for part of the year), the delay in filing the registration application was not condoned, and a single assessment under section 187 was upheld. The Court applied existing authorities and statutory interpretation; the opinion follows precedent and does not set out a new legal principle beyond applying the cited decisions to the facts of this case.

Show all summary ...

M.R Sharma, J.:— The firm known as Messrs. Jupiter Foundry and Machines (Knives), Amritsar (hereinafter referred to as “the assessee”), was constituted under a partnership deed dated September 29, 1964, with four partners, namely, Shri Surinder Singh, Shri Joginder Singh, Shri Gurbachan Singh and Shri Manmohan Singh. On December 27, 1966, Shri Surinder Singh retired and the firm was dissolved. The dissolution deed dated December 28, 1966, shows that the accounts were settled and the remaining partners took over the business including the assets and liabilities of the partnership firm. In other words, they continued to carry on the same business in the same name and style under a new partnership deed of the same date.

2. On September 30, 1967, the assessee-firm as constituted on December 28, 1966, filed a consolidated return showing the income for two periods, that is, from April 1, 1966, to December 27, 1966, and from December 28, 1966, to March 31, 1967.

3. The assessee also filed a declaration in Form No. 12 for continuance of the registration under section 184(7) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), for the assessment year 1967–68, relevant to the accounting period ending on March 31, 1967. The declaration form was signed by all the three partners and the same was accompanied by a note as follows:

“Although with the change in the constitution, an application for registration has been filed, yet out of abundant precaution, declaration in Form No. 12 is also filed.”

4. The Income-tax Officer found that the assessee-firm had not filed an application for registration before the expiry of the relevant accounting period ending on March 31, 1967. Much later, that is, on December 1, 1970, the assessee filed an application for registration in Form No. 11 along with the partnership deed dated December 28, 1966, with a forwarding letter in which it was contended that since there was no change in the constitution of the firm up to the date of the retirement of Shri Surinder Singh on December 27, 1966, the declaration in Form No. 12 for continuation of registration was filed along with the return of income for the period from April 1, 1966, to December 27, 1966, and that the application in Form No. 11 for the registration of the firm could not be filed before March 31, 1967, due to the confusion and misunderstanding created by the prolonged illness and death of its income-tax adviser, Shri A.C Kher.

5. In the course of assessment proceedings before the Income-tax Officer, the assessee submitted as follows:

(1) That since the original firm with four partners had been dissolved on December 28, 1966, it was a case of succession and not of change in the constitution of the firm and so two assessments under section 188 of the Act instead of one assessment under section 187 of the Act should be framed.

(2) That, in any case, renewal of registration should be granted to the firm for the period commencing from April 1, 1966, and ending on December 27, 1966, under section 184(7) of the Act.

(3) That there was sufficient cause for condonation of delay in filing the application for registration and registration should be granted to the assessee-firm for the period commencing from December 28, 1966, and ending on March 31, 1967.

(4) That since the assessment of one of the partners, namely, Shri Manmohan Singh, had already been completed, the registration could not be refused in view of the decision rendered by their Lordships of the Supreme Court reported as Commissioner of Income-tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory, [1966] 60 ITR 95 (SC).

6. The Income-tax Officer rejected all the four contentions raised on behalf of the assessee. He held that since the case of the assessee was covered under section 187 of the Act, section 188 did not apply and only one assessment need be framed. He also held that since there was only a change in the constitution of the firm, renewal of registration could not be granted under section 184(7) of the Act, for the period from April 1, 1966, to December 27, 1966, and since the assessee had not filed an application in Form No. 11 for the registration of the firm before the expiry of the relevant accounting period, the assessee was not entitled to registration. Last of all, he held that there was no reasonable cause for the condonation of delay of three years in filing the application for registration. As a result of these findings, a single assessment was framed against the firm.

7. On appeal, the Appellate Assistant Commissioner upheld the order of the Income-tax Officer and the second appeal filed by the assessee was also dismissed. However, at the instance of the assessee, the Income-tax Appellate Tribunal, Amritsar, framed the following four questions of law for our opinion under section 256(1) of the Act:

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that this was a case of ‘change in the constitution’ of the firm within the meaning of section 187(2) and not of ‘succession’ of one firm by another firm under section 188 of the Income-tax Act, 1961?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that renewal of registration could not be granted under law for a part of the accounting period, i.e, for the period from April 1, 1966, to December 27, 1966?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not prevented by any sufficient cause from filing the application for registration before March 31, 1967?

(4) Whether, on the facts and in the circumstances of the case, the assessee-firm was entitled to registration under the Income-tax Act, 1961, because one of its partners, Shri Man Mohan Singh, had already been assessed in respect of his share income from the said firm?”

8. Regarding question No. 1, it may be observed that section 187(2) of the Act clearly lays down that if one or more of the partners of a firm cease to be its partners or one or more new partners are admitted, in such circumstances that one or more of the persons who were partners of the firm before the change continue as its partner or partners after the change, or where all the partners continue with a change in their respective shares or in the shares of some of them, the firm would be deemed to be reconstituted. In view of this clear position of law, it must be held that it was not a case of “succession” of the firm as envisaged by section 188 of the Act and the firm had only been reconstituted and continued in its original name and style.

9. Furthermore, in Dharam Pal Sat Dev v. Commissioner of Income-tax, [1974] 97 ITR 302 (Punj) a Division Bench of this court held that the provisions of the Indian Partnership Act can be referred to only if it is found that a particular situation is not covered by the provisions of the Income-tax Act. If two of the partners of a newly constituted firm remain the same after the departure of one of its old partners, the case answers the description of section 187(2) of the Act which entitles the Income-tax Officer to frame only one assessment. We are bound to follow this view with respect. The same view was taken in Dahi Laxmi Dal Factory v. Income-tax Officer, [1976] 103 ITR 517 (All) [FB], Commissioner of Income-tax v. T. Veeraraghavulu Chetty and Sons Co., [1975] 100 ITR 723 (AP) and Kaithari Lungi Stores v. Commissioner of Income-tax, [1976] 104 ITR 160 (Mad). We, accordingly, answer the first question in favour of the revenue and against the assessee.

10. Questions Nos. 2 and 3 can be conveniently dealt with together. It was found as a matter of fact by the Income-tax Officer that no application for registration had been filed by the newly constituted firm before the end of the previous year corresponding to assessment year 1967–68 as required by law, and an application in Form No. 11 was filed on December 1, 1970, with a prayer that the delay in filing the application should be condoned. The reason advanced for the condonation of the delay was that the income-tax adviser of the firm, Shri A.C Kher, had died after a prolonged illness and due to some misunderstanding and confusion resulting from his death the application for registration in Form No. 11 could not be presented earlier. The Tribunal has found as a matter of fact that Shri Kher had died in the year 1965. Obviously, therefore, the death of the income-tax adviser of the firm could not have caused any confusion or misunderstanding. Where the Tribunal, which is the final court of fact, on good grounds, comes to a conclusion that no cause is made out for condoning the delay in making an application for registration, no question of law arises for the determination of the High Court. Once it is held that the assessee was not prevented by sufficient cause from making the application before the end of the previous year, it has also to be held in the eyes of law that there was no proper application before the Income-tax Officer for the registration of the firm. In that situation, the question of registration of the firm does not arise at all. However, a reference to section 184(4) and section 185(1) of the Act shows that registration can be sought for the whole assessment year and not for a part of the year. We, accordingly, answer questions Nos. 2 and 3 in favour of the revenue and against the assessee.

11. The point raised in question No. 4 is also concluded against the assessee by a Division Bench judgment of this court in Rodamal Lal Chand v. Commissioner of Income-tax [ITR No. 8 of 1974, decided on November 3, 1976) [1977] 109 ITR 7 (Punj)]. In that case, it was held that even if the assessment of a partner of the firm had been finalised for a particular year, it was still open to the Income-tax Officer to assess a partnership firm as a unit for that year. We, accordingly, answer this question also in favour of the revenue and against the assessee.