1998 (8) TMI 61 - HC - Income Tax

Unregistered Firm, Form No. 12, Registered Firm, Rectification Of Defect, Continuation Of Registration

Summary

Issues Involved:
1. Validity of the declaration in Form No. 12.
2. Applicability of Section 185(3) of the Income-tax Act, 1961.
3. Opportunity to rectify defects in the declaration.
4. Relevance of past judicial decisions to the current case.

Detailed Analysis:

1. Validity of the declaration in Form No. 12:
The petitioner-firm filed Form No. 12 for the assessment year 1987-88 on July 29, 1987. The assessing authority rejected this declaration, considering it invalid because it was made before the end of the previous year, i.e., March 31, 1987. The decision was based on the Gujarat High Court's ruling in CIT v. Trinity Traders [1974] 97 ITR 81. The petitioner contended that the rejection was not valid and that the declaration was only defective, not invalid.

2. Applicability of Section 185(3) of the Income-tax Act, 1961:
The petitioner argued that under Section 185(3), the assessing authority was required to intimate any defect in the declaration and provide an opportunity to rectify it within one month. The petitioner claimed the assessing authority failed to provide such an opportunity, which was a statutory obligation. The Department countered that since the declaration was invalid, not defective, Section 185(3) did not apply.

3. Opportunity to rectify defects in the declaration:
The court examined whether the petitioner should have been given an opportunity to rectify the defect in Form No. 12. The petitioner cited several judicial decisions, including Mathew and Mathew v. CIT [1986] 161 ITR 9 (Ker), which held that filing the declaration before the end of the accounting year was not fatal and was only a defect. The court noted that the declaration is a statutory mode of proof that there is no change in the firm's constitution or the shares of the partners, as required by Section 184(7).

4. Relevance of past judicial decisions to the current case:
The court referenced multiple decisions to determine the validity and rectifiability of the declaration:
- Mathew and Mathew v. CIT [1986] 161 ITR 9 (Ker): Held that the requirement to file the declaration before the end of the accounting year was not mandatory and defects could be rectified.
- Halima Fancy Stores v. CIT [1976] 104 ITR 190 (Mad): Emphasized that the declaration is only evidence of no change in the firm's constitution and the requirement to file it along with the return was not mandatory.
- CIT v. Sitaram Bhagwandas [1976] 102 ITR 560 (Pat): Supported the view that procedural requirements are directory, not mandatory, and defects in the declaration can be rectified.
- Nand Singh Taneja and Sons v. CIT [1973] 91 ITR 202 (All): Held that defects in the declaration do not invalidate it and can be rectified.

The court concluded that the authorities should have treated the declaration as defective rather than invalid and provided the petitioner an opportunity to rectify it. The writ petition was allowed, directing the respondents to afford the petitioner an opportunity to correct the defect in the declaration.