1984 (11) TMI 2 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to continuation of registration of the firm for the assessment years 1972-73 and 1973-74.
2. Power of the Income-tax Officer under section 186(1) to cancel the registration granted to the firm.

Detailed Analysis:

1. Entitlement to Continuation of Registration of the Firm for the Assessment Years 1972-73 and 1973-74:

A firm was constituted under a deed of partnership dated April 2, 1970, with three partners and a minor admitted to the benefits of the partnership. A new deed was executed on April 5, 1971, effective from April 1, 1971, listing Narasimha Rao as a major, although he attained majority only on April 28, 1971. The firm applied for registration under section 184 of the Income-tax Act for the assessment year 1972-73. During the assessment, the Income-tax Officer discovered the misdescription of Narasimha Rao as a major, which rendered the partnership deed void ab initio. Consequently, the Income-tax Officer invoked section 186 to cancel the registration for 1972-73 and declined continuation for 1973-74.

The Appellate Assistant Commissioner allowed the assessee's appeal, granting registration for 1972-73 and its continuation for 1973-74. The Tribunal upheld these orders, following decisions in CIT v. Badjanapara Salt Co. and CIT v. Balaji Pictures, which supported the view that registration could not be canceled under section 186 except on the ground of non-genuineness of the firm factually.

However, the court referred to the Supreme Court decision in CIT v. Sivakasi Match Exporting Co., which clarified that the genuineness of a firm includes both factual existence and legal existence. If a firm is void in law, it cannot be considered factually genuine. Thus, the Tribunal's decision was erroneous, and the firm was not entitled to continuation of registration for the specified assessment years.

2. Power of the Income-tax Officer Under Section 186(1) to Cancel the Registration Granted to the Firm:

The core issue was whether the Income-tax Officer could cancel the registration under section 186(1) on grounds other than factual non-genuineness. The assessee argued that section 186 could only be invoked if the firm was not genuine factually, not if it had no legal existence. The Revenue contended that genuineness includes legal existence, and a firm void in law cannot be genuine.

The court examined the Supreme Court's interpretation in CIT v. Sivakasi Match Exporting Co., which indicated that an Income-tax Officer's jurisdiction includes ascertaining whether the firm has legal existence. A firm constituted contrary to statutory provisions is void and, therefore, not genuine. The court also referred to decisions from the Allahabad High Court and Gauhati High Court, which supported the view that registration could be canceled if the firm was illegally constituted.

The court concluded that section 186(1) empowers the Income-tax Officer to cancel registration if the firm has no legal existence. The Tribunal's reliance on earlier decisions was misplaced as they did not consider the Supreme Court's ruling. Therefore, the Income-tax Officer correctly invoked section 186 to cancel the registration for 1972-73, and the continuation for 1973-74 was rightly denied.

Conclusion:

The court answered the questions in the negative, favoring the Revenue and against the assessee. The firm was not entitled to continuation of registration for the assessment years 1972-73 and 1973-74, and the Income-tax Officer had the power to cancel the registration under section 186(1) due to the firm's lack of legal existence. The Tribunal's contrary conclusion was erroneous.