1986 (3) TMI 49 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the declaration in Form No. 12 filed by the assessee before the end of the relevant accounting year.
2. Opportunity for rectification of the defect in the declaration under section 185(3) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the Declaration in Form No. 12:
The primary issue was whether the declaration in Form No. 12 filed by the assessee on January 21, 1975, for the continuation of registration for the assessment year 1975-76 was valid, given that it was submitted before the end of the relevant accounting year ending on March 31, 1975. The Tribunal, following the Gujarat High Court's decision in CIT v. Trinity Traders [1974] 97 ITR 81, held that the declaration submitted before the end of the accounting year was invalid. The Tribunal's reasoning was that a declaration filed prematurely does not cover the entire accounting period and thus cannot be considered valid. The Tribunal rejected the assessee's alternative plea for an opportunity to rectify the defect, asserting that a premature declaration is not a declaration at all in law.

2. Opportunity for Rectification of the Defect:
The second issue was whether the Income-tax Officer should have provided the assessee an opportunity to rectify the defect in the declaration under section 185(3) of the Income-tax Act, 1961. The High Court noted that sub-section (7) of section 184, along with its proviso, stipulates that registration granted to a firm for any assessment year shall have effect for every subsequent assessment year, provided there is no change in the constitution of the firm or the shares of the partners. Clause (ii) of the proviso requires the firm to furnish a declaration in the prescribed form before the expiry of the time allowed for furnishing the return of income.

The High Court observed that the declaration is a statutory mode of proof to show that there is no change in the firm's constitution. The Income-tax Officer is required to be satisfied that the firm continues without any change throughout the previous year relevant to the year of assessment. The Court emphasized that clause (ii) prescribes the outer limit of time within which the declaration is to be furnished and does not mandate the rejection of a declaration filed before the end of the accounting period.

The Court further noted that sub-section (3) of section 185 requires the Income-tax Officer to intimate any defect in the declaration to the assessee and provide an opportunity for rectification within one month. If the defect is not rectified, the Officer can declare that the registration shall not have effect for the relevant assessment year. The Court concluded that the declaration furnished by the assessee, though defective, entitled the assessee to an opportunity for rectification under sub-section (3) of section 185.

Conclusion:
The High Court answered the first question in favor of the Revenue, affirming that the declaration filed before the end of the accounting year was invalid. However, it answered the second question in favor of the assessee, stating that the assessee should have been given an opportunity to rectify the defect in the declaration as per section 185(3) of the Income-tax Act, 1961. The judgment highlighted the procedural nature of the declaration requirement and emphasized the importance of providing an opportunity for rectification of defects to ensure fairness in the assessment process.