1964 (1) TMI 61 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement of the assessee firm to renewal of registration under section 26A of the Indian Income-tax Act for the assessment year 1948-49.
2. Compliance with the procedural requirements for registration and renewal under the Income-tax Rules.
3. Discretion of the Income-tax Officer in granting or refusing renewal of registration.
4. The impact of undistributed profits on the renewal of registration.
5. The validity of the preliminary objection regarding the Tribunal's jurisdiction to refer the question to the High Court.

Detailed Analysis:

1. Entitlement of the Assessee Firm to Renewal of Registration:
The primary issue was whether the assessee firm, which had distributed its book profits among the partners according to the instrument of partnership but had not distributed the profits earned in the black market, was entitled to renewal of registration for the assessment year 1948-49. The court held that the firm had no right to renewal of registration because it had not distributed a portion of its profits in accordance with the partnership instrument.

2. Compliance with Procedural Requirements:
The court examined section 26A of the Indian Income-tax Act and the relevant Income-tax Rules, particularly Rules 2 to 6B, which detail the procedure for registration and renewal of registration of firms. The application for renewal must be made in the prescribed form, signed by all partners, and submitted within the stipulated time. The court noted that the application made by the assessee was in order in terms of form but lacked the actual amounts of income apportioned to each partner, which was a significant procedural lapse.

3. Discretion of the Income-tax Officer:
The court emphasized that while Rule 4 uses the word "shall," indicating a mandatory obligation to register if the application is in order, Rule 6, which deals with renewal, uses the word "may," indicating discretion. The Income-tax Officer is not compelled to renew the registration merely because the application is in order; he has the discretion to refuse renewal if there are justifiable grounds. In this case, the undistributed profits were a relevant fact justifying the refusal of renewal.

4. Impact of Undistributed Profits:
The court found that the actual or real profits had not been divided in accordance with the partnership deed. The certificate given by the partners was deemed incorrect because it did not account for the undistributed black market profits. The court held that the incorrect or incomplete certificate was a just ground for refusal to renew registration. The Tribunal's finding that the undisclosed profits had not been distributed among the partners was a relevant fact for exercising discretion against renewal.

5. Validity of the Preliminary Objection:
A preliminary objection was raised, arguing that the question referred did not arise from an order passed under section 33 of the Income-tax Act and that no appeal lies from an order refusing to renew registration. The court rejected this objection, stating that the Income-tax Act makes no distinction between registration and renewal of registration; refusal to renew is effectively refusal to register. The Tribunal's order was considered an order under section 33, giving it jurisdiction to refer the question to the High Court.

Conclusion:
The court concluded that the assessee firm had no right to renewal of registration because it had not distributed a portion of its profits in accordance with the partnership instrument. The Income-tax Officer's discretion in refusing renewal was upheld, and the preliminary objection regarding the Tribunal's jurisdiction was dismissed. The assessee was directed to pay costs to the Commissioner of Income-tax.