1980 (11) TMI 31 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Commissioner of Income-tax under Section 263 to cancel the continuance of registration.
2. Validity of the renewal of registration despite discrepancies in profit-sharing ratios.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner of Income-tax under Section 263 to cancel the continuance of registration:

The Tribunal held that under Section 184(7), the registration of a firm remains effective automatically for subsequent years provided certain conditions are met. This section does not require the Income-tax Officer (ITO) to pass an order for renewal or continuance of registration. Therefore, there is no order that the Commissioner could revise under Section 263. The Tribunal relied on the decision in Ashwani Kumar Maksudan Lal v. Addl. CIT [1972] 83 ITR 854 (All), which clarified that the continuation of registration does not require an order by the ITO. Consequently, the Tribunal ruled that the Commissioner's order to cancel the renewal of registration was liable to be set aside.

2. Validity of the renewal of registration despite discrepancies in profit-sharing ratios:

On merits, the Tribunal found that the profits of the firm in the various years had been divided among its partners in accordance with the shares mentioned in the partnership deed, which was the basis for the firm's registration for the assessment year 1967-68. The Tribunal concluded that the registration and its continuance were not erroneous merely because of a discrepancy in the shares of the partners as mentioned in Form No. 11A. The Tribunal thus set aside the Commissioner's order directing the reassessment of the firm as an unregistered entity for the assessment years 1972-73 and 1973-74.

Legal Provisions and Interpretation:

Section 184(7) and Section 185 of the Income-tax Act:

Section 184(7) stipulates that the registration of a firm, once granted, continues automatically for subsequent years if there is no change in the constitution of the firm or the shares of the partners, and a declaration to that effect is filed. Section 185 outlines the procedure for registration, requiring the ITO to pass an order in writing for initial registration but does not mandate any order for the continuance of registration under Section 184(7).

Court's Analysis:

The court analyzed the statutory scheme, noting that Section 185(4) requires the ITO to append a certificate on the partnership instrument or its certified copy, indicating the firm's registration status. This endorsement, based on the declaration under Section 184(7), does not equate to an order. The court emphasized that the ITO's role under Section 184(7) is ministerial, involving no inquiry or order-making, thus precluding the Commissioner's revisionary jurisdiction under Section 263 for such automatic continuance.

Relevant Case Law:

The court referred to the decision in Ashwani Kumar Maksudan Lal v. Addl. CIT [1972] 83 ITR 854 (All), affirming that no order is required for the continuance of registration. The court distinguished the present case from decisions like Sant Lal Kashmiri Lal v. CIT [1972] 86 ITR 76 (Delhi) and Addl. CIT v. Chekka Ayyanna [1977] 106 ITR 313 (AP), which involved defective declarations and orders under Section 185(3), not relevant to the automatic continuance under Section 184(7).

Conclusion:

The court concluded that the Act does not contemplate the making of an order for the continuance of registration under Section 184(7), which can be revised by the Commissioner under Section 263. Consequently, the first question was answered in the affirmative, favoring the assessee, and the second question was deemed academic and left unanswered. The assessee was entitled to costs assessed at Rs. 250.