1978 (12) TMI 11 - HC - Income Tax

Summary

Issues Involved:
1. Merger of the order granting registration with the appellate order.
2. Jurisdiction of the Commissioner to cancel the order of the Income-tax Officer (ITO) granting continuation of registration as erroneous and prejudicial to the interests of the revenue.

Detailed Analysis:

Issue 1: Merger of the Order Granting Registration with the Appellate Order

The assessee contended that the order of the ITO granting registration merged with the appellate order, thus falling outside the revisional jurisdiction of the Commissioner. The court examined whether an order granting registration is part of the assessment order.

Under the Income-tax Act, a firm is an assessee whether registered or not. Registration affects the procedure for determining and collecting tax but does not impact the computation of taxable income. The Supreme Court in CIT v. Amritlal Bhogilal & Co. [1958] 34 ITR 130, clarified that the order granting registration is independent and separate from the assessment order.

The court emphasized that the powers of the Appellate Assistant Commissioner (AAC) are confined to matters specifically appealable under section 30(1) of the Act. The AAC cannot entertain appeals against orders granting registration, as no such appeal is provided for under the Act. The Supreme Court's decision in Amritlal Bhogilal's case established that the order of registration does not merge with the appellate order of assessment.

The court distinguished the present case from J. K. Synthetics Ltd. v. Addl. CIT [1976] 105 ITR 344, where the scope of appeal against an assessment order was considered, but the issue of registration was not addressed. The court also noted that a circular by the Board of Direct Taxes in 1969 clarified that in Uttar Pradesh, a fresh instrument of partnership was required when a minor attains majority.

For the assessment year 1969-70, the Commissioner passed the order cancelling registration while the appeal against the assessment order was pending. The Supreme Court in Amritlal Bhogilal's case held that the pendency of an appeal does not suspend the operation of the order under appeal. Thus, the Commissioner could validly interfere with the ITO's order.

The court concluded that the order allowing continuance of registration does not merge with the appellate order passed in an appeal against the assessment order.

Issue 2: Jurisdiction of the Commissioner to Cancel the Order of the ITO

The Tribunal upheld the Commissioner's jurisdiction to cancel the ITO's order granting registration as erroneous and prejudicial to the interests of the revenue. The court examined whether an erroneous grant of registration could be considered prejudicial to the interests of the revenue.

In Addl. CIT v. Saraya Distillery [1978] 115 ITR 34, the court agreed with the Calcutta High Court's interpretation that orders prejudicial to the interests of the revenue are those not in accordance with law, resulting in a failure to realize lawful revenue. If the ITO's error leads to a reduction in the tax payable by the assessee, it is prejudicial to the revenue.

The Supreme Court in Amritlal Bhogilal's case supported the Commissioner's revisional powers in cases where the ITO erroneously grants registration, as it affects the revenue by reducing the tax liability.

The court answered both questions of law in favor of the department and against the assessee, affirming the Commissioner's jurisdiction to cancel the ITO's order and the non-merger of the registration order with the appellate order. The Commissioner was awarded costs of Rs. 200.